Student Loans


Federal and State Student Loans

Unlike scholarships and grants, loans are financial aid that MUST BE repaid. Loans can be made directly to students or to parents. Typically, federal and state loans offer the best interest rates and flexible repayment schedules. Unlike private loans, credit checks or collateral are not needed for federal loans.


Make sure to evaluate your student loan
options carefully before going to school.

Stafford loans are granted to students in one of two ways. Federal Family Education Loan Program (FFELP) loans are provided by private lenders but guaranteed by the government. With Federal Direct Student Loan Program (FDSLP) loans, the government itself provides the loans. Stafford loans are subsidized (the interest is paid by the government while the student is still in school) or unsubsidized (the student owes interest on the entire life of the loan). To get a subsidized loan, you must prove financial need. Stafford loan interest rates and the amount you can borrow are determined by the student’s grade level. See the chart in section 7 for exact numbers. Whether the loan is subsidized or not, the student will have a six-month grace period after graduation before he or she needs to start paying on the loan.


Perkins loans are offered to students who demonstrate exceptional financial need. Schools are the lenders of Perkins loans, using federal funds. Perkins loans are subsidized, and offer a nine-month grace period after leaving full-time study before the student needs to start repaying the loan. The repayment period can be up to 10 years, not including times of deferment and forbearance. Interest rates for Perkins loans is set at 5%, and certain professions (teachers, nurses, law enforcement officers) may be able to cancel part or all of their Perkins loan repayments.


PLUS loans stand for Parent Loans to Undergraduate Students. Because they are made to parents, rather than directly to students, they are not part of the financial aid package. Like Stafford loans, they are dispersed through either the FFEL Program or the Federal Direct Loan Program. There is no limit on the borrowing amount, other than it cannot exceed the cost of attendance at the student’s college. Unlike other federal loans, repayment must begin within 60 days of receiving the loan proceeds. The repayment period lasts between five and ten years. Eligible parents include any who have passed a credit check or have a creditworthy friend or relative who promises to back the loan in a default situation.

Subsidized vs. Unsubsidized

A subsidized loan has the interest paid by the government while the student is still in school full time. After finishing school, a student usually has a 6­­–9 month grace period before starting repayment.

With an unsubsidized loan, although students usually are not expected to make payments while in school, the interest on their loan is accruing. After graduation, the interest will be rolled in with the loan amount and, following the grace period, the student will start making payments on the total amount of interest and principal.

The best type of loan is a subsidized government loan. However, even if those are not available, unsubsidized federal loans may still offer the best interest rate and terms.

State Loans

State loan programs vary from one state to the next, including the details of interest rates, terms, and repayment schedules. Most programs are geared toward in-state students, however some may offer financial assistance to out-of-state students. To learn more about financial aid in each state, visit “Education Resource Organization Directory” on the U.S. Department of Education’s website.

Although federal and state loans are usually a good deal, you may not always be eligible or the loan amounts may be limited. In the next section, learn about alternative loans from private lenders.

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