There are two types of Federal Direct loans: subsidized and unsubsidized. Interest rates for Federal Direct loans vary based on type, dependent status, and grade level; however, they remain fixed for the life of the loan.
Federal Direct Subsidized Student Loans
Federal subsidized loans are awarded to students on the basis of financial need. The federal government pays the borrower’s accrued interest while the student is in school and up to 6 months after they stop attending, thereby “subsidizing” these loans.
Federal Direct Unsubsidized Loans
Federal unsubsidized loans are not need based; the borrower is responsible for accrued interest throughout the life of the loan. The borrower can choose to pay just the interest while in school or let the interest compound. The current interest rate is a fixed 4.66%.
Federal Loan Limits
The annual loan limits for undergraduates are as follows:
- $3,500 combined Federal subsidized and/or Federal unsubsidized plus $6,000 additional Federal unsubsidized for independent first-year undergraduates;
- $4,500 combined Federal subsidized/and or Federal unsubsidized plus $6,000 additional Federal unsubsidized for independent second-year undergraduates; and
- $5,500 combined Federal subsidized and/or Federal unsubsidized plus $7,000 additional Federal unsubsidized for independent third-, fourth-, or fifth year undergraduates.
The annual loan limit for graduate and professional loans is as follows:
- The annual loan limit for a graduate or professional student is $20,500 per academic year.
- Effective 7/1/12, all graduate federal student loans are unsubsidized.
The Lifetime maximum limit for an undergraduate student is $57,500 with the maximum Federal subsidized amount of $23,000.
The Lifetime maximum limit for a graduate student is $138,500 with the maximum Federal subsidized amount of $65,500. The $138,500 includes all undergraduates Federal subsidized and Federal unsubsidized loans.
Federal Perkins Loan
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. Funds are limited and are awarded on a case-by-case basis.
It is the policy of the Financial Aid Office to award Federal Perkins loans to students with exceptional need and who do not have enough financial aid to pay their tuition and fees. The Federal Perkins Loan is not to be used for expenses other than tuition and fees.
Teachers Loan Forgiveness/Public Service Loan Forgiveness
Teacher Loan Forgiveness
The Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession. Under this program, individuals who teach full time for five consecutive , complete academic years in certain elementary and secondary schools that serve low-income families and meet other qualifications may be eligible for forgiveness of up to a combined total of $17,500 in principal and interest on their FFEL and/or Direct Loan program loans.
(Note: As of August 14, 2008, an otherwise eligible borrower may qualify for forgiveness if the borrower has provided qualifying teaching services at one or more locations that are operated by an educational service agency.)
Public Service Loan Forgiveness
Public Service Loan Forgiveness will forgive remaining federal student loan debt after 10 years of qualifying loan payments and eligible employment. This program is designed for borrowers whose income is low relative to their debt for at least some of their time in a public service job. All loans must be consolidated under the Direct Loan Program to qualify.
Income Based Repayment
Income-Based Repayment (IBR) is a new payment option for federal student loans. It can help borrowers keep their loan payments affordable with payment caps based on their income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of their income – and even smaller for borrowers with low earnings. IBR will also forgive remaining debt, if any, after 25 years of qualifying payments.
IBR is available to federal student loan borrowers in both the Direct and Guaranteed (or FFEL) loan programs, and covers most types of federal loans made to students, but not those made to parents. To enter IBR, you have to have enough debt relative to your income to qualify for a reduced payment. That means it would take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans on a standard 10-year payment plan.