In addition to Perkins Loans, the U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as Stafford Loans (for students) and PLUS Loans for parents and graduate and professional degree students; PLUS Loans will be explained later.

Schools generally participate in either the FFEL or Direct Loan program but sometimes participate in both. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.

Federal Stafford Loans are the backbone of the Department of Education’s self-help aid program for students. The advantage of Stafford Loans is that their interest rate is lower than what students or parents could get through a private lender. However, it’s usually higher than the rate for a Perkins Loan. Stafford Loans are available to students enrolled in an eligible program at least half time and carry variable interest rates that are adjusted each July 1 for the following 12 months.

A Stafford Loan may either be subsidized or unsubsidized. Subsidized loans are based on financial need, and the federal government pays interest on the loans while the student is in school. Students pick up the payments on loan interest and principal six months after they graduate.

Students who do not show financial need, according to the Department of Education’s guidelines, but still need more money for school, may qualify for an unsubsidized Stafford Loan. This type of loan does not offer the interest grace period. The borrower is responsible for interest charges beginning the date the loan is disbursed.

Students may take from 10 to 30 years to pay off their Stafford Loans, depending on the amount they owe and the type of repayment plan they choose. Under certain conditions you can receive a deferment or discharge of the loan.

Stafford Loan Interest Rates:

New interest rate cap for Military Members

Interest rate on a borrower’s loan may be changed to six percent during the borrower’s active duty military service. This applies to both FFEL and Direct loans. Additionally, this law applies to borrowers in military service as of August 14, 2008.

Borrower must contact the creditor (loan holder) in writing to request the interest rate adjustment and provide a copy of the borrower’s military orders.

Stafford Loan Limits:

Perkins Loans are another first-come, first-served option. The federal government only guarantees each school a certain amount of Perkins Loan money each year. This program is yet another reason for students to fill out FAFSAs as early as possible.

A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with exceptional financial need. Federal Perkins Loans are made through a school’s financial aid office. Your school is your lender, and the loan is made with government funds. You must repay this loan to your school.  Your school will either pay you directly (usually by check) or apply your loan to your school charges. You’ll receive the loan in at least two payments during the academic year.

You can borrow up to $5,500 for each year of undergraduate study (the total you can borrow as an undergraduate is $27,500). For graduate studies, you can borrow up to $8,000 per year (the total you can borrow as a graduate is $60,000 which includes amounts borrowed as an undergraduate). The amount you receive depends on when you apply, your financial need, and the funding level at the school.

If you are attending school at least half time, you have nine months after you graduate, leave school, or drop below half time status before you must begin repayment.  This period of time is known as a grace period.  At the end of your grace period, you must begin repaying your loan.  You may be allowed up to 10 years to repay.

Perkins Loans also can be discharged or cancelled in full or in part for various reasons, including for graduates who are employed in specific teaching positions, certain public or non-profit family services jobs, and law enforcement or in military service in certain hostile areas.

The Federal Supplemental Educational Opportunity Grant (FSEOG) program is for undergraduates with exceptional financial need. Pell Grant recipients with the lowest expected family contributions (EFCs) will be considered first for a FSEOG. Just like Pell Grants, the FSEOG does not have to be repaid.

You can receive between $100 and $4,000 a year, depending on when you apply, your financial need, the funding at the school you’re attending, and the policies of the financial aid office at your school.

If you’re eligible, your school will credit your account, pay you directly (usually by check), or combine these methods. Your school must pay you at least once per term (semester, trimester, or quarter). Schools that do not use semesters, trimesters, or quarters must disburse funds at least twice per academic year.

FSEOGs have a few limitations that Pell Grants don’t. For one, the amount of your FSEOG can be reduced if you receive other forms of student aid. Also, each school receives a limited amount of FSEOG money; when it’s gone, it’s gone. That’s why it’s very important to apply for financial aid as early as you can. You’ll have a better chance of obtaining FSEOG money if you’re eligible for it.

A Federal Pell Grant, unlike a loan, does not have to be repaid. Pell Grants are awarded usually only to undergraduate students who have not earned a bachelor’s or a professional degree. (In some cases, however, a student enrolled in a post-baccalaureate teacher certification program might receive a Pell Grant.) Pell Grants are considered a foundation of federal financial aid, to which aid from other federal and nonfederal sources might be added.

Starting July 1, 2009, the maximum Pell grant annual allowance will increase from $4,731 to $5,350 for the 2009-10 school year, the largest increase since the program began.  It will increase again to $5,550 for the 2010-11 school year.  The increased grant will cover approximately one-third of the total annual cost of attendance, room and board included, at the average public, four-year in-state school, or about 15 percent of one year at the average private college or university, according to the College Board.  The increased Pell grant doesn’t just sweeten the pot for those who already qualify for the award; it also means a greater number of students are now eligible for the grant.

The maximum amount can change each award year and depends on program funding. The amount you get, though, will depend not only on your financial need, but also on your costs to attend school, your status as a full-time or part-time student, and your plans to attend school for a full academic year or less.

The school the student is attending can apply Pell Grant funds to your school costs, pay you directly (usually by check), or combine these methods. The school must tell you in writing how much your award will be and how and when you’ll be paid. Schools must disburse funds at least once per term (semester, trimester, or quarter). Schools that do not use semesters, trimesters, or quarters must disburse funds at least twice per academic year.

As nervous as college freshmen may be, their cash-strapped parents are probably trembling more.  Disciplined savings using any or a combination of the options mentioned above may not cover the full expense of a college education.  As they have for the last ten years, college costs rose faster than inflation this year.  For the 2009-10 school year, a college freshman can expect to pay anywhere between $15,000 and $60,000 for a full year of tuition, room and board, books, etc.

But many college students don’t pay full sticker price.  63% of students receive some form of aid, either loans, grants, or both, according to the National Association of Student Financial Aid Administrators.

This year’s College Board data on financial aid show that almost $143 billion in student aid was distributed in academic year 2007-08-almost $10 billion more than the previous year. In addition, students borrowed almost $19 billion dollars from nonfederal sources to help finance their education.  On average, undergraduate students received an average of $8,896 in aid in the form of grants and tax benefits.  Graduate students received an average of $20,320 in aid.

College financial aid departments will require the Department of Education’s Free Application for Federal Student Aid (FAFSA) form, available at www.fafsa.ed.gov, which provides financial details of the parents and student.  It is important to file the FAFSA form early as some grants are given on a first-come-first-serve basis.

Financial aid is intended to make up the difference between what a family can afford and what college costs. The federal government and all public college financial aid offices use a “need formula” that analyzes a family’s financial circumstances and compares them with other families.  The results will vary by college and by state, but the Expected Family Contribution (EFC) formula assumes family contributions are met with savings, income and borrowing.  If a shortfall of college funds does exist, financial aid is awarded. This aid can be in the form of grants, loans, and work-study programs.