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
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.