Education Loans

One big difference between loans and other types of financial aid is that loans must be repaid with interest. For this reason, greater caution must be used with this type of aid. The good news is that most education loans do not have to be repaid until after you graduate. Whenever repayment begins, however, borrowing the least you possibly can is a good idea.

Federal education loans represent the largest type of financial aid (approximately $100 billion a year). Federal loans typically have lower interest rates and longer repayment terms than other types of loans - and numerous provisions to assist borrowers with repaying their debt. Even with favorable government-provided terms, education loans can represent a significant financial obligation. And always remember loans - unlike grants and scholarships - must be repaid.

Types of Education Loans

Federal Loans	Non-Federal (Private Loans)
Perkins Loans	Private/Alternative Loans
Stafford Loans (Subsidized and Unsubsidized)	Private Considation Loans
PLUS loans for Parents
PLUS loans for Graduate and Proffessional Students
Consolidation Loans

Federal Education Loans

Federal Perkins Loans

Federal Perkins Loans are low-interest loans for both undergraduate and graduate students with exceptional financial need. The loans are made through the school's financial aid office with funds provided by the government. Loan funds will either be paid directly to the borrower or applied to outstanding school costs. Students can borrow up to $5,500 for each year of undergraduate study with a $27,500 total limit for undergraduate study. These loans must be repaid.

Not all post-secondary institutions participate in the Perkins program and amounts available for Perkins loans may vary.

Federal Stafford Loans

Federal Stafford Loans are available to both undergraduate and graduate students. These loans offer students with no credit history or credit background to borrow funds in the form of a low interest rate loan.

There are two types of Federal Stafford Loans:

Subsidized Stafford Loans
The federal government pays the interest on Subsidized Stafford loans when the borrower is enrolled at least half time at an eligible institution, during the borrower's 6-month grace period following enrollment, and during periods when payments are deferred. Eligibility for Subsidized Stafford loans is based on financial need as determined from completion of the FAFSA.

Unsubsidized Stafford Loans
Unsubsidized Stafford loans are offered on the same terms as Subsidized Stafford loans - except the borrower is responsible for paying the accrued interest rather than the government from the moment the loan is disbursed until the loan is paid in full.

A Note on Interest:
Many borrowers decide to let interest accrue on their loans while they are in school and have the accrued interest amount added to their balance when repayment begins. While postponing interest payments may save some cash while in school, the borrower's loan balance could be hundreds of dollars more when repayment begins than it would have been if the borrower had been making interest only payments each quarter. And, interest during repayment will be charged on the full amount of the loan (including any capitalized interest), which results in even more total interest being paid.

Loan Limits on Federal Stafford Loans

The biggest categories of student loans are Federal Stafford Loans, which have increasing limits as a student goes through college.

For Dependent Undergraduate Students, the limits are as follows:

Dependent Students	Combined Base Limit for Subsidized and Unsubsidized Loans	Additional Limit for Unsubsidized Loans	Total Limit for Unsubsidized Loans (minus subsidized amounts)
First Year	$3,500	$2,000	$5,500
Second Year	$4,500	$2,000	$6,500
Third Year and Beyond	$5,500	$2,000	$7,500

For Independent Undergraduate Students, the limits are as follows:

Independent Students	Combined Base Limit for Subsidized and Unsubsidized Loans	Additional Limit for Unsubsidized Loans	Total Limit for Unsubsidized Loans (minus subsidized amounts)
First Year	$3,500	$6,000	$9,500
Second Year	$4,500	$6,000	$10,500
Third Year and Beyond	$5,500	$7,000	$12,500

For Graduate and Professional Students, the limits are as follows:

Graduate and Professional Students	Combined Base Limit for Subsidized and Unsubsidized Loans	Additional Limit for Unsubsidized Loans	Total Limit for Unsubsidized Loans (minus subsidized amounts)
Graduate and Professional Students	$8,500	$12,000	$20,500
Medical School Students	$8,500	$32,000	$40,500

The aggregate Federal Stafford Loan Limits are as follows:

	Combined Base Limit for Subsidized and Unsubsidized Loans	Additional Limit for Unsubsidized Loans	Total Limit for Unsubsidized Loans (minus subsidized amounts)
Dependent Undergraduates	$23,000	$8,000	$31,000
Independent Undergraduates	$23,000	$34,500	$57,500
Graduate and Professional Students	$65,500 (including undergraduate Stafford loans)	$73,000	$138,500

Please Note:
Students in certain health professions may qualify for higher aggregate limits.

Dependent versus independent status is based on federal regulations. Independent status may include a student who is:

• at least 24 years old
• an orphan or ward of the court
• a veteran
• a graduate student
• married, or has at least one child or a dependent

PLUS Loans for Parents

PLUS loans are offered to parents of dependent undergraduate students. Parents can borrow up to the total cost of their dependent student's education less other aid the student has received. PLUS loan repayment begins within 60 days after the loan is fully disbursed, although borrowers do have the option to delay payments until after graduation. Even though parents may be able to delay making payments, interest will continue to accrue on the loan. When interest is added to the loan balance at the time payments begin, the borrower will pay more total interest over the life of the loan.

In addition to the usual eligibility requirements for all federal loans, parent borrowers are required to prove they are credit-worthy through a credit check. Acceptable credit standards are determined by the government. Like student borrowers, parent borrowers have several options in repaying their loans.

As with all loans, PLUS loans must be repaid.

Federal PLUS Loans for Graduate and Professional Students

Graduate and Professional students are eligible to borrow up to the full cost of attendance less other financial aid. Terms for Graduate PLUS loans are similar to Parent PLUS loans including the requirement that the student is creditworthy.

As with all loans, Graduate PLUS loans must be repaid.

Federal Consolidation Loan

Federal Consolidation Loans are available to borrowers who wish to combine multiple education loans into a single loan with a single monthly payment and/or receive a fixed interest rate on their student loans. Based on the types of loans consolidated, subsidized and unsubsidized portions are differentiated so that the government will continue to make interest payments on subsidized portions of the Consolidation Loan during deferment periods.

Non-Federal (Private) Education Loans

Private/Alternative Loans

Private, non-federal education loans are another source of funds to pay for school. Private loans do require a credit check and often a co-signor is also required. Federal Education Loans should be looked at as the first option. If a Private Loan can help bridge the gap between the Federal loan limits and the cost of attendance, then at that point these loans can be considered.

Private Consolidation Loans

Just like you are able to consolidate your Federal Education Loans, you are also able to consolidate your Private Education Loans. The main benefit of consolidating your private loans is the opportunity for a lower interest rate. Since the interest rate for a private loan is based of your credit, you may be able to get a lower rate after you have graduated and started your career.

Note: You are not able to consolidate your private loans with your federal loans.


Always remember if you have a question about anything on this site, feel free to drop us a note at outreach@ismloans.org and we’ll be happy to answer or elaborate on an item that is confusing or unclear.