Federal Loan Programs for Students

The William D. Ford Federal Direct Loan Program: Funded by the U.S. Department of Education, this is the largest federal student loan program. These loans may be:

  • subsidized: The government pays the loan interest while you attend school. In order to receive subsidized loans, undergraduates must show that they won’t be able to attend college without financial assistance.
  • unsubsidized: Interest is deferred while you’re enrolled in school and then later added to your loan balance. Undergraduate students, as well as graduate and doctoral students, don’t have to show that they need financial assistance.
  • PLUS loans: Given to both graduate and doctoral students as well as parents of undergraduates to pay for college costs not covered by other financial aid.

The Federal Perkins Loan Program: With this loan, the school is your lender. Not all schools offer Perkins Loans, so check with your school’s financial aid office. Here is a look at the important things you need to know about Perkins Loans:

  • Funds for Perkins Loans are limited; submit your Free Application for Federal Student Aid (FAFSA) early for consideration. FAFSA is available at fafsa.ed.gov starting Jan. 1.
  • The interest rate on Perkins Loans is five percent as of January 2015, and the interest is tax-deductible if you meet certain income requirements. The government pays some of this interest while you’re in school.
  • Undergraduates can receive up to $5,500 a year in Perkins Loans, with a maximum total of $27,500 borrowed as an undergraduate.
  • Graduate and professional students can receive up to $8,000 per year in Perkins Loans, but not more than a total of $60,000 cumulatively, including undergraduate loans.
  • You have nine months after you graduate, leave school or drop below half-time student status before you have to start repaying a Perkins Loan. You may be able to extend this timeframe if you’re an Active Duty servicemember.

Student Loans

Federal vs. Private Loans: Know the Difference

Federal loans can help cover many of the costs of getting a college education, but if you aren’t eligible or need additional financial help, private loans are an excellent additional resource. Here is a look at some of the differences between the two loan types:

Federal Loans Private Loans
Backed by the federal government Offered by lenders, like credit unions and banks
Fixed-interest rate May have the option of a fixed or variable rate
Low interest Interest rates are dependent on credit. Adding a co-signer may increase your chances of obtaining a lower rate. 
Can defer payments while attending school Usually require loan payments, often minimal, while attending school. Navy Federal Credit Union requires either $25 or interest-only payments while in school. Making some payments can reduce the overall cost of borrowing.
Can postpone or reduce payments during periods of financial hardship Ability to postpone or reduce payments during financial hardship varies by lender and may not be an option
Depending on loan, interest may not accrue while attending school Interest starts to accrue the day the lender provides the loan
Typically doesn’t require a credit check Requires a credit check
May have to prove financial need No need to prove financial need
No need for a co-signer Allows a co-signer to improve your chance for approval and qualify for a better rate
Loan forgiveness options for working in certain fields, such as teachers or government workers No loan forgiveness plan
Can combine multiple federal loans into a Direct Consolidation Loan Can refinance in the future with a consolidation loan, which may result in a lower rate
No prepayment penalty Many lenders charge low or no fees, and no prepayment penalty

Subsidized vs. Unsubsidized Loans

Federal loans may be subsidized, which means interest doesn’t accrue while you’re in school, or unsubsidized. Here is a look at some of the differences between the two loan types:

Subsidized Loans Unsubsidized Loans

Must prove financial need

Don’t have to prove financial need

Available to undergraduate students

Available to both undergraduate and graduate students

Government pays loan interest while you attend school, for a six-month grace period after you finish school and during periods of deferment

You’re responsible for all loan interest payments. You can choose to let interest accrue while you attend school, during the post-graduation grace period, and during periods of deferment, or you can make interest payments.

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