In order to be considered for subsidized or unsubsidized loans that have government backing, you must complete the Free Application for Federal Student Aid (FAFSA). This application requires you to submit information about your financial resources and, if you are a dependent, the financial resources of your family. Subsidized loans are given to students who have limited financial means. Less than 10 percent of subsidized loans went to families who have adjusted gross incomes greater than $100,000. Many of these families have multiple children in college or other extenuating financial circumstances that allow them to receive a subsidized loan.
Many applicants will be offered Stafford loans through the FAFSA application. You may be offered subsidized Stafford loans, unsubsidized Stafford loans or both. For first-year students, the maximum subsidized loan is $3,500 and the maximum total package is $5,500. If you are an independent student, the subsidized limit remains unchanged but the total limit increases to $9,500. For dependent students, the limit increases to $4,500 subsidized and $6,500 total for the second year and $5,500 subsidized and $7,500 total for each year after that. For independent students, the limits for subsidized loans are the same but the total loan limits are $10,500 for the second year and $12,500 for the third year and each year after.
Subsidized Stafford loans are preferable to unsubsidized because the federal government will pay the interest on the Stafford loan while you are in school and for six months after you leave. If you have an unsubsidized Stafford loan, you are responsible for the interest that accrues on your loan. You can either chose to make interest-only payments while you are in school or you can defer the interest until after you leave school.
Perkins loans are another type of government subsidized loans. The federal government gives each participating school a certain amount of money to issue to students of the school's choosing in the form of Perkins loans. Perkins loans can be up to $5,500 per year with a total cap of $27,500 for undergraduate study and $60,000 for graduate and undergraduate loans combined. The federal government will pay the interest on the loan for nine months after you leave school.
PLUS loans are an unsubsidized option for graduate students and parents of students who need additional loans. PLUS loans are unsubsidized, so you are responsible for all the interest on the loan. However, PLUS loans offer lower costs than private loans because origination fees are around 4 percent while private loans can go up to 11 percent. PLUS loans also offer a fixed rate of interest.