Federal loans are a form of federal financial aid. Federal loans are designed to help cover the costs of obtaining an education that grants, scholarships, and family and student contributions can't cover. Since they are loans, federal loans have to be paid back with interest. Because federal loans are legally binding contracts, you should think carefully about, and plan for, your ability to pay them back before you commit to one.

Undergraduate Stafford Loans

Stafford Loans are federal student loans made available to college and university students to supplement personal and family resources, scholarships, grants, and work-study. Nearly all students are eligible to receive Stafford loans regardless of credit. Stafford loans may be subsidized by the U.S. Government or unsubsidized depending on the student's need.

Undergraduate Stafford Loan Benefits

- Low fixed interest rate, as low as 5.60%
- Increased borrowing limits - borrow $2,000 more
- No payments while enrolled in school
- Acceptance not based on credit

Undergraduate Stafford Loan Eligibility

You must be a U.S. citizen or national, a U.S. permanent resident, or eligible non-citizen accepted for enrollment or attending a school that participates in the Federal Family Education Loan Program. Additionally:
- You must have submitted a FAFSA to be eligible for a Stafford loan
- For subsidized Stafford, you must have financial need as determined by your school
- You must be enrolled or plan to enroll at least half time

Graduate Stafford Loans

Federal Graduate Stafford loans are fixed-rate student loans for graduate students attending a college or university at least half time. Stafford loans are the most common and one of the lowest-cost ways to pay for school. There are two different types of graduate federal student loans, the subsidized Stafford Loan and the unsubsidized Stafford Loan.

Subsidized Graduate Stafford Loans are awarded to graduate students based on financial need. You will not be charged interest before you begin repayment or during periods of deferment. The federal government "subsidizes" the interest during these times.

Unsubsidized Stafford Loans are not awarded based on financial needs. Any eligible graduate student can take out unsubsidized Stafford loans. You will be charged interest from the time the loan is disbursed, to the time the loan is repaid in full.

Graduate Stafford Loan Benefits

- Low fixed interest rate, as low as 6.8%.
- High borrowing limits.
- No payments while enrolled in school
- Acceptance not based on credit

Perkins Loan

The Federal Perkins Loan Program provides low-interest loans to help needy students finance the costs of postsecondary education. Students can receive Perkins loans at any one of approximately 1,800 participating postsecondary institutions. Institutional financial aid administrators at participating institutions have substantial flexibility in determining the amount of Perkins loans to award to students who are enrolled or accepted for enrollment. Borrowers who undertake certain public, military, or teaching service employment are eligible to have all or part of their loans canceled. In general, schools are reimbursed for 100 percent of the principal amount of the loan canceled, and the reimbursement must be reinvested in the school's revolving loan fund. These institutional reimbursements for loan cancellations are an entitlement.

Loan volume in the program comes from: (1) newly appropriated FCC contributions and loan cancellation payments; (2) an institutional matching contribution equaling at least one-third of the FCC contribution; and (3) school-level collections on prior-year student loans.

Financial need is determined by the U.S. Department of Education, using a standard formula, established by Congress, to evaluate the financial information reported by the student on the FAFSA. The information from the FAFSA then determines the student's expected family contribution (EFC). The fundamental elements in this standard formula are the student's income (and assets, if the student is independent), the parents' income and assets (if the student is dependent), the family's household size, and the number of family members (excluding parents) attending postsecondary institutions. The EFC is the sum of: (1) a percentage of net income (remaining income after subtracting allowances for basic living expenses) and (2) a percentage of net assets (assets remaining after subtracting an asset protection allowance). Different assessment rates and allowances are used for dependent students, independent students without dependents, and independent students with dependents. After filing a FAFSA, the student receives a Student Aid Report (SAR) or the institution receives an Institutional Student Information Record (ISIR), which provides the student's EFC.

Plus Loans

Parents can borrow a PLUS Loan to help pay your education expenses if you are a dependent undergraduate student enrolled at least half time in an eligible program at an eligible school. PLUS Loans are available through the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Your parents can get either loan, but not both, for you during the same enrollment period. They also must have an acceptable credit history.

For a Direct PLUS Loan, your parents must complete a Direct PLUS Loan application and promissory note, contained in a single form that you get from your schools financial aid office.

For a FFEL PLUS Loan, your parents must complete and submit a PLUS Loan application, available from your school, lender, or your state guaranty agency. After the school completes its portion of the application, it must be sent to a lender for evaluation.

Also, your parents generally will be required to pass a credit check. If your parents don't pass the credit check, they might still be able to receive a loan if someone, such as a relative or friend who is able to pass the credit check, agrees to endorse the loan. An endorser promises to repay the loan if your parents fail to do so. Your parents might also qualify for a loan without passing the credit check if they can demonstrate that extenuating circumstances exist. You and your parents must also meet other general eligibility requirements for federal student financial aid.

The yearly limit on a PLUS Loan is equal to your cost of attendance minus any other financial aid you receive. If your cost of attendance is $6,000, for example, and you receive $4,000 in other financial aid, your parents can borrow up to $2,000.