Federal Education Loans

Student loans are a valuable source of funding for young adults in college.  Loans are monies that need to be repaid later on, usually after graduating, by the borrower.  The federal government recognizes the importance of higher education and the financial burden it carries; therefore several education loans are available through the federal financial aid program.  To be eligible for these, students must file the FAFSA each year to help determine what they must pay themselves and also what amount of aid they will require.  Two common loans are the Stafford Loan and the Perkins Loan.

Perkins Loan
The Perkins Loan is available to students who demonstrate the highest levels of financial need (that is to say that they require more help in paying for school).  This is a federal loan; however, it is controlled by individual universities, as each year the federal government allocates funds to participating schools to distribute to students.  The Perkins Loan is subsidized, so the government pays the interest during a student’s college years.  It’s also a unique loan, in two ways: a very low interests rate (only 5%, which is fixed, so that percentage will never fluctuate) and a 9-month grace period prior to repayment (education loans usually carry a 6-month grace, which means that students have that length of time before they have to begin making monthly payments).

Depending on need, students may receive up to $5,500 per year for the Perkins Loan during their undergraduate tenure.  As of 2012, the maximum total loan amount (for all years of college) stands at $27,500.

Stafford Loan
The Stafford Loan takes two forms: subsidized (interest paid by government during school) or unsubsidized (interest paid by you during school or after degree completion).  Both loans have fixed interest rates and 6-month grace periods.  They do differ in a few ways, however.

The Subsidized Stafford Loan has a 4.29% interest rate and students are eligible for funds ranging between $3,500 and $5,500 per year, depending on one’s year of study.  Freshmen are eligible for $3,500, sophomores $4,500 and juniors and seniors may obtain up to $5,500.  It’s important to note that the subsidized version of the loan is based on a student’s financial need.

The Unsubsidized Stafford Loan carries with it an interest rate that is eqaul to that of its subsidized counterpart—4.29% - if you are an undergradate. The Unsubsidized Stafford Loan for Graduate Students has a heavier interest rate at 5.84%  Like the subsidized version, this loan carries different annual award maximums.  In the case of the unsubsidized loan, however, the borrower’s filing method/family status may affect the loan amount as well.  To understand this, ask yourself whether you will be applying for the loan as a dependent (financially tied to one’s parents) or as an independent (financially responsible for oneself). Unsubsidized loans for dependents remain constant at $2,000 per year maximum regardless of year of study.  The amount varies for this loan only when a student applies independently. Independent borrowers may receive up to $6,000 in their first and second years of undergraduate study and $7,000 during junior and senior years.

The total amount that individual students may borrow in Stafford funds is usually looked at together, adding both subsidized and unsubsidized loans.  During the whole of one’s undergraduate study, $31,000 can be borrowed by dependent students over the course of the years leading to degree completion.  As it stands, $23,000 of this may be subsidized student loan funds.  Carrying a heavier financial burden in life, independent students may borrow significantly more money via their Stafford Loans.  These students have the opportunity to borrow up to $57,500regardless of loan type.

Loans are important sources of financial aid for college.  Overall, it’s great to know that education loans are there to help you attain a degree and (hopefully) fulfill your long-term career aspirations.  It is important, though, to be prepared for the financial responsibility they carry.