Federal Student Loans
When you’ve exhausted the options offered through scholarships and grants, federal student loans are a great next step, for many reasons.
There is no credit check or cosigner needed, because the government backs these federal student loans. The interest rates are great, you’re not required to make payments until months after you leave school (or you drop below half-time student), and you’ve got long repayment terms. In this section we’ll try to break down the different types of federal student loans that may be available to you.
Perkins Loans offer the Best Value for students with Exceptional Need
Perkins Loans offer the best interest rates of all federal student loans. Perkins Loans are currently being offered with an incredibly low fixed rate interest of 5%. They also offer a longer “grace period” – the period after you leave school during which you don’t have to make payments. Perkins Education Loans have a 9-month grace period, 3 months longer than what’s offered by Stafford Loans. And because Perkins federal student loans are subsidized by the Federal Government, interest charges don’t begin to accrue until after the borrower begins to repay the loan. Under normal circumstances, you have 10 years to repay your Perkins Loan.
Another amazing benefit offered through Perkins Loans is their eligibility for Federal Loan Cancellation. For example, if you’re planning on becoming a teacher, and will teach in a designated low-income school, you could have a portion, or all, of your Perkins federal student loans cancelled. This benefit could also be available if you will teach in a designated teacher shortage area, such as science, math, or bilingual education. This cancellation normally occurs on a graduating scale; in other words, a certain percentage of your Perkins Student Loan debt is cancelled for every full year you work in these areas.
These federal student loans are a little different in that, although they’re federally-funded, you’re actually borrowing the money from the school and will repay the loan to the school, not to the government or a bank. But not just anyone can get access to a Perkins Loan – these are reserved for students with “exceptional need.” Refer to your school “award letter” for more information on your eligibility for these education loans.
To learn more, please visit our Other Resources page, where you can find links to sites with detailed information on Perkins Loans.
Stafford Loans are your next Best Bet
For students who are ineligible for a Perkins Loan, the Stafford federal student loan is their next best option. They offer most all of the benefits of the Perkins Loan, at a slightly higher interest rate. Interest rates on Stafford 
Education Loans are currently running between 5.6 percent, and 6.8 percent, depending on whether or not you qualify to have part of the interest subsidized. Even at the higher end of 6.8%, these loans are a great value.
Like Perkins Loans, under normal circumstances you have 10 years after leaving school or dropping below half-time student, to repay these loans. Also, like Perkins Loans, you don’t have to start repaying until months after you leave school or drop below half-time.
The difference is, with a Stafford Loan, interest begins accruing once you receive the loan, so even though you don’t have to make payments while in school, interest charges are still building up during this time. Thankfully, these interest rates are very low, so they’re a great deal for borrowers. Another minor difference with Stafford Loans is that you’re only allowed a 6-month no-payments-required “grace period” after leaving school, versus the 9-month grace period allowed under the Perkins Loan plan.
Stafford Loans come in basically 2 types, either a Direct Loan from the U.S. Department of Education, or, by using a private lending institution as an intermediary, through the Federal Family Education Loan Program (FFELP).
Depending on the school you attend, you may have access to a Direct Student Loan, an FFELP Student Loan, or both. If your school utilizes the FFELP program, they may have certain lending institutions which they list as “preferred” lenders, but you still have the right to choose another lender. Because the FFELP program utilizes private lenders, be sure that you ‘shop around’ for the best incentives among available lenders.
Be sure to visit our Other Resources page to find links to other sites offering detailed information about Stafford federal student loans.
PLUS Loans are great for Parents
Your parents also have the option of taking out a PLUS education loan to help pay for your school costs. These federal student loans still offer great rates, at 8.5% or less. Like Stafford Loans, PLUS Loan payments can be deferred until six months after you leave school or drop below status of half-time student. Or, your parents can opt to begin repayment 60 days after the loan has been fully disbursed. And again, similar to Stafford Loans, PLUS Loans can be taken out directly from the government through the Direct Loan Program, or, alternatively, they can be obtained through the use of a private lending institution.
Unlike Perkins or Stafford Loans, PLUS Loans do require your parents to pass a credit check. Even still, if your parents can’t pass a credit check alone, they are allowed to use an endorser, someone who will co-sign with them to secure the education loan. Also, if your parents can show that extenuating circumstances exist related to their financial situation, they may still be able to qualify for the PLUS Loan regardless of the results of the credit check.
For more on PLUS Loans, please visit our Other Resources page. There you will find links to sites with detailed information on this and other subjects.
Next: Private Student Loans
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