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Types of Student Loans: Stafford, Perkins, PLUS

Instructor: Dana Dance-Schissel

Dana teaches social sciences at the college level and English and psychology at the high school level. She has master's degrees in applied, clinical and community psychology.

The cost of higher education is on the rise, and student loans can be an excellent resource to help pay for college. This lesson will discuss three types of student loans and end with a short quiz.

Understanding Financial Assistance

If you are currently in college or planning to attend, then you probably already know how expensive it can be. Classes, textbooks, fees and living expenses all add up quickly. The price of higher education varies widely depending on factors such as residency status and whether the school is public or private. The majority of students require some sort of financial assistance, or monetary help, to offset the costs of college.

Financial assistance comes in many forms. Grants and scholarships may or may not be based on need and do not require repayment. Student loans are usually based on financial need and must be paid back. There are three primary types of student loans: Stafford loans, Perkins loans, and PLUS loans.

It is very common for students to combine the different types of loans to cover the cost of attendance. In fact, according to U.S. News & World Report, the average amount of money borrowed per student in the United States in 2013 was almost $30,000! Let's take a closer look at these types of student loans.

Most Students Need Help Paying for College
student loan debt

Stafford Loans

If you or someone you know has borrowed money to help pay for college, it is likely that the money was borrowed as a Stafford loan. Stafford loans are also known as Direct loans and are one type of loan offered through the William D. Ford Federal Direct Loan Program of the United States. With Stafford loans, the U.S. Department of Education is the lender. These loans are based on need and must be repaid, but usually not until after graduation. Also, Stafford loans require students to be enrolled in school at least half-time.

There are two types of Stafford loans--subsidized and unsubsidized. This refers to the interest on the loan. Interest is the price of borrowing the money and is usually a percentage of the total loan amount. For example, if you borrowed $1,000 at an interest rate of 5%, you would have to pay back the original amount of $1,000 plus $50. The extra $50 is the 5% interest fee.

With subsidized loans, the U.S. government pays the interest for the student for a fixed period of time, usually until graduation. With unsubsidized loans, the student is responsible for paying back all of the interest. Stafford loans are awarded annually and have maximum loan amounts ranging from $3,500 to $5,500 for subsidized loans and from $5,500 to $20,500 for unsubsidized loans.

Perkins Loans

Perkins loans are a bit different from Stafford loans because the school lends the money to the student rather than the federal government. This can be very helpful to students who need extra help and have already borrowed the maximum amount in Stafford loans. Another difference between Stafford loans and Perkins loans is that Perkins loans are not based on financial need. That makes them more widely available than other need-based aid.

Perkins loans also charge interest, and it is not deferred or subsidized. This means that from the moment that the money is borrowed, the interest fees begin to add up. Perkins loans usually have a maximum loan amount of $5,500 for undergraduate students.

PLUS Loans

PLUS loans are usually used after the maximum loan amounts have been reached with Stafford and Perkins loans or when financial need is not as great. As with Stafford loans, the U.S. Department of Education lends the money. However, PLUS loans are usually only available to the parents of students or independent graduate students. This means that the parents must apply for the loan and are responsible for repaying the amount borrowed.

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