Do You Need Public Student Loans? Learn More about Your Options

With the high cost of a college education today, most student need some form of financial aid, and most obtain student loans. Student loans are available from a variety of sources both public and private. Public sector student loans are available from federal and state sources.

The public student loan program is part of the U.S. Department of Education’s Federal Student Aid program (FSA). The U.S. Department of Education is the largest source of financial aid for education. To apply the student must complete and submit the FAFSA, the Free Application for Federal Student Aid which can be found online. After the form is evaluated, the student receives a rating that determines his eligibility for financial aid. Most forms of federal financial aid are a combination of grant-scholarship, student loans and work-study.

There are three student loan programs run by the FSA: the Stafford Loan, the PLUS Loan and the Perkins Loan. These programs differ in terms of administration and repayment structure. The Stafford Loan can be under either the Federal Family Education Loan (FEEL) program or the William D. Ford Federal Direct Loan program. The direct loan funds come from the federal government; the FEEL loan funds come from private lending sources. If the loan is subsidized, the federal government covers the interest while the student is in school. If the loan is unsubsidized, the student must pay the interest while attending school. The loan has a low interest rate with payments deferred until after graduation. The loans accumulated over the years can be consolidated into one after graduation so there is one monthly payment at one interest rate.

The PLUS Loan is usually made to parents of students who can borrow an amount equal to the total cost of the student’s education. The interest rate is currently 8.5% and the loan is based on the parent’s credit history and not on need. The loans require no collateral and the interest may be tax deductible. This is why many parents consider the PLUS Loan to be attractive.

The Perkins Loan is a low interest rate (5%) loan that is based on need. The funds come from the federal government and the school, with the school administering the program. Repayment of the loan is to the school, not to the federal government. Payments are deferred until after graduation. The student should check with his school’s Financial Aid Office for details concerning this loan.

All of these loans are applied for by completing the FAFSA. Students can have combinations of FEEL and Direct Loan, subsidized and unsubsidized. The total amount that the student can borrow in one year varies, depending on need and whether the loans are subsidized or unsubsidized. In addition to these federal student loans, the states also have student loan programs. Students need to check with their Financial Aid Office to see what funds are available.