Government Student Loans
The federal government backs more student loans than any other lending source in the country.
If you need a loan to pay for your educational expenses, there are three types of government student loans you may want to consider:
1. Stafford Loans
The most common source of college loans is the Stafford Loan. There are two kinds of Stafford Loans: Subsidized loans, which are need-based; and unsubsidized loans, which are non-need based. With a subsidized loan, the interest starts accruing only once you leave school; for an unsubsidized Stafford Loan, the interest begins accruing as soon as you take out the loan. Both offer a grace period (the time between when you leave school and when you have to start paying back on your loan) for while you in college at least half-time and six months thereafter.
Both subsidized and unsubsidized Stafford Loans offer similar interest rates. The maximum amount that can be borrowed from Stafford Loans for your total undergraduate education is $46,000, of which only $23,000 can come from a subsidized loan. To qualify for either a subsidized or an unsubsidized Stafford Loan, you must complete the FAFSA (Free Application for Federal Student Aid).
2. Perkins Loans
A Perkins Loan features a 5% fixed interest rate and is available only to approved students with “exceptional” financial need. There are no fees associated with a Perkins Loan and it offers a longer grace period than the Stafford loan. The federal government allocates a certain amount of Perkins Loans to each American college and university, that in turn makes its own decisions about which its students to give them to.
To qualify for a Perkins Loan, you must complete the FAFSA (Free Application for Federal Student Aid).
3. Federal Parent PLUS Loans
The PLUS Loan is a federally backed, low interest rate loan available to parents of undergraduate students. For your parents to qualify, they must still claim you as a dependent on their annual tax returns. PLUS is a non need-based loan, which means parents do not need to prove financial need – nor do they have to provide collateral against the value of the loan (as some private loans require). Your parents can borrow the full cost of attending your school (COA) minus any other financial aid, including federal, state and private assistance. To qualify, your parents credit report will by run by the lending bank.