FAFSA Student Loans | Perkins Loans | Stafford Loans

Because college tuition and related educational costs are expensive, many students and their families rely on loans to help finance their educations. Generally, there are two types of education loans: Federal Education Loans (those that are funded and/or guaranteed or insured by the federal government) and Private Education/Alternative Loans (non-federal loans funded by banks and other lending institutions).

Education loans can be a useful resource in helping to finance your education. However, it’s important to note that by accepting a loan, you will be entering into a binding agreement to repay monies borrowed plus any applicable interest that may accrue (although most allow you to defer repayment until after you graduate). Defaulting on a loan can negatively affect your credit and may have other serious financial consequences. Therefore, when borrowing, be sure to carefully read and understand the Master Promissory Note (MPN), which outlines the loan terms and conditions, and borrow only what you need and can reasonably afford to repay.

Federal Student Loans

Federal Stafford and PLUS loans are issued through two federal programs administered by the Department of Education: the William D. Ford Federal Direct Loan Program (DLP) and the Federal Family Education Loan Program (FFELP).

If your school participates in the DLP, students and parents borrow directly from the federal government. If your school participates in the FFELP, students and parents borrow from private lenders (such as banks and other lending institutions), and the loan is guaranteed by state agencies and insured by the federal government.

	Federal Subsidized Stafford Loans: These feature a low, fixed interest rate of 5.6% (for loans disbursed after July 1, 2009). Awarded based on need, the federal government pays the interest that accrues on these loans while you are in school, during the 6-month grace period once you leave school, and during periods of deferment.
	Federal Unsubsidized Stafford Loans: These feature a low, fixed interest rate of 6.8% (for loans disbursed after July 1, 2009). These loans are not awarded based on need, and the student is responsible for paying the interest that accrues. The interest may be paid while the student is in school, or it may be capitalized and added to the principal loan amount to be paid later.
	Parent Loans for Undergraduate Students (PLUS): Guaranteed by the government, these loans feature a low, fixed interest rate between 7.9% and 8.5% (for loans disbursed after July 1, 2009). Not awarded based on need, PLUS loans allow parents to borrow up to the full cost of their child’s tuition and related educational expenses, less any federal aid the student may receive.
	Federal Perkins Loans: These feature a low, fixed interest rate of 5%. Subsidized and awarded based on need, these loans are administered through schools by the Department of Education. The federal government pays the interest that accrues while you are in school, during the 9-month grace period once you leave school, and during periods of deferment. In addition, Perkins loans offer a variety of deferment and loan forgiveness options.
	Work-Study Programs: These are not loans, but are programs funded by state and federal governments that allow students to work for an authorized work-study employer, typically on-campus, during the academic school year in exchange for funding used to offset the cost of tuition and other education-related expenses.

Private Education and Alternative Loans

Commonly referred to as “alternative” loans, these are credit-based, variable-interest-rate loans offered by banks and other private lenders that you and/or your family may use to help pay for up to the full cost of your tuition and related educational expenses (computer, books, lab fees, supplies, transportation, living expenses, etc.), less any other aid you may receive. They are not need-based, and you do not have to submit a FAFSA to apply.

Private Education loans may be taken out alone or as a supplement to other financial aid. When considering a private education loan, you may want to “shop around” for a lender that offers the best interest rate, repayment terms and deferment options, as well as the lowest fees.