College and Student Loans

At some point in your academic career, especially if you're attending a private college or university, you'll probably think about taking out a federal student loan to help meet your college costs, or your parents may consider taking one out to help contribute to your education. Government loans can be an integral part of a complete student aid package, and many students would not be able to afford college without them. Of course, loans should probably be your last option, taken advantage of only after you've exhausted all your grant and scholarship resources and find yourself still falling short of what you need to pay for school. In fact, some federal loans will only be given to those students who demonstrate a financial need. But interest rates on these loans are very low; they're much better than taking out a conventional loan from a bank.

There are different kinds of federal student loans, but one thing most of them have in common is that borrowers must maintain at least half time student status while using the money. If for some reason your course load falls under half of a full time load, you will have to begin repaying the money immediately.

One program is the Perkins Loan, which is based on financial need. Under this program, undergraduates may borrow up to $4000 per academic year, up to $20,000 total. Graduate students may borrow up to $6000 per year, with a cap of $40,000, which includes any loans taken out as an undergraduate. The money is borrowed directly from the school, and repaid to the school. Repayment begins six months after graduation, and you make take up to 10 years to repay. Perkins loan recipients are not required to maintain half time status.

Another program is the Federal Stafford Loan. You don't have to prove financial need to qualify for this program. This is also known as the Federal Family Education Loan, or FFEL Stafford Loan. All these names refer to the same loan program. The FFEL loans are either subsidized or unsubsidized. Subsidized loans means the federal government pays the interest while you're in college, and for six months after you graduate. For unsubsidized loans, the borrower becomes liable for the interest immediately upon taking out the loan. Interest payments can be made while you're in school, or you may choose to defer them until you graduate and begin paying off the principal.

Under the FFEL Stafford Loan students who are dependents of their parents may borrow up to $23,000 over the course of their education. The amounts per year vary, ranging from about $2600 the first year of college, up to $5500 the third and fourth years. Students who support themselves may borrow more-up to $46,000 over the course of their undergraduate study. Again, the amounts vary by school year, and the amounts are roughly double those that dependent students may borrow. Graduate students may also take out Stafford loans, and may borrow up to $18,500 per year, up to $138,500 including any undergraduate loans. Stafford loans are not made by the college, but by financial institutions like banks and credit unions, and you have between 10 and 25 years to repay, depending on how much you borrow.

There are also Direct Stafford Loans-the same rules apply as above, the only difference being that instead of borrowing the money from a bank or credit union, the money is borrowed directly from the US government.

Parents of dependent undergraduate students may take out loans to help their children get an education. These are called PLUS Loans, and the borrower must have good credit. PLUS loans can be used to cover the difference between the cost of a child's college, and the total of all other financial aid they receive. The rules for repayment of Stafford loans also apply to PLUS loans.

As you can see, understanding federal student loans doesn't have to be complicated. They can be an important part of paying for your college education, and knowing the differences between the different programs can help you in understanding your various options.

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