Four Different Types of College Loans

Depending on the amount of the Expected Family Contribution (EFC), a part of the financial aid package will probably contain student loans. Most of these are based on need (such as the Perkins and the Stafford), but some aren't (such as the PLUS). In actuality, many more families qualify for federal loans than most people realize.

Perkins Loan

The Perkins loan is a need-based loan made directly to the student; the student will be held responsible for this loan, not the parent.
The amount of this loan is determined by each individual college after receiving the student's EFC from the FAFSA organization. The annual limit for the Perkins loan is $20,000. Repayment doesn't begin until after a student graduates, falls below half-time student status, or leaves college. After graduating, a student typically has a nine-month grace period where interest doesn't accrue. Perkins loans offer low interest rates to borrowers and can be repaid within ten years.

Stafford Loan

The subsidized Stafford loan, also called the Ford Federal Direct Loan, is a need-based loan made directly to the student. The amount of this loan is also determined by each individual college according to the student's EFC. The combined annual limit for both subsidized and unsubsidized Stafford loans starts at $2,625 for a student's first year of college, grows to $3,500 for the second year, and increases to $5,500 for the final two years of college. Repayment doesn't begin until after a student graduates, falls below half-time student status, or leaves college. After graduating, a student has a six month grace period where interest doesn't accrue on the account. Stafford loans have interest rates slightly higher that the Perkins loan, with the maximum interest rate at 8.25%, but can be repaid within twenty years.

The unsubsidized Stafford loan is a non-need-based loan made directly to the student. This type of loan is identical to the subsidized Stafford loan except for the fact that interest starts accruing immediately upon receipt of the loan proceeds. Payments for interest and principal can be deferred for six months after graduating or leaving college.

PLUS

The Parent Loans for Undergraduate Students is a non-need-based loan made to the parents of the student. This loan is made from the federal government and is processed much like a consumer loan. It is dependent upon the borrower's credit rating and does not have a stated maximum amount. Parents may borrow up to the annual cost of attending college, subtracting the amount of financial aid received. Repayment begins two months after the loan proceeds are dispersed and must be repaid within ten years. The maximum interest rate for the PLUS loan is 9%.
By InvestorGuide Staff

Copyrighted 2016. Content published with author's permission.

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