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Student Loans

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Many students rely on federal government loans to finance their educations. These loans have low interest rates and do not require credit checks or collateral. Student loans also provide a variety of deferment options and extended repayment terms. Student loans include the Federal Stafford and Federal Perkins Loans.

Stafford Loan

The main federal loan for students is called the Stafford Loan and has two variations:

  • Federal Family Education Loan Program (FFELP) loans are provided by private lenders, such as banks, credit unions and savings & loan associations. These loans are guaranteed against default by the federal government.
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  • Federal Direct Student Loan Program (FDSLP) loans or "Direct Loans", administered by "Direct Lending Schools", are provided by the US government directly to students and their parents.

All Stafford Loans are either subsidized (the government pays the interest while you're in school) or unsubsidized (you pay all the interest, although you can have the payments deferred until after graduation). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need. About 2/3 of subsidized Stafford loans are awarded to students with family AGI of under $50,000, 1/4 to students with family AGI of $50,000 to $100,000, and a little less than 10% to students with family AGI over $100,000.

With the unsubsidized Stafford loan, you can defer the payments until after graduation by capitalizing the interest. This adds the interest payments to the loan balance, increasing the size and cost of the loan. All students, regardless of need, are eligible for the unsubsidized Stafford Loan.

Repayment begins six months after the student graduates or drops below half-time enrollment. The standard repayment term is 10 years, although one can get access to alternate repayment terms (extended, graduated and income contingent repayment) by consolidating the loans.

Stafford Loan Limits

The following chart illustrates the annual and aggregate loan limits for the subsidized and unsubsidized Stafford loans first disbursed on or after July 1, 2008.

The limits may be a little confusing because there are two sets of limits for the Stafford loan: a combined base limit for the subsidized and unsubsidized Stafford loan, and an additional limit for just the unsubsidized Stafford loan. In effect, the subsidized Stafford loan is limited to the amounts in the "Combined Base Limit" column and the unsubsidized Stafford loan is limited to the amounts in the "Total Limit" column minus the amount of any subsidized Stafford loans.

Many students combine subsidized loans with unsubsidized loans to borrow the maximum amount permitted each year.

Note also that there are separate limits for dependent undergraduate students, independent undergraduate students, graduate and professional students, and medical school students. Dependent undergraduate students whose parents have been denied a Parent PLUS loan are eligible for the higher unsubsidized Stafford loan limits available to independent undergraduate students.

Annual Loan Limits - Stafford Loan
Dependent Students
(whose parents were not denied a PLUS loan)
Combined Base Limit for Subsidized and Unsubsidized Loans Additional Limit for Unsubsidized Loans Total Limit for Unsubsidized Loans (minus subsidized amounts)
First-Year Undergraduate (Freshman) $3,500 $2,000 $5,500
Second-Year Undergraduate (Sophomore) $4,500 $2,000 $6,500
Third-Year and Beyond Undergraduate (Junior, Senior) $5,500 $2,000 $7,500
Preparatory Coursework (for enrollment in an undergraduate program) $2,625 $0 $2,625
Preparatory Coursework (for enrollment in a graduate or professional program) $5,500 $0 $5,500
Teacher Certification Coursework $5,500 $0 $5,500
Independent Students
(and dependent students whose parents were denied a PLUS loan)
Combined Base Limit for Subsidized and Unsubsidized Loans Additional Limit for Unsubsidized Loans Total Limit for Unsubsidized Loans (minus subsidized amounts)
First-Year Undergraduate (Freshman) $3,500 $6,000 $9,500
Second-Year Undergraduate (Sophomore) $4,500 $6,000 $10,500
Third-Year and Beyond Undergraduate (Junior, Senior) $5,500 $7,000 $12,500
Preparatory Coursework (for enrollment in an undergraduate program) $2,625 $6,000 $8,625
Preparatory Coursework (for enrollment in a graduate or professional program) $5,500 $7,000 $12,500
Teacher Certification Coursework $5,500 $7,000 $12,500
Graduate and Professional Students Combined Base Limit for Subsidized and Unsubsidized Loans Additional Limit for Unsubsidized Loans Total Limit for Unsubsidized Loans (minus subsidized amounts)
Graduate and Professional Students $8,500 $12,000 $20,500
Medical School Students $8,500 $32,000 $40,500

