What are the major federal financial aid loan programs?


The three major federal financial aid loans under the Direct Loan program are the Direct Stafford Subsidized Loan, the Direct Stafford Unsubsidized Loan, and the Direct PLUS Loan.

Direct Stafford Loans are low-interest, federally guaranteed student loans. They can be either subsidized or unsubsidized; subsidized loans are available only to undergraduate students, while unsubsidized loans are available to both undergraduate and graduate students. With a subsidized loan, the federal government pays the interest that accumulates while you are in school, during any deferment periods, and for six months after you graduate, leave school, or reduce your course load to half-time. With an unsubsidized Stafford Loan, the borrower is responsible for the interest during these periods. Subsidized Stafford Loans are based on financial need.

The interest rate is fixed for the life of the loan and the rate on new loans is reset each June. For Direct Stafford Loans issued July 1, 2016 through June 30, 2017, the interest rate is 3.76% for undergraduate subsidized and unsubsidized loans (4.29% for 2015/2016) and 5.31% for graduate unsubsidized loans (5.84% for 2015/2016).

For dependent undergraduate students, the loan limits are $5,500 for freshmen (including up to $3,500 subsidized); $6,500 for sophomores (including up to $4,500 subsidized); and $7,500 for juniors and seniors (including up to $5,500 subsidized), with a maximum loan limit of $31,000. (Limits are higher for independent undergraduate students.)

For graduate students, the loan limits are generally $20,500 per year, with a maximum limit of $138,500, including undergraduate borrowing.

PLUS Loans are unsubsidized loans made to parents with good credit histories who want to help pay for their dependent child's undergraduate education (Parent PLUS Loans) or to graduate and professional students ( Grad PLUS Loans). Like unsubsidized Stafford Loans, PLUS Loans are not based on financial need, but borrowers must pass a credit check.

The interest rate is fixed for the life of the loan and the rate on new loans is reset each June. For PLUS Loans issued July 1, 2016 through June 30, 2017, the interest rate is 6.31% for both graduate and parent borrowers (6.84% for 2015/2016).

PLUS Loans have no dollar borrowing limits per year; graduate students and parents are able to borrow up to the full cost of attendance. Graduate borrowers who obtain Grad PLUS Loans have a six-month grace period before they must start repaying their loans. However, parents who obtain a Parent PLUS Loan have no grace period; once the funds are dispersed, parents must begin to repay the loan within 60 days of the last disbursement for that academic year.

In addition, the Perkins Loan is a lesser known federal student loan. It's a subsidized loan that is available to both undergraduate and graduate students with the lowest expected family contributions. It has a fixed interest rate of 5%. Perkins Loans differ from Stafford Loans in that the school, not the federal government, distributes the money to the students. Each school is given a finite amount of money to distribute among its students. These loans are awarded on a first-come, first-served basis and are based strictly on financial need.

If you want to be considered for any of the federal financial aid programs, you'll need to fill out a Free Application for Federal Student Aid, or FAFSA. FAFSA forms can be obtained online at the Department of Education's website, www.ed.gov. or at your high school or college.

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