Types of Student Loans

Federal loans are your best bet because they are often subsidized by the government this means that interest will not accrue while you are still in school. They can be locked once you do graduate, at lower interest rates and they offer much more flexibility in terms of repaying the loan.

Loans for Students:

Stafford loan: There are two types of Stafford Loans. These loans are financed through a private lender. They can usually be found at a bank or credit union ("FFELP loans"), and those financed directly through the U.S. government ("Direct loans"). Stafford loans are given either “subsidized” by which the government will pay the interest while you're in school or “unsubsidized” where you are responsible for interest payments while in school, though you should be able to defer these until graduation. To receive subsidized loans, students must be able demonstrate financial need. Generally, the breakdown according to FinAid.org is: "About 2/3 of subsidized Stafford loans are awarded to students with family AGI of under $50,000, 1/4 to students with family AGI of $50,000 to $100,000, and a little less than 10% to students with family AGI over $100,000." Any student is eligible for unsubsidized Stafford loans. ("AGI" stands for "Adjusted Gross Income" and is your family's annual gross income minus any exemptions allowed by the government when filing your federal income tax return.) How much can you borrow with a Stafford loan: Stafford Loans allow dependent undergraduates to borrow up to $3,500 their freshman year, $4,500 their sophomore year and $5,500 for subsequent years. Graduate students can borrow $20,500 per year, although only $8,500 of that is subsidized. You are responsible for the interest generated on the remaining $12,000. There are also lifetime limits of $23,000 for an undergraduate education and a $65,500 combined limit for undergraduate and graduate.

Perkins loan: This loan is one of the most highly recommended loans because you lock in a 5% interest rate and schools pay the interest while you're in school. The repayment term is up to 10 years. Undergraduate students can receive up to $4,000 per year and graduate students can get up to $6,000. The cumulative limits are $20,000 for undergraduate loans and $40,000 for undergraduate and graduate loans combined. Students receive Perkins loans based on financial need, and the loans will come directly from their schools.

Loans for Parents:

PLUS loan: The Parent Loan for Undergraduate Students, or PLUS, allows parents to borrow from the federal government to pay for their children's educations. Graduate students are also now allowed to take out PLUS loans for their continuing education. So if you are a parent, you need to refer to the PLUS loan as the "Parent PLUS" as opposed to the “Grad PLUS.”Use FinAid.org's comparison chart to see the differences between Stafford and PLUS loans and what you will owe on both over time. PLUS Loans have a fixed interest rate of 8.5%. They are unsubsidized, meaning you are responsible to make interest payments. PLUS loans also charge fees of 4%, deducted from each disbursement check.