United States Federal Financial Aid Programs

The federal government is the largest provider of financial aid. In fact, the federal government provided 75 percent of all available student aid, according to the College Board. So it makes sense to know as much as possible about federal financial aid programs and to apply for federal aid before seeking out more exotic financial aid sources.

The largest and most familiar federal student aid programs are:

• Federal Pell Grants
• Federal Supplemental Educational Opportunity Grant (FSEOG)
• Federal Stafford Loans
• Federal Parent Loan for Undergraduate Students (PLUS) Loans
• Federal Perkins Loans
• Federal Work-Study Program

Federal Pell Grants

The Federal Pell Grant Program is the largest need-based student aid program. According to the College Board, an estimated 3.7 million undergraduates received Pell Grants.

For many students, these grants are the foundation of their financial aid package. Pell Grants are only awarded to undergraduate students who have not earned a bachelor's or professional degree.

To apply for a Pell Grant, you must submit a Free Application for Federal Student Aid (FAFSA).

Awards depend on program funding. You can receive only one Pell Grant in an award year.

The size of a student's Pell Grant award depends on:

1. The student's need
2. The student's Expected Family Contribution (EFC) and Cost of Attendance (COA)
3. Whether the student is enrolled on a full-time or a part-time basis
4. Whether the student attends school for a full academic year or less
5. How much money the program receives from the federal government

Students who participate in a study-abroad program that costs more than their usual tuition may be eligible for additional Federal Pell Grant aid to help cover those costs. (Check with your financial aid office.) Federal Supplemental Educational Opportunity Grants (FSEOG)

The Federal Supplemental Educational Opportunity Grants program is one of three federal campus-based programs. The program provides grants to undergraduates with exceptional financial need (students with the lowest Expected Family Contributions) and gives priority to students who receive Federal Pell Grants. Students are automatically considered when they submit a Free Application for Federal Student Aid (FAFSA).

Students can get between $100 and $4,000, depending on when they apply, their level of need, and the funding level of the school the student is attending. Recipients must be U.S. citizens enrolled at least half-time in an undergraduate program at an accredited college or university.

Students at each school are awarded FSEOG aid based on the availability of funds at their school, so there is no guarantee that every eligible student will receive an FSEOG loan.

Nearly one million students receive Federal SEOG loans each year.

Federal Stafford Loans

Formerly called the Guaranteed Student Loan Program, Stafford loans are low-interest loans available to undergraduate and graduate students enrolled at least half-time, without regard to financial need. Federal Stafford Loans let students borrow money for educational expenses directly from commercial lenders such as banks, credit unions, savings and loan associations, and other lending institutions, or, for colleges participating in the Federal Direct Student Loan (FDSL) Program, from the U.S. government. Stafford loans can be either subsidized or unsubsidized.

These loans are similar to Federal Perkins Loans, except that the interst rate is higher and the grace period is shorter.

There are two types of Federal Stafford Loans:

• Subsidized Stafford Loans are awarded to students with demonstrated financial need. (The federal government pays the interest while the student is in school and during any deferment period.)
• Unsubsidized Stafford Loans may be awarded to students who do not have demonstrated financial need and therefore do not qualify for a subsidized loan, or to students who need additional funds. (Interest on the loan accrues while the student is in school and during any deferment.)

You do not have to start repaying the principal of either type of Stafford Loan until six months after you leave school (or after you stop attending at least half-time).

A combination of subsidized and unsubsidized Staffords may be awarded to students with partial financial need, depending on the students' status (dependent vs. independent) and demonstrated level of need.

Who's eligible?

Most states require Stafford borrowers to be full-time students (although a few do permit half-time students to borrow under the program). More than 5 million students participate in the Federal Stafford Loan Program each year. How much can I borrow?

If you are a dependent undergraduate, you can borrow up to:

• $2,625 if you're a first-year student enrolled in a program of study that is at least a full academic year
• $3,500 if you've completed your first year of study and the remainder of your program is at least a full academic year
• $5,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year

If you're an independent undergraduate or a dependent student whose parents are unable to get a PLUS Loan, you can borrow up to:

• $6,625 if you're a first-year student enrolled in a program of study that is at least a full academic year (Only $2,625 of this amount may be in subsidized loans.)
• $7,500 if you've completed your first year of study and the remainder of your program is at least a full academic year (Only $3,500 of this amount may be in subsidized loans.)
• $10,500 a year if you've completed two years of study and the remainder of your program is at least a full academic year (Only $5,500 of this amount may be in subsidized loans.)

What interest rate and/or fees will I be expected to pay?

For borrowers who received their loans on or after July 1, 1994, the interest rate is variable (it can change each year of repayment), depending on changes in the federal treasury bill interest rate, but will never exceed 8.25%. The interest rate is adjusted each year on July 1.

If you have a subsidized Stafford Loan, you won't be charged interest while you are enrolled in school at least half-time, during the six-month grace period after you graduate or leaves school, or during any authorized period of deferrment.

If you have an unsubsidized Stafford loan, you'll be charged interest from the day the loan is disbursed until it is repaid in full, including while you are in school, during the six-month grace period, and during any deferment periods. You have the option to pay the interest during these periods, or it can be capitalized.

Federal Stafford Loan borrowers are charged origination fees and insurance fees. These combined fees cannot exceed 4% of the amount borrowed, and they are deducted from your loan before you receive payment. If you don't make your loan payments on time, you may also be charged collection costs and late fees. How soon do I have to start repaying my Stafford loans?

