Federal Student Loans - Always Apply for Federal Loans First

Always apply for federal loans before applying for other private student loans. The federal government provides a number of loan programs intended to help students and parents finance the cost of education.¹ Most of these programs are not credit based and usually feature lower interest rates than private loans or credit cards. The federal education loan programs offer lower interest rates and more flexible repayment plans than most consumer loans, making them the first types of loans you should consider and apply for first

Qualification for federal student loans is dependent on financial need. Your student finance specialist will provide you access to the Free Application for Federal Student Aid (FAFSA) which will determine if you qualify for one of the following federal loans:

Perkins loans

The Perkins Loan is a subsidized loan, meaning the federal government pays the interest while you are in school on at least a half-time schedule, and for nine months after you leave school. The interest rate is only 5 percent, and there is a 10-year repayment period. The Perkins Loan is awarded to 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.

A Perkins Loan is limited to $4000 per award year.

Stafford loans

All Stafford loans are either subsidized (the government pays the interest while you're in school and for the first six months after you stop attending at least half time) or unsubsidized (you pay all the interest, which you can allow to accrue (accumulate) and have it added to the principle balance of you loan while you are in school at least half time). To receive a subsidized Stafford Loan, you must be able to demonstrate financial need.

Stafford loans have annual limits, based on a student’s dependency status and grade level. The loan is limited to the following amounts for a dependent undergraduate student whose parents are able to obtain a federal PLUS loan:

First year - $3,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized
Second year - $4,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized
Third, fourth and fifth year - $5,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized

A Stafford loan is limited to the following amounts for an independent undergraduate student or a dependent undergraduate student whose parents are unable to obtain PLUS loans due to adverse credit or other documented exceptional circumstances:

First year - $3,500 combined subsidized and/or unsubsidized, plus $6,000 additional unsubsidized
Second year - $4,500 combined subsidized and/or unsubsidized, plus $6,000 additional unsubsidized
Third year - $5,500 combined subsidized and/or unsubsidized, plus $7,000 additional unsubsidized

Stafford loans have fixed interest rates (3.4 to 4.5 as of early 2010 percent depending on when you start school)². Repayment begins six months after graduation or six months after your academic schedule falls below half-time status.

Graduate loans

Graduate students seeking a professional degree can receive up to $8500 in subsidized loan funds and $12,000 in unsubsidized loan funds per academic year.

Graduate students may also apply for Graduate PLUS Loans for up to the cost of attendance minus other estimated financial assistance.

PLUS loans (for parents)

A Federal Parent Loan for Undergraduate Students (PLUS) lets parents borrow money to cover any costs not already covered by their dependent student's financial aid package. PLUS loans have fixed interest rates (8.5% as of early 2010)². Repayment begins 60 days after the funds are disbursed with repayment terms of up to 10 years. If needed, there are special provisions to delay repayment until after the student graduates or his/her academic schedule falls below half-time status.

The parents, not the student, are responsible for the repayment of PLUS loans. If the student agrees to make payments on the PLUS loan, but fails to do so, the parents are held responsible.

Entrance and exit counseling for federal student loans

You must complete both entrance and exit counseling as a condition of receiving any federal loan awards. Information on these processes is available from your student finance specialist.

Federal student financial aid penalties for drug law violations

A conviction for any offense involving the possession or sale of illegal drugs, during a period of enrollment for which you receive Title IV federal student aid, may result in the loss of future financial aid eligibility. If you are convicted of possessing or selling drugs after you submit your Free Application for Federal Student Aid (FAFSA), you must notify your Financial Aid Administrator immediately.

If a student successfully completes a drug rehabilitation program, the student may regain federal student aid eligibility on the date the program is successfully completed. For further information, please contact 1-800-281-2978.

Repayment of your Federal Student Loans - Don't Default

If you are a federal student loan recipient, there are two key points to remember:

The interest you pay is lower than commercial/private bank rates because the federal government subsidizes the rate.
If you are a student borrower, you don’t have to begin repaying your Perkins or Stafford Loans until you leave school or become less than a half-time student.

As generous as these terms are, you shouldn’t forget that you have to repay your loans. Failure to do so will result in your loans being declared delinquent or in default. This will have a negative impact on your financial status and creditworthiness in the future.

Defaulting on your federal student loans can have serious consequences. Learn more about the risks and repayment options.

¹ Financial aid is available to those who qualify
²Rates subject to change at any time

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