Advertisement
Paying for College

4 Types of Federal Student Loans to Consider

If you plan to borrow money to help foot the bill for college, here's what you need to know.

Editor's note This article originally was published in the April 2014 issue of Kiplinger's Personal Finance.

Finding the right fit also means keeping student debt within reason. One benchmark suggests that students should borrow no more than they expect to earn in their first year in the workforce. (Students who borrow graduate with an average of $29,400 in debt, according to the Project on Student Debt.) Max out federal loans before even considering private debt: Federal loans come with flexible repayment programs and other protections. Here are the federal loans available to undergraduates or their parents.

Direct Subsidized (Stafford). With these loans, available to undergraduates with financial need, the feds cover the interest through school and up to six months after graduation. (For loans taken out between July, 1, 2012, and July 1, 2014, that grace period after graduation won’t be covered.) You can borrow up to $3,500 your first year, $4,500 your second year and $5,500 after that, for a maximum of $23,000 for undergraduates. The interest rate—4.66% for loans taken out for the 2014–15 academic year—is fixed, but it resets for new loans each year.

Advertisement - Article continues below

Direct Unsubsidized (Stafford). You don’t need to demonstrate financial need to take an unsubsidized loan. The interest begins accruing while you’re in school. The annual maximum for undergraduates ranges from $5,500 to $7,500, minus any subsidized loans received over the same period. As with subsidized loans, you will repay this year’s loans at 4.66%; the rate resets each year for new loans.

Advertisement
Advertisement - Article continues below

Perkins. These federal student loans are for undergraduate and graduate students with high financial need. The interest rate is a fixed 5%, and undergraduates can borrow up to $5,500 a year, for a total of up to $27,500.

PLUS. For these loans, available to parents, you must undergo a credit check to prove that you have no “adverse” credit history—for example, declaring bankruptcy within the past five years. You can borrow up to the cost of attendance (minus other financial assistance your student has received); the current interest rate is a fixed 7.21%.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
7 Ways the Pandemic Will Change College Forever
college

7 Ways the Pandemic Will Change College Forever

Colleges and universities face steep budget cuts, enrollment challenges and new types of competition as a result of COVID-19. We cover the changes you…
June 19, 2020
12 Tax Deductions and Credits That Help You Pay for College
Tax Breaks

12 Tax Deductions and Credits That Help You Pay for College

Whether you're saving for college, currently paying tuition, or dealing with student loan debt, there's probably a tax break that can help your bottom…
June 12, 2020
Milliennials Face Their Second Recession
credit & debt

Milliennials Face Their Second Recession

Forty percent of millennials say the pandemic will likely cause them to delay payments on their debts. Does that include you? Time to take action.
June 4, 2020