Government Financing Options For College

Wondering how you will pay for college? Before you max out credit cards or ask the bank for a loan, find out what the government has to offer!

The government offers several borrowing programs for college-bound students and their parents. Today’s post will cover the basics of three government loan programs: Stafford, PLUS and Perkins.

Stafford Loans are available directly from the government through the Direct Loan Program. If a school does not participate in the Direct Loan Program, the funds are lent to students from a bank or other lender that participates in the Federal Family Education Loan (FFEL) Program.

Unsubsidized loans are not need-based and students can borrow amounts starting at $5,500 for freshmen. The amount increases to $6,500 for sophomores and $7,500 for juniors and seniors. For a detailed chart of limits, visit FinAid.

Photo by eliazar, courtesy of flickr

Stafford loans are either subsidized or unsubsidized. For undergraduate students, subsidized loans are need-based and award from $3,500 to $5,500 depending on grade level.

Stafford loans rates were changed from variable to fixed in 2006. Beginning July 1, 2009, the interest rate on the unpaid balance of a subsidized loan is set at 5.6 percent, interest on unsubsidized Stafford Loans remains at 6.8 percent.

PLUS Direct and FFEL PLUS Loans aka Loans for Parents

Federal Direct PLUS Loans and FFEL PLUS Loans are for parents of dependent undergraduate students who are enrolled in school at least half time. PLUS Loans allow families can borrow up to the full cost of tuition, room and board less any other financial aid, grants or scholarships received.

Federal Direct PLUS Loans have a fixed rate of 7.9 percent. FFEL PLUS Loans have an interest rate of 8.5 percent. Prior to 2006, the government used variable rates. For more rate information visit, Student Aid on the Web.

Perkins Loans

The Perkins loan is known as the best student loan available. The Federal Perkins Loan Program is designed to help students with “exceptional financial need.” The school acts as the lender, however the loan is made with government money through the school’s financial aid office.

Perkins loans offer long-term, 5% interest loans. There is a 10-year repayment period allowed. Unlike the other loans, there are no origination fees.

Undergraduate students may borrow up to $5,500 a year with a maximum of $20,000 borrowed during undergraduate years.

The bottom line: Government loans offer better terms of repayment and interest rates than most private sources.

Tomorrow’s post: Grants and Scholarships

Sources: Sallie Mae, FinAid, Department of Education