What are the Major Federal Financial Aid Loan Programs?
There are three major financial aid borrowing programs to help finance college sponsored by the federal government making college more affordable.
- Stafford subsidized and unsubsidized,
Perkins Loans and the Exceptional Need Student
Perkins Loans apply to exceptional need students as defined by their expected family contribution (EFC) number. The loans are federally guaranteed, subsidized by the government, and carry low-interest rates.
These loans are available to both undergraduate students and graduate students.
Perkins loans differ from Stafford loans by the method funding distribution. The schools distribute the money not the federal government.
Each school receives a fixed amount of money. These loans are awarded on a first-come, first-served basis. They are based strictly on financial need as indicated above.
Similar to the Stafford Loan the Perkins Loans also carry a grace period for repayment.
Different from federal loans where the government is the lender, the school is the lender with Perkins loans. As such, not all schools participate with the Perkins Loan program.
Loan limits are as follows;
• Undergraduate $5,500 per year aggregate total of $27,500
• Graduate and/or professional school student up to $8,000 per year.
• Aggregate total for graduate students including undergraduate loans total $60,000.
The Student Loan Certainty Act of 2013 for College Education
On August 9, 2013 the Student Loan Certainty Act became law changing the way interest rates are calculated for the Stafford loans as well as the PLUS loans.
The new market based system ties the federal student loan interest rates to the 10-year Treasury note, plus an added amount.
For the current academic year (July 1, 2014 through June 30, 2015) current rates are with origination fee for all loans of 1.0073%;
- Undergraduate Stafford loan borrowers for both subsidized and unsubsidized loans 4.66%,
- Graduate Stafford loan borrowers for unsubsidized (subsidized not available) loans 6.21%,
- For Parents borrowing PLUS loans 7.21%.
Borrowing rates are determined each year on June 1 and are locked for the life of the loan. Interest rates are capped.
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Stafford loans issued on or after July 1, 2006 through June 30, 2013 are fixed as follows:
- 6.8% for subsidized loans issued July 1, 2006 through June 30, 2008
- 6.0% for subsidized loans issued July 1, 2008 through June 30, 2009
- 5.6% for subsidized loans issued July 1, 2009 through June 30, 2010
- 4.5% for subsidized loans issued July 1, 2010 through June 30, 2011
- 3.4% for subsidized loans issued July 1, 2011 through June 30, 2013
- 6.8% for unsubsidized loans
The federal government pays the interest on subsidized Stafford Loans while the student is in school and during a six month grace period following graduation and during any deferment periods.
Students pay the interest on unsubsidized Stafford loans during these periods.
Strategy Alert: You can calculate your payment either on existing loan balances and/or loan amounts you are considering by visiting the Federal Repayment Estimator.
Eligibility for subsidized Stafford loans is based upon demonstrated financial need as calculated by the FAFSA financial aid form.
PLUS Loans for Parents
These loans are federally guaranteed, unsubsidized, and available to parents with relatively good credit histories who want to help pay for their dependent child’s undergraduate education.
GradPLUS loans are available to graduate and professional students.
PLUS loans are not based upon financial need. Borrowers only need to pass a credit check.
GradPLUS borrowers have a six-month grace period before repayment for these loans begin.
Loan Rates Effective for July 1, 2015 until July 1, 2016 (resets)
Loan Rate Cap Rate
Direct Subsidized Loan* 4.29% 8.25%
Direct Unsubsidized Loans** 4.29% 8.25
Direct Unsubsidized Loans 5.84% 9.50%
Direct Parent PLUS Loans 6.84% 10.50%
Direct Graduate PLUS Loans 6.84% 10.50%
* Annual loan limits apply, must show financial need.
** Annual loan limits apply, do not have to show financial need.
In order to be considered for an of the federal student loan programs you have to complete the Free Application for Federal Student Aid (FAFSA).