Federal Financial Aid Programs
The U.S. government provides about 75 percent of all available student aid, according to the College Board. Before seeking out more alternative financial aid sources, learn as much as possible about federal financial aid programs.
The largest and most familiar federal student aid programs are:
- Pell Grants
- Federal Supplemental Educational Opportunity Grant (FSEOG)
- Stafford Loans
- Parent Loan for Undergraduate Students (PLUS) Loans
- Federal Graduate PLUS Loan
- Perkins Loans
- Federal Work-Study Program
Federal Pell Grants
The Federal Pell Grant program is one of the most common need-based grants available to students. For many students, these grants are the foundation of their financial aid package because, unlike loans, they don’t need to be repaid. Pell Grants are only awarded to undergraduate students who haven’t earned a bachelor's or professional degree.
To apply for a Pell Grant, you must submit a Free Application for Federal Student Aid (FAFSAOnline.com).
Awards depend on program funding. You can receive only one Pell Grant in an award year.
The size of a student's Pell Grant award depends on:
- The student's need
- The student's Expected Family Contribution (EFC) and Cost of Attendance (COA)
- Whether the student is enrolled on a full-time or a part-time basis
- Whether the student attends school for a full academic year or less
- How much money the program receives from the federal government
Students who participate in a study-abroad program that costs more than their usual tuition may be eligible for additional Federal Pell Grant aid to help cover those costs. (Check with your financial aid office.)
Federal Supplemental Educational Opportunity Grants (FSEOG)
The Federal Supplemental Educational Opportunity Grants program is one of three federal campus-based programs. The program provides grants to undergraduates with exceptional financial need (students with the lowest Expected Family Contributions) and gives priority to students who receive Federal Pell Grants. Students are automatically considered when they submit a Free Application for Federal Student Aid (FAFSA).
Students can receive between $100 and $4,000, depending on when they apply, their level of need, and the funding level of the school the student is attending. Recipients must be U.S. citizens enrolled at least half-time in an undergraduate program at an accredited college or university.
Students at each school are awarded FSEOG aid based on the availability of funds at their school, so there is no guarantee that every eligible student will receive an FSEOG grant.
Formerly called the “Guaranteed Student Loan Program”, Stafford loans are available with a 6.8% interest rate to undergraduate and graduate students enrolled at least half-time. Federal Stafford Loans are provided by the U.S. Department of Education. To apply for a Stafford Loans, you must complete the FAFSA.
There are two types of Stafford Loans:
- Subsidized Stafford Loans are awarded to students with demonstrated financial need. The government pays (subsidizes) the interest while the student is in school and during any deferment period.
- Unsubsidized Stafford Loans may be awarded to students who don't have demonstrated financial need and therefore do not qualify for a subsidized loan, or to students who need additional funds. (Interest on the loan accrues while the student is in school and during any deferment.)
You don't have to start repaying the principal of either type of Stafford Loan until six months after you leave school (or after you stop attending at least half-time).
A combination of subsidized and unsubsidized Stafford loans may be awarded to students with partial financial need, depending on the students' status (dependent or independent) and demonstrated level of need. Students who can’t provide parental information on the FAFSA are eligible for unsubsidized loans.
Most states require Stafford borrowers to be full-time students (although a few do permit half-time students to borrow under the program).
Interest Rates and Loan Limits
For the 2012-2013 academic year, Stafford loan interest rates are set at 6.8% for both graduate and undergraduate students. The amount a student may borrow is different depending on the year. For a breakdown of Stafford Loan limits, see Federal Stafford Loans.
1. Complete the Free Application for Federal Student Aid (FAFSA), or the Renewal FAFSA if applicable. After your FAFSA has been processed, your school will review the results and inform you about your loan eligibility.
2. Review your award and sign the Master Promissory Note to accept the loan. (NOTE: Your school can refuse to certify your loan, or can certify the loan for an amount less than you would otherwise be eligible for, if the school documents the reason for this action and explains this reasoning to you in writing. The school's decision is final.)
Parent Loan for Undergraduate Students (PLUS)
The Federal PLUS Loan program allows parents of undergraduate students to borrow up to the full cost of their children's education, less any other financial aid for which the student is eligible. For example, if your cost of attendance is $6,000 and you are eligible for $3,000 in other financial aid, your parents can borrow up to $3,000. Because PLUS Loans are not based on financial need, they can be used to cover a student's expected family contribution.
The Federal PLUS Loan is available from the Federal Direct Loan Program.
Many parents consider private loans for college as an alternative to the PLUS loan as private loans require the student to be responsible for the loan while the parent acts as the cosigner.
PLUS Loan interest rates are fixed for all new PLUS Loans at a rate of 7.9%. These loans do not have variable interest rates.
Borrowers do not have to demonstrate financial need, but they do have to demonstrate that they do not have an adverse credit history. (If a credit problem shows up during the credit check, borrowers may still be able to receive a loan if a relative or friend with a good credit history Cosigns the loan or if the borrower can demonstrate extenuating circumstances that led to the credit problem.)
Contact your school’s financial aid office to apply. An online application and signature process may be available through your school.
Graduate PLUS Loan
Graduate or professional students are eligible to borrow through the PLUS Loan Program (Grad PLUS Loan) up to their cost of attendance minus other estimated financial assistance. The terms and conditions applicable to Parent PLUS Loans also apply to Graduate/Professional PLUS loans. These requirements include a determination that the applicant does not have an adverse credit history, repayment beginning on the date of the last disbursement of the loan, and a fixed interest rate of 7.9 percent. Applicants for these loans are required to complete the Free Application for Federal Student Aid (FAFSA). They also must have applied for their annual loan maximum eligibility under the Federal Subsidized and Unsubsidized Stafford Loan Program before applying for a Graduate/Professional PLUS loan.
Federal Perkins Loans
Federal Perkins Loans are low-interest loan (currently 5 percent -- the lowest of any educational loan program) for undergraduate and graduate students with exceptional financial need. These loans also offer generous repayment conditions. You don't start repaying the loan, or interest on the loan, until you finish school or drop below half-time status. And, you are given a 9-month grace period before you have to start your repayments. Under certain conditions, you can stop repaying your loan for a short period of time and finish repaying it later.
To be eligible for this program, a student must have applied for a Pell Grant. Perkins Loans are campus-based -- that is, the federal government funds the program but gives the money to the schools, which in turn act as the lenders.
Depending on when you apply, your level of need, and the funding level of the school, you can borrow up to $5,500 for each year of undergraduate study, up to a total of $27,500 and a maximum of 5 years. Graduate students can borrow up to $8,000 per year of graduate or professional study (6 years max). A student can borrow a maximum combined cumulative total of $60,000 for undergraduate and graduate education. However, you may be able to borrow more than this if you are attending a school that has a default rate no higher than 15 percent and the school chooses to participate under the Expanded Lending Option, or if you are studying abroad. To find out, check with your school.
The interest on the Perkins Loan is subsidized while the student is in school, so students don't pay interest on the loan while they are in school, or during the 9-month grace period available following graduation. Repayment begins 9 months after the student leaves school. Payments must be made regularly -- a minimum monthly payment of $30 is usually required, unless the college agrees to a lower amount. Students have up to 10 years to repay the loan.
Under certain conditions, repayment can sometimes be further deferred, or even cancelled. For example, all or part of your loan may be canceled if you teach in certain areas, become a nurse