When applying for college financial aid, it can sometimes be confusing trying to determine the difference between the many types of scholarships, grants, and loans that are available. Therefore, in wading through the vast amount of information, here are a few key points on the differences between the Stafford, Perkins, and PLUS loans.
Once you have a good understanding of how each loan works, as well as the advantages and disadvantages to each, it will be much easier to determine which may work the best in your particular college financial aid situation.
Stafford loans are considered need-based government loans that are made directly to a college or university student as versus to their parents. The amount that one is granted through a Stafford loan will be determined via a calculation of an amount of expected family contribution even if the family does not contribute to the student’s educational expenses. When one uses funding through a Stafford loan, repayment is not required until after the student graduates.
There are essentially two ways that interest is determined on a Stafford loan. If an individual receives an “unsubsidized” Stafford loan, the interest on the loaned funds will begin to accrue prior to the student’s graduation. Alternatively, if one receives a “subsidized” Stafford loan, the interest will not begin accruing until after the student graduates from college.
Perkins loans provide funds by way of a low-interest loan to both undergraduate and graduate students who have demonstrated an exceptional amount of financial need. These types of loans are made directly from the financial aid office of the college or university where the individual attends. Because the school is actually the lender of a Perkins loan, the repayments are made directly to the institution.
With these loans, the funds may be paid to the student in the form of a check, or the money may be paid directly to the college or university to cover school related expenses. An individual must begin making repayments on a Perkins loan nine months after they have graduated. Should the student leave school prior to graduation or drop below what is considered as half-time student status, they will need to start making loan payments immediately at that time.
PLUS loans are also a way to borrow a low-interest amount that goes towards paying the cost of college. Unlike a Stafford loan, the funds from a PLUS loan are paid directly to the parents of the student even though the money is being borrowed on behalf of the student.
Although there are some borrowing limits and caps that are associated with Perkins and Stafford loans, with a PLUS loan, a student’s parents may borrower the entire amount that the student needs for their educational expenses including funds that may be needed for housing.
In addition, to be eligible for a PLUS loan, the borrower is not required to show financial need as they do with a Perkins and Stafford loan. In order to be approved for funding from a PLUS loan, a student must be enrolled at least at part-time student status, and the parent/borrowers are also required to pass a standard credit check.