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Federal Stafford loans


Federal Stafford loans are included right in your financial aid award letter. The Stafford loan comes in two flavors: Federal Family Education Loan Program (FFELP) and William D. Ford Direct Loans. What's the difference? FFELP loans are Stafford loans that are borrowed through banks and guaranteed by the states or their designated guarantee agency. Direct Loans are Stafford loans that are borrowed and guaranteed "directly" through the federal government. Your school can tell you with which program they participate. Regardless, they are one and the same. A Stafford loan is a Stafford loan. Freshman can borrow $2,625, Sophomores $3,500, Juniors or Seniors $5,500 and Graduate students $18,500. You can not borrow more than your cost of attendance minus any other financial aid. If you don't know who to choose for your Stafford loan lender, I suggest visiting eStudentLoan. They provide an excellent list of lenders ready to meet your Stafford borrowing needs.
The Stafford loan (be it a FFELP or Direct Loan) is a variable interest rate loan that has a cap on the interest rate of 8.25%. The interest rate changes annually and is calculated by taking the bond equivalent rate of the last auction of the 91 day Treasury Bill in May and adding 1.7% (2.3% in repayment).

Repayment begins on these loans six months after you no longer are attending on at least a half time basis. The six months before repayment is called the grace period.

Stafford loans can be Subsidized, Unsubsidized or a combination of both. Students receiving Subsidized Stafford loans pay no interest on the loan while they are attending college on at least a half-time basis. During the in-school and grace period, the federal government pays the interest for you. Borrowers of Unsubsidized Stafford loans are responsible for the interest during the in-school and grace periods. You can either pay the interest on a quarterly basis or allow the interest to accrue. If you choose to allow the interest to accrue, the interest will be added to the principal and will compound over time. In effect, interest will be paid on interest and principal and so forth.

If you have never borrowed a Stafford loan, you will receive detailed information regarding your Stafford loans when you attend your entrance interview. The entrance interview is a mandatory one-time session where the school will explain to you your rights and responsibilities relevant to your loans.

If you borrow through the FFELP program, you will have to choose a lender. The vast majority of banking institutions participate in the program so, you may even be able to use the bank you have your other accounts through as your lender. However, many schools prefer you borrow through lenders they have established working relationships with and may also suggest you use the guarantee agency used by the state they are located in.

Federal Perkins loans

Federal Perkins loans are great! How do you get one? Well, that in a moment. Here are the stats. The Perkins Loan carries a 5% fixed interest rate and repayment doesn't begin until 9 months after the student graduates or drops below half-time attendance (6 credit hours). Once in repayment, the standard term is 120 months.
So, how do I get a Perkins Loan? The school you attend is allocated funding for the Perkins Loan by the government who leaves it up to the school to determines your eligibility. Eligibility for Perkins is determined as a part of constructing your financial aid award letter. The maximum loan you may receive is $3,000. Schools generally reserve Perkins funding for those students with the most financial need. However, typically, Perkins loans are more commonly given in the $1,000 to $1,500 range.

Many schools give Perkins for the first two years of study to augment your ability to borrow. This is because the maximum Stafford loan a student can take as a freshman is $2,625 and, as a sophomore, $3,500. Perkins funding can be renewed through the junior and senior years of study (in fact some graduate students may receive Perkins), but due to the limited availability of funding for this program, it is not likely for a student to receive it after the sophomore year. It isn't all bad, though because in the junior and senior years, the maximum Stafford loan jumps to $5,500.