When borrowing funds to pay for your education, federal loans offer a low-cost loan alternative with favorable repayment options, making them an attractive place to start. Both Federal Stafford Loans and Federal Perkins Loans are available to undergraduate and graduate students. Federal Stafford loans are available in subsidized and unsubsidized funds.
Subsidized Stafford Loan
If you demonstrate financial need, you can borrow a Subsidized Stafford Loan to cover some or all of that need. For a subsidized loan, the U.S. Department of Education pays the interest while you’re in school at least half time, for the first six months after you leave school, and during periods of deferment (when you are eligible to delay payments for qualifying reasons).
Unsubsidized Stafford Loan
An Unsubsidized Stafford Loan is not based on financial need. With this type of loan, you are responsible for paying interest on the loan from the time the loan is disbursed until it’s paid in full. You can pay the interest as you go along. Or, you can allow the interest to accrue (accumulate) — for example, while you’re in school — and have the interest added to the principal amount of your loan later. This means the interest will be “capitalized.” Keep in mind that if interest accumulates, the total amount you repay will be higher than if you paid the interest all along.
To apply for a subsidized or unsubsidized Stafford Loan, you must submit your Free Application for Federal Student Aid (FAFSA). While the unsubsidized Stafford Loan is available to all students regardless of financial need, a FAFSA must be submitted for eligibility.
Federal Perkins Loans
A Federal Perkins Loans is another low-interest loan available to undergraduate or graduate students. This campus-based loan uses government funds with a share contributed by the school.Your school will determine your eligibility for and the amount of your Federal Perkins Loan and payment is made back to the school.
To apply for this loan program, you must complete a Free Application for Federal Student Aid (FAFSA).
Federal PLUS Loan
For parents of dependent undergraduate students, the Federal Parent Loan for Undergraduate Students offers an attractive low-interest alternative to help pay for their children’s education. A PLUS loan allows for parents to borrow up to the full cost of education minus any financial aid received.
Banks, credit unions and savings and loan institutions offer this type of loan, so parents should speak to such lenders and compare rates, repayment options, service and convenience. Additionally, interest on student loans is tax deductible, so parents should also consult with their tax advisor.