The first type are loans made directly to the student. These loans are available to college and university students and are used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized by the U.S. Government or may be unsubsidized depending on the student's financial need.
Both subsidized and unsubsidized loans are guaranteed by the U.S. Department of Education either directly or through guarantee agencies. Nearly all students are eligible to receive them (regardless of credit score or other financial issues).
Both types offer a grace period of six months, which means that no payments are due until six months after graduation or after the borrower becomes a less-than-half-time student without graduating. Both types have a fairly modest annual limit.
The limit effective for loans
disbursed on or after July 1, 2007 is as follows: is $3,500 per year
for freshman undergraduate students, $4,500 for sophomore
undergraduates, and $5,500 per year for junior and senior
undergraduate students, as well as students enrolled in teacher
certification or preparatory coursework for graduate programs.
Subsidized federal student loans are offered to students with a
demonstrated financial need. Financial need may vary from school to
school. For these loans, the federal government makes interest
payments while the student is in college. For example, those who
borrow $10,000 during college will owe $10,000 upon graduation.
Unsubsidized federal student loans are also guaranteed by the U.S.
Government, but the government does not pay interest for the
student, rather the interest accrues during college. Those who
borrow $10,000 during college will owe $10,000 plus interest upon
graduation. For example, those who have borrowed $10,000 and had
$2,000 accrue in interest will owe $12,000. Interest will begin
accruing on the $12,000. The accrued interest will be "capitalized"
into the loan amount, and the borrower will begin making payments on
the accumulated total. Students can choose to pay the interest while
still in college; however, few students choose to exercise this
option.
Federal student loans for graduate students have higher limits:
$8,500 for subsidized Stafford and $12,500 (limits may differ for
certain courses of study) for unsubsidized Stafford. Many students
also take advantage of the Federal Perkins Loan. For graduate
students the limit for Perkins is $6,000 per year.