Types of federal student loans to consider

Editor’s Note This article originally appeared in the April 2014 issue of Kiplinger’s personal finances.

Finding the right fit also means keeping student debt within reason. A benchmark suggests that students shouldn’t borrow more than they expect to earn in their first year in the workforce. (Students who borrow graduate with an average debt of $ 29,400, according to Project on Student Debt.) Maximize federal loans before you even consider private debt: Federal loans come with flexible repayment schedules and ‘other protections. Here are the federal loans available for undergraduates or their parents.

Directly subsidized (Stafford). With these loans, available to undergraduate students in financial need, the federal government covers interest until school and up to six months after graduation. (For loans taken out between July 1, 2012 and July 1, 2014, this post-graduation grace period will not be covered.) You can borrow up to $ 3,500 the first year, $ 4,500 the second. year and $ 5,500 thereafter, to a maximum of $ 23,000 for undergraduate students. The interest rate – 4.66% for loans taken out for the 2014-15 academic year – is fixed, but it is reset every year for new loans.

Direct unsubsidized (Stafford). You don’t need to demonstrate financial need to take out an unsubsidized loan. Interest starts to accumulate while you are in school. The annual maximum for undergraduates ranges from $ 5,500 to $ 7,500, less soft loans received during the same period. As with subsidized loans, you will repay this year’s loans at 4.66%; the rate is reset every year for new loans.

Perkins. These federal student loans are intended for undergraduate and graduate students with high financial needs. The interest rate is fixed at 5% and undergraduates can borrow up to $ 5,500 per year, for a total of up to $ 27,500.

MORE. For these loans, available for parents, you must undergo a credit check to prove that you have no “bad” credit history, for example, file for bankruptcy within the past five years. You can borrow up to the cost of tuition (less any other financial aid your student has received); the current interest rate is a fixed rate of 7.21%.

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