To be eligible for government-backed loans, you must fill out the Free Application for Federal Student Aid, or FAFSA (see Resources). This is used to determine how much you and your family can be expected to contribute to the costs of your college education. You must submit information about your financial resources, and if you are a dependent, your parents must submit their information as well. This information is shared with colleges that you designate so they can estimate your financial need.
Subsidized Stafford loans are offered to individuals who demonstrate significant financial need on the FAFSA. These loans are backed by the government, and the government pays the interest on the loans until you leave school. In 2009, loans were limited to $3,500 in the student's first year, $4,500 in the second year and $5,500 each subsequent year.
Stafford unsubsidized loans are similar to subsidized loans except the limits are larger and the government does not pay the interest while you are in school. If you take an unsubsidized Stafford loan, you have the option to either pay the interest as it accrues while you are in school or let the interest compound and start payments after you graduate.
The limit on Stafford loans is cumulative between subsidized and unsubsidized, so if you took subsidized loans, the amount of unsubsidized loans you can take is reduced. Limits are also higher for individuals who are independent of their parents. In 2009, dependent students were limited to $5,500 of total Stafford loans the fist year, $6,500 the second year and $7,500 each additional year. Independent students were allowed $9,500 in Stafford loans the first year, $10,500 the second year and $12,500 for each additional year.
Perkins loans are issued by the financial aid departments of colleges and universities using funds from the federal government. Each year, the federal government allocates a certain amount of money to each participating school. The schools then choose the students who will be offered Perkins loans.
The interest on Perkins loans is paid by the government as long as the student is in school at least half-time. Perkins loans are limited to $5,500 per year for undergraduate students and $8,000 for graduate students.
PLUS loans are available to parents who want to cover their child's expenses and to professional or graduate students. PLUS loans bridge the gap between other student loans and the total cost of attendance. Like unsubsidized Stafford loans, students have the option to let interest accrue and start paying after they leave school or to make interest-only payments.
Private loans come from financial institutions and typically require credit checks other financial information to be approved. They also have higher interest rates because they are not backed by the federal government. However, having a co-signer may reduce your interest rate.