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 LoanThe Perkins loan is a need-based loan made directly to the student; the student will be held responsible for this loan, not the parent.
Stafford LoanThe 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.