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If you’re beginning the task of applying for financial aid, or are still
puzzling over your FAFSA form, you may be confused as to what kind of loans and
grants are available from Uncle Same (as in the federal government, not your wacky
relative). Consider this quick reference page a crash course in Federal Government
Financial Aid 101.
Stafford Loans
Many students receive Stafford loans, which can be from the U.S. Government (called
a “Federal Direct Student Loan”) or from a private lender (called
a “Federal Family Education Loan”). Whether your loan is directly
from the government or from a government-backed bank depends on the school you
attend. In either case, the eligibility requirements and loan limits are the same:
If you’re a dependent undergraduate student, you can borrow $2,625 your
freshman year, $3,500 your sophomore year, and $5,500 for each remaining (full)
year of your program. Graduate students can borrow even more—up to $18,500
per year.
Additionally, Stafford loans come in two distinct flavors: Subsidized or unsubsidized.
Students with financial need may qualify for subsidized Stafford loans, which
do not charge interest while you are in school, in your six-month grace period
following graduation, or during deferment (such as if you later enroll in graduate
school). Students who don’t qualify for a subsidized Stafford loan can still
get the unsubsidized version, but interest will continue to accumulate while they
are in school, in their grace period, or in deferment.
Parent Loans for Undergraduate Students (PLUS Loans)
Unlike Stafford loans—in which students themselves assume the loan—PLUS
loans allow parents with acceptable credit histories to borrow educational funds
on behalf of their children (if their children are enrolled at least half-time).
PLUS loans are available both through the U.S. Government and through private
lenders, and the eligibility requirements and loan limits are about the same.
To be eligible, parents must be U.S, citizens, pass a credit check (although one
that is generally much less stringent than required for a home mortgage), and
not currently be in default of any of their existing loans. PLUS loans can cover
up to the amount of your tuition bill that is left after any other financial aid
has been subtracted from your total cost of attendance. (For example, if your
college costs total $10,000 and you receive $6,000 in financial aid, you could
assume a PLUS loan of $4,000.) PLUS loan payments are sent directly to your college,
and unlike other federal loans, your parents must begin paying both the interest
and the principal amount of the loan while you’re still in school.
Federal Pell Grants
Unlike a loan, Federal Pell Grants do not have to be repaid (woo-hoo!). Students
with a very high level of financial need qualify for this type of aid, which is
awarded only to undergraduate students. Pell Grant award amounts can vary depending
on the availability of funds and also your tuition costs, with a maximum award
of $4,000 per year. To qualify for a Pell Grant, it makes no difference if you’re
enrolled full-time or half-time…you’re still eligible. You can thank
Senator Claiborne Pell for this one.
Federal Perkins Loans
Perkins Loans are low-interest loans awarded through your university with government
funds. Because funds for this program are partially derived from prior loan repayments,
schools with low student default rates usually have the most Perkins loans available.
Undergraduate and graduate students with financial need are eligible for the loans,
which award varying amounts to students based on their individual need. Undergraduates
can borrow up to $4,000 per year while graduate students can borrow up to $6,000.
The payments will be made to you directly, or as a credit to your account. The
interest rate on Federal Perkins loans is fixed at 5 percent, and interest doesn’t
accrue while you are in school.
Federal Work Study
The purpose of the Federal Work Study program is two-fold: It provides paying
jobs for students with financial need and also encourages work ethic and community
service. Jobs can be either on or off campus, and students who qualify for work-study
are paid at least minimum wage (possibly more depending on the job). The typical
work-study component of a financial aid package is worth about $1,500—equal
to a $6-an-hour job for eight hours a week during the school year. The school
will pay you at least once a month, and the check will be paid to you personally.
You can always turn down a work-study job if you feel you can earn more by finding
your own employment opportunities.
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