• Subsidized Stafford -- Repayment on both interest and principal is deferred until six months after a student graduates or leaves school.
• Unsubsidized Stafford -- Repayment begins when the loan is disbursed, although the borrower may opt to postpone payments until leaving school; however, interest begins to accrue immediately.

Application Procedure:

1. Complete the Free Application for Federal Student Aid (FAFSA), or the Renewal FAFSA if applicable. After your FAFSA has been processed, your school will review the results and inform you about your loan eligibility.

2. Complete a Federal Stafford Loan Application and Promissory Note . (NOTE: Your school can refuse to certify your loan application, or can certify the loan for an amount less than you would otherwise be eligible for, if the school documents the reason for this action and explains this reasoning to you in writing. The school's decision is final.)

Federal Parent Loan for Undergraduate Students (PLUS) Loans

The Federal PLUS Loan program allows parents of undergraduate students to borrow up to the full cost of their children's education, less any other financial aid for which the student is eligible. For example, if your cost of attendance is $6,000 and you are eligible for $3,000 in other financial aid, your parents can borrow up to $3,000. Because PLUS Loans are not based on financial need, they can be used to cover a student's expected family contribution.

PLUS Loans are available from lenders participating in the Federal Family Education Loan (FFEL) Program, and from postsecondary institutions participating in the Federal Direct Student Loan (FDSL) Program. Parents can apply for either the Direct PLUS Loan or the FFEL PLUS Loan, but not both for the same child for the same enrollment period. (Parents can apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.) Rates and Fees:

The interest rate on these loans varies annually, adjusted on July 1, but may not exceed 9%.

Lenders may subtract a 3% loan origination fee and a 1% insurance fee. (Parents receiving a Direct PLUS Loan will be charged a combined 4% fee.) Fees are deducted proportionately each time a loan payment is made. Eligibility:

Borrowers do not have to demonstrate financial need, but they do have to demonstrate that they do not have an adverse credit history. (If a credit problem shows up during the credit check, borrowers may still be able to receive a loan if a relative or friend with a good credit history co-signs the loan or if the borrower can demonstrate extenuating circumstances that led to the credit problem.)

Borrowers can apply for either a Direct PLUS Loan or a FFEL PLUS Loan, but not both, for the same child for the same enrollment period. They can, however, apply for a Direct PLUS Loan for one child and a FFEL PLUS Loan for another.

Application Procedure:

Fill out a Common Loan Application and Promissory Note . (A FAFSA is not required unless the student's school requires it.) Repayment:

Repayment begins within 60 days of taking out the loan but can be deferred while the student is attending school -- however, interest will continue to accrue during the deferment. The lender will arrange the repayment schedule, which can extend to a maximum of 10 years, excluding any periods of deferment or forbearance. The minimum annual payment is $600.

Federal Perkins Loans

Federal Perkins Loans are low-interest loan (currently 5% -- the lowest of any educational loan program) for undergraduate and graduate students with exceptional financial need. These loans also offer generous repayment conditions. You don't start repaying the the loan, or interest on the loan, until you finish school or drop below half-time status. And, you are given a 9-month grace period before you have to start your repayments. Under certain conditions, you can stop repaying your loan for a short period of time and finish repaying it later.

To be eligible for this program, a student must have applied for a Pell Grant. Perkins Loans are campus-based -- that is, the federal government funds the program but gives the money to the schools, which in turn act as the lenders.

Depending on when you apply, your level of need, and the funding level of the school, you can borrow up to $3,000 for each year of undergraduate study, up to a total of $15,000 and a maximum of 5 years. Graduate students can borrow up to $5,000 per year of graduate or professional study (6 years max). A student can borrow a maximum combined cumulative total of $30,000 for undergraduate and graduate education. However, you may be able to borrow more than this if you are attending a school that has a default rate no higher than 15% and the school chooses to participate under the Expanded Lending Option, or if you are studying abroad. To find out, check with your school.

The interest on the Perkins Loan is subsidized while the student is in school, so students don't pay interest on the loan while they are in school, or during the 9-month grace period available following graduation. Repayment begins 9 months after the student leaves school. Payments must be made regularly -- a minimum monthly payment of $30 is usually required, unless the college agrees to a lower amount. Students have up to 10 years to repay the loan.

Under certain conditions, repayment can sometimes be further deferred, or even cancelled. For example, all or part of your loan may be canceled if you teach in certain areas, become a nurse or medical technician, work in certain law enforcement fields or for child or family service agencies, or serve as a full-time volunteer in specific programs (such as the Peace Corps). You may also be able to defer repayment if you resume your studies on at least a half-time basis.

Students attending school on a less than half-time status should check with their financial aid office to find out when they must begin repaying their loans.

You have up to 10 years to repay.

Federal Work-Study Program (FWS)

The Federal Work-Study (FWS) Program is a federal campus-based program that provides jobs for undergraduate and graduate students with demonstrated need who are enrolled on at least a half-time basis. Students are generally paid at least the prevailing federal minimum wage and may work as many as 40 hours a week (although 10-15 hours is more typical).

A student's FWS award depends on when the student applies, the student's level of need, and the funding level at the student's school.

Most FWS jobs are on-campus jobs, although some are off campus. Students who work on campus usually work for their school. Those working off campus usually work for a private nonprofit organization or a public agency, performing work in the public interest. Some schools may have agreements with private for-profit organizations for FWS jobs -- these must be relevant to the student's course of study.

About 713,000 students received assistance under the Federal Work-Study Program, according to the College Board.

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