Step 4: Applying for Federal Student Loans


Unless all needed funds have been attained through scholarships and grants – which is rare – families must apply for student loans. It’s best to begin with Federal Loans because they are created with special features to help the borrower. Federal student loans may be obtained directly from the school’s financial aid office.

As noted in Step 1 there are three main Federal Student Loan types – Perkins, Stafford and PLUS. Perkins Loans are need-based, low-interest loans available to students, not parents. The amount of the loan is determined by each college and is based on the expected family contribution. To be eligible for this loan, students must have also applied for a Pell Grant. Repayment doesn’t begin until a student graduates or falls below half-time enrollment status at school. Stafford Loans are guaranteed by the government and don’t require a credit check, a co-signer, or collateral. There’s a six-month grace period before loan payments are due after graduation, and a minimum repayment of $50 a month.

There are two types of Stafford Loans: subsidized, where the government pays the interest on the loan while a student is in school and during the six-month grace period; and unsubsidized, where interest builds during the time a student is in school. Subsidized loans are awarded to students based on demonstrated financial need as determined by your college.

Because the federal government sets a limit on how much money a student can get on any one Stafford loan, many students choose to take out both the subsidized and unsubsidized Stafford loan at the same time. This option allows students to take advantage of Stafford loan terms while maximizing the amount of money they receive.

Even with the Stafford Loan awards, many families need to find other sources of funding to pay for their child’s total educational cost. The Federal PLUS Loan offers a low-interest, collateral-free way for parents to pay for their dependent child’s education, including transportation, housing, and food. And the interest payments may be tax deductible.

Total deferment is an option on some student loans in which the student decides not to pay any of the principal loan amount and interest during the time he/she is enrolled in college. This postpones loan repayment until after graduation.

But it’s not free. Usually, the loan amount continues to earn interest even though you’re not paying. At the end of school, that interest gets rolled into the principal loan amount. Therefore, upon graduation, the loan amount will be larger.