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Federal Student Loans

The demand for federal student loans is expected to continue for several reasons: the inflationary costs of attending college, increased enrollment, and the declining power of grants to defray college costs. Unlike grants and work-study funds, however, federal loans are borrowed money the student must repay to the designated lender with accumulated interest. For this reason, scholarships, grants, and other forms of "gifting" provide a debt-free approach to financial aid in contrast with student federal loans. Please note that not all schools participate in federal student aid programs. Be sure to check with your school's financial aid office to determine whether your school is a participating member in such programs.

There are several types of federal student loans to choose from. You can compare them here. Federal Perkins Loans are offered to graduate and undergraduate students who can demonstrate financial need. Demonstration of financial need requires the completion of a separate application (the FAFSA). Eligibility for Perkins Loans requires part-time or full-time enrollment. Perkins Loans are low-interest, with maximum amounts of $4,000 for undergraduates and $6,000 for graduate students. The actual loan amount per recipient varies with demonstrated need, any other aid currently provided, and the availability of school funds.

The Federal Family Education Loan (FFEL Stafford Loans) is offered to graduate and undergraduate students. Stafford Loans must be repaid. Eligibility requires a minimum of part-time enrollment, but a statement of financial need is not required. The actual amount of the loan administered per recipient varies with grade level and dependency status. As with all federal loans, interest rates are applied to repayment of the loan. Interest rates often change annually. The recorded interest rate for an FFEL Stafford Loan in 2005-06 was 5.3%. Students have between 10 and 25 years to repay an FFEL to the participating bank, credit union, or private lender.

Direct Stafford Loans are administered in the same way as noted above. The only major distinction between an FFEL Stafford Loan and a Direct Stafford Loan is the designated lender. In this example, the lender is the U.S. Department of Education. Recipients of a Direct Stafford Loan have between 10 and 30 years to repay, depending upon the amount owed under the terms of the repayment plan selected.

If a Stafford Loan is an unsubsidized loan, the student is not responsible for paying interest while attending. If the loan is subsidized, the principle is deferred but the student is responsible for paying back the interest on the loan.

FFEL PLUS Loans are for parents of dependent undergraduates. PLUS Loans are unsubsidized, which means that the borrower is responsible for accrued interest. Eligibility requires part-time enrollment in a college or university. Parents must demonstrate a positive credit history. FFEL PLUS Loans are distributed on the basis of college costs minus any other form of federally provided aid. Interest rates on FFEL PLUS Loans change annually. The recorded interest rate for 2005-06 was 6.1% for loan repayment. As with FFEL Stafford Loans, FFEL PLUS Loans are repaid to the participating bank, credit union, or private lender.

Last Updated: 12/18/2015

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