Learn more about the types of government student loans available.
Government student loans are available to U.S. college students to help pay for college tuition and related education expenses. These federal loans are guaranteed by the government and are usually available at a lower interest rate and with more flexible repayment options than student loans from private lenders. Government loans include subsidized loans for which the student pays no interest while enrolled in school, and unsubsidized loans, for which interest accrues during school enrollment. Although there are different types of government student loans, the process begins with the student filling out a detailed form called the Free Application for Federal Student Aid (FAFSA).
To qualify for a subsidized loan, students must demonstrate financial need based on their parents' income or their own income, depending on who is responsible for tuition. Although the student is responsible for repaying the loan, no interest accrues during the period of school enrollment -- instead, the government pays the interest until the loan goes into repayment. The student is not required to begin repayment of the loan until six months after college graduation.
An unsubsidized loan is not based on financial need. Any U.S. college student can apply for an unsubsidized loan. According to the U.S. Department of Education Federal Student Aid office, like a subsidized loan, repayment on an unsubsidized loan does not begin until six months after graduation. But unlike a subsidized loan, the student is responsible for paying the interest, which can greatly increase the amount of payment.
Several different government loans are available to college students. Stafford loans can be subsidized or unsubsidized, so they are available to all students. For a Federal Family Education Loan (FFEL), the Stafford lender is either a bank or credit union, though the federal government guarantees the funds. The loan is repaid to the bank or credit union. For a Direct Stafford loan, the student borrows directly from the U.S. Department of Education, but the student's college administers the loan. The loan is repaid to the Department of Education. The amount a student can borrow depends on the year level in school. Though the amounts might change, in 2008, a freshman could borrow up to $5,500, while a junior could borrow up to $7,500.
Perkins loans, however, are reserved for students who can show definite financial need. The lender is the college the student is attending. For undergraduate school in 2008, a student could borrow up to $4,000, and up to $6,000 for graduate work.
Students do not need a co-signer for Stafford or Perkins loans.
Parent Loans for Undergraduate Students, commonly referred to as PLUS loans, are a type of low-interest federal loan available to parents of dependent students. These loans are similar to unsubsidized Stafford loans in that parents are not required to show financial need. However, parents must have a good credit history. The interest on PLUS loans is not subsidized. PLUS loans require no collateral and the interest is tax-deductible, according to Parent PLUS Loan Center. Students must be enrolled in classes at least half-time in order to qualify and there is no upper limit on the amount that can be borrowed.
Grad PLUS loans are fairly new. They are low-interest federal loans available to graduate students working toward an additional degree. Eligibility requirements are the same as those for the Parent PLUS loan, but no co-signer is required. In addition, graduate students receiving these loans can apply for payment deferment.
Filling out the FAFSA is the first step toward applying for government student loans. Even students who know for sure they do not qualify for interest-free loans should take the time to fill out the application and submit it, since many colleges use this information to give out financial waivers. The application deadline for the FAFSA is usually around July 1. However, each state has its own deadline, which frequently is earlier than the federal date. The student's college Web site should have this information in its financial aid section.
The FAFSA can be completed on paper or online. Students will need information such as total family income and assets and liabilities to complete the application. The federal government uses this information to determine the EFC, or Expected Family Contribution. This amount will be used to calculate the amount of federal dollars available to the student.
The U.S. Department of Education also offers help in predicting how much federal aid might go to an individual student with the FAFSA4caster. Families can use the FAFSA4caster before their child's senior year in high school. A shorter version of the FAFSA, the FAFSA4caster uses information about a family's income, assets and liabilities to see what aid might be in the student's future. In addition, when the student needs to complete the official FAFSA during his or her senior year of high school, it is simple to transfer the data they have already supplied. Knowing this financial information early can help in making college application choices.