Aggregate Loan Limits - Stafford Loan
  Combined Base Limit for Subsidized and Unsubsidized Loans Additional Limit for Unsubsidized Loans Total Limit for Unsubsidized Loans (minus subsidized amounts)
Dependent Undergraduate Students (whose parents were not denied a PLUS loan) $23,000 $8,000 $31,000
Independent Undergraduate Students (and dependent students whose parents were denied a PLUS loan) $23,000 $34,500 $57,500
Graduate and Professional Students $65,500
(including undergraduate Stafford loans)
$73,000 $138,500
Medical School Students
(Effective 4/18/08 per DCL GEN-08-04)
$65,500
(including undergraduate Stafford loans)
$158,500 $224,000

Previous Stafford Loan limits can be seen on the historical loan limits page.

Stafford Loan Interest Rates and Fees

Stafford Loans have a fixed interest rate of 6.8% for loans with a first disbursement after July 1, 2006. (Previously, Stafford Loans had variable interest rates (based on 91-day T-bill rate + 1.7% during school with an additional 0.6% increase upon graduation) capped at 8.25% or less, depending on yearly adjustments.) All lenders offer the same rate for the Stafford Loan, although some give discounts for on-time and electronic payment.

The College Cost Reduction and Access Act of 2007 reduced the interest rates on subsidized Stafford loans for undergraduate students starting July 1, 2008. These reductions are available only to undergraduate students, not graduate students, and only for subsidized Stafford loans, not unsubsidized Stafford loans. The interest rates are illustrated in the following table.

Phased-in Cuts in Interest Rates on
Subsidized Stafford Loans for Undergraduate Students
Year Interest Rate
Subsidized Stafford Loans
(Undergraduate Students)
Interest Rate
Other Stafford Loans
(Graduate or Unsubsidized)
2007-08 6.8% 6.8%
2008-09 6.0% 6.8%
2009-10 5.6% 6.8%
2010-11 4.5% 6.8%
2011-12 3.4% 6.8%
2012-13 6.8% 6.8%

Stafford Loans have loan fees of 4%, which are deducted from the disbursement check. These fees consist of a 3% origination fee and a 1% default fee (previously "guarantee fee"). Starting July 1, 2006, the default fee will be mandatory. (Previously, guarantee agencies could waive the fee and many did.) The origination fee will drop from 3% to 2% on July 1, 2006, and will drop by a further 0.5% each successive July 1, until it is phased out entirely on July 1, 2010.

Applying for a Stafford Loan

To apply for a Stafford Loan, you must submit the Free Application for Federal Student Aid (FAFSA). Even though the unsubsidized Stafford Loan is available to all students regardless of financial need, you must still submit the FAFSA to be eligible. You can receive a subsidized loan and an unsubsidized loan for the same period.

You may use the Lender Codes Database to obtain the lender codes of participating student loan providers. FinAid also maintains a list of education lenders who offer federal and private student loans. If you are a student attending a school that participates in the Federal Direct Student Loan Program you will obtain your federal student loan funds directly from the U.S. government, not from private lenders.

Perkins Loan

The Perkins Loan is awarded to undergraduate and graduate students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government. (The Perkins Loan is the best student loan available. It is a subsidized loan, with the interest being paid by the federal government during the in-school and 9-month grace periods. There are no origination or default fees, and the interest rate is 5%. There is a 10-year repayment period.

The amount of Perkins Loan you receive is determined by your school's financial aid office. The program limits are $5,500 per year for undergraduate students and $8,000 per year for graduate students, with cumulative limits of $27,500 for undergraduate loans and $60,000 for undergraduate and graduate loans combined.

The Perkins Loan also offers better cancellation provisions than the Stafford or PLUS loans. See the section on loan forgiveness for more details.

Other Student Loans

If your borrowing needs are not met by the federal programs, lenders offer a variety of supplemental borrowing programs known as Private or Alternative Loans.

Parents of undergraduate students can borrow parent loans such as the PLUS Loan to pay for their children's education. Starting on July 1, 2006, graduate and professional students will also be able to borrow money through the PLUS Loan program to pay for their own education.

 

 
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