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Federal Student Loans: A Summary


Dan Barrett
June 13, 2013

In anticipation of both more heated debates in Congress on whether or not to extend lower interest rates for incoming college students and a feature in this week’s Taxpayer’s Tab newsletter, I put together a quick reference to show exactly what loans are in question and what other loans are available to students.

The federal government offers many forms of financial assistance for college education, but a large portion of that help -- approximately $106 billion each year -- comes in the form of loans. While some loans are given to students based on financial need, others are issued with only the personal needs and considerations of the applicant. While some loans are given to students based on financial need, others are issued on an individualized, case-by-case basis that takes into account personal considerations of the applicant. Some students choose to forego full- or part-time employment during college and instead supplement their living expenses with loans. Though there are other options, such as private loans and Pell grants, government-backed student loans come in three forms:

  • Subsidized: Granted only to undergraduate students based on financial need with a lifetime borrowing limit of $23,000. While the student is in school (or does not have a deferment), interest does not accrue until after graduation (or until their deferment runs out).
    • Current Interest Rate: 3.4%
    • Interest Rate after July 1st: 6.8%
  • Unsubsidized: Offered to students pursuing either undergraduate or post-graduate degrees, these loans do accrue interest while the student is in school, but the loans are not based on financial need, allowing recipients to use the funds as they see fit. Borrowing limits vary (between $31,000 and $138,500) according to the level of educational degree (undergraduates receive less compared to graduate and professional students).
    • Interest Rate Currently and after July 1st: 6.8%
  • PLUS loans: Used to supplement parents of dependent students and graduate students who have passed the limits of Subsidized and Unsubsidized loans. These loans are not based on financial need. Similar to Unsubsidized loans, interest accrues immediately after being issued. There is no lifetime borrowing limit but has annual limits.
    • Interest Rate Currently and after July 1st: 7.9%

For a more detailed (though wonk-ish) summary, check out this great report by the Congressional Budget Office.


 

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