Federal Student Loans

Federal student loans, unlike federal student grants and federal work-study, are borrowed money that must be repaid, with interest, just like car loans and home mortgages.

You cannot have these student loans canceled because you didn't like the education you received, didn't get a job in your field of study or because you're having financial difficulty.

College loans are legal obligations, so before you take out a federal student loan, be sure and think about the amount you'll have to repay over the years. You want to be sure to repay your student loans in full and on time. Learn more about repaying student loans.

There are four main categories of Federal Student Loans:

Direct Stafford Loans are low-interest loans for eligible students to help you cover the cost of higher education at a community college, four-year college, trade, career, or technical school. Students borrow money directly from the U.S. Department of Education at the schools participating in the program. Learn more about Direct Stafford Loans.

Direct PLUS Loans are available to parents of dependent students to help pay for their child's college expenses. Graduate and professional students can also apply for PLUS Loans to cover their own expenses. Learn more about the Direct PLUS Loans for parents or the Direct PLUS Loans for graduate students.

Direct Consolidation Loans are used to combine several federal education loans into a single loan. The advantage is a single monthly payment in place of multiple monthly payments. Learn more about School Loan Consolidation.

Federal Perkins Loans are campus-based loans that are available for both undergraduate and graduate students in desperate need of financial assistance.

The Perkins loan is offered by participating schools to students who demonstrate the greatest financial need and the Federal Pell Grant recipients get top priority. 

The Perkins loan is made to students enrolled full-time or part-time in a college.  These loans must be repaid by you to your financial aid office.

The Perkins loans have a 5 percent interest rate. The interest rate is purposely kept low to reduce the burden of paying for your college education.

Major Change in 2010 - Prior to July 1, 2010, Stafford, PLUS, and Consolidation Loans were also make by private lenders under the Federal Family Education Loan (FFEL) Program. Due to recent legislation, beginning July 1, 2010, no loans could be made under the FFEL. All new Stafford, PLUS, and Consolidation Loans come directly from the U.S. Department of Education under the Direct Loan Program.

Stafford Loans (FFELs and Direct Loans)

The United States Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program.

Both the FFEL and Direct Loan programs consist of what are known as Stafford Loans (for students) and PLUS Loans (for parents).

Colleges usually participate in either the FFEL or Direct Loan program but sometimes participate in both.

With the Direct Loan Program, the funds for your loan come directly from the federal government.

Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program.

Eligibility rules and loan amounts are identical under both programs, but repayment plans will differ.

How do you get a FFEL or Direct Loan?

For either type of loan, you must fill out a FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your loan eligibility. You also will have to sign a promissory note, a binding legal document that lists the conditions under which you're borrowing and the terms under which you agree to repay your loan.

How to Choose and Evaluate Lenders

You will need to choose a lender if you obtain a FFEL Stafford Loan. (If you have a Direct Stafford Loan, then federal government is your lender.)

Schools that participate in the FFEL Program will usually have a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer, like a credit union.

Student Loan Consolidation

There is a chance that you will need to obtain several different student loans to finance your education. Paying on the different loans can get confusing and you migh want to consider consolidating your student loans into one loan. Through school loan consolidation you might be able to adjust your repayment terms and even lower the interest rate on your loan.

If you don't qualify for a Federal Student Loan, consider several of the other options for financing your college education. Consider a private student loan to further your education. Be smart when you make financial decisions and don't get in over your head. Spend the time to research your options for college financial aid.