Federal Student Loans

Federal student loans are guaranteed and regulated by the U.S. government and have fixed interest rates that are lower than most private student loans. Unlike private student loans, most federal student loans do not require a credit check. Private student loans are not subsidized by the government, and therefore are not regulated as closely. They may have variable interest rates and fees that are based on the credit profile of the borrower and the borrower’s co-signer. Borrowers should always maximize their federal loan options before using private loans.

You have many options when it comes to student loans for higher education. A few things to keep in mind:

• Fill out the Free Application for Federal Student Aid (or FAFSA). Without it, you won’t have access to federal student loans – many of which are not based on need or your income.
• Always use federal loans first, such as the Perkins, Stafford, and PLUS loans. They carry lower, fixed interest rates and often have more favorable terms than private (or alternative) loans.
• If you need to use private loans, consider all of the costs. Private loans can have origination fees, different ways of compounding interest, and higher interest rates or APRs.
• Know your credit score. The lower your score, the higher your rate will likely be on a private loan. Most student borrowers will need a credit-worthy co-signer to be approved for a private student loan. Most private loans have variable interest rates (meaning they will fluctuate over time), while government-backed (or federal) loans have fixed interest rates and more lenient repayment terms.

Investigate your loan options carefully by considering the following:

• Total cost of the loan (after all of the interest and fees are taken into account)
• APR or annual percentage rate
• Borrower benefits (such as cash back or interest rate reductions for making on-time payments)
• Monthly payment
• Deferment options

It depends on the type of federal student loan. Here are the 2009-10 borrowing limits for the most common types of federal student loans by year.

Freshman:

• Stafford - Dependent Students: $5,500
• Stafford - Independent Students: $9,500
• Perkins: $4,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Sophomore:

• Stafford - Dependent Students: $6,500
• Stafford - Independent Students: $10,500
• Perkins: $4,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Junior/Senior:

• Stafford - Dependent Students: $7,500
• Stafford - Independent Students: $12,500
• Perkins: $4,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Undergraduate Cumulative Limit:

• Stafford - Dependent Students: $23,000
• Stafford - Independent Students: $23,000
• Perkins: $20,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Graduate Students**:

• Stafford - Dependent Students: $20,500*
• Stafford - Independent Students: $20,500*
• Perkins: $6,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Cumulative Limit (Undergraduate + Graduate):

• Stafford - Dependent Students: $65,500
• Stafford - Independent Students: $65,500
• Perkins: $40,000
• PLUS and Graduate PLUS: Up to the total cost of attendance, less aid received

Note: These limits are based on a full academic year and your qualifications as a full or part-time student.

* Only $8,500 of this amount can be subsidized

**Higher Stafford loan amounts are available to students in many graduate medical programs.

The amount of money you can borrow depends on your year in school and whether you are classified as an independent or dependent student. 2009-10 borrowing limits are listed below:

Note: These limits are based on a full academic year and your qualifications as a full or part-time student. Rates are effective as of July 1, 2009.
* Higher Stafford loan limits are available to students in some graduate medical programs.

The Parent Loan for Undergraduate Students, or PLUS, is a low-interest federally backed loan that parents can take out on behalf of their undergraduate children to pay for educational costs.