Perkins loans are a type of federal student loan in which the school provides financial aid using government funds. This loan typically has a fixed, low-interest rate of 5 percent, which is lower than other loans. Undergraduates can borrow up to $4,000 every year up to a maximum of $27,500, and graduate students can borrow up to $8,000 per year, up to a maximum of $60,000, including the amount you borrowed under this loan as an undergraduate. Repayment generally begins nine months after graduation and can be later for those serving on active duty in the military. You will have to complete repayment within 10 years.
Stafford loans have an interest rate higher than Perkins loans, but they give you up to 30 years for repayment. Subsidized Stafford loans are based on financial need, with the government paying the interest until the student completes the course. After this, the student has to repay the interest and principle six months after graduation. Unsubsidized loans, on the other hand, are not needs-based, and therefore the interest charges are the student's responsibility right from the time he receives the loan.
Parents who pass a credit check can borrow money to finance their child's education through PLUS. These loans generally serve as a supplement to cover the costs that are not covered by the financial aid package a student receives. Interest rates can go up to 8 percent, and repayment options are less rigid than for loans from private lenders. If a parent doesn't qualify, it is still possible to take this loan provided a close friend or relative who passes the credit check is willing to endorse the loan. Graduate students too can apply for this loan, but approval will be granted based on their credit score.
Although federal loans have the lowest interest rates, students paying high tuition fees may sometimes need to consider a private loan. These loans offer larger amounts but at interest rates much higher than federal loans, in some cases as high as 11 percent. Interest rates often vary depending on the credit score of the applicant. These loans do not require you to fill out the FAFSA, and they involve lesser paperwork than federal loans. However, it is important that you avoid borrowing more than what you really require.