Federally Guaranteed Student Loan Programs

Student Loans for Everybody

There are three major student loan programs: Perkins Loans, Stafford Loans and PLUS Loans.

Perkins Loans are low-interest loans for both undergraduate and graduate students with exceptional financial need. The school is the lender and the student loan is made with government funds with a share contributed by the school. The loan is repaid to the school.

Stafford loans are low-interest student loans made to undergraduate and graduate students attending eligible schools at least half time. Expenses covered by these loans include tuition and fees, room and board, books and supplies, transportation, and living allowance.

There are two types of Stafford Loans:

A subsidized Stafford student loan is need based. The government pays the interest on the loan while you attend school at least half time and during authorized deferment and grace periods.

You eligibility for a subsidized student loan is determined by the information you submit on the Free Application for Federal Student Aid (FAFSA) form, which you have to submit at the beginning of each year in which you need aid.

A unsubsidized student loan is not based on need. If you don’t qualify for a subsidized loan, you do qualify for the unsubsidized version regardless of family income. Interest starts accruing as soon as you take out the loan.

You can pay the interest as it comes due or defer it until graduation. If you defer it, the interest is capitalized into the principal of the loan. Other than that, the terms of the subsidized and unsubsidized loans are the same.

Parent Loan for Undergraduate Studies (PLUS) Loans PLUS loans are low-interest federally funded education loans for credit-worthy parents of dependent students in undergraduate school. Parents are allowed to borrow up to the total cost of your education, minus any financial aid you receive. They are available regardless of income or assets, and no collateral is required.

Parents do not have to prove financial need, but they have to undergo a credit check. If the parents’ credit is bad, a co-signer will be needed. These student loans carry a low variable interest and eligibility is not based on income or assets.

Interest on PLUS loans begin to accrue with the first loan disbursement of the year, but repayment does not begin until 60 days after the final loan disbursement of that year. After that you have 10 years to repay without any prepayment penalties.

All of these loans have eligibility requirements that differ from program to program. In all cases, you have to be a US citizen or permanent resident to qualify.

Loan limits also vary, from $2650 - $5500 a year for Stafford Loans, depending on the year you are in college and your dependent status, to $4000 for Perkins Loans, to an unlimited amount for PLUS loans.

The amounts go up for graduate students, to $8500 for Stafford Loans and $6000 for Perkins Loans.

There are maximums which range from $20,000 to $65,000 for Perkins and Stafford loans, depending on how far you go in school.

For a chart with yearly and aggregate limits, plus current interest rates, click here.

There is one good bit of good news in all this. Starting in 2002 students were allowed to deduct from taxes student loan interest up to $2500 a year for the entire life of the loan. However, the break begins to phase out at $65,000 a year for single taxpayers and $130,000 a year for married ones.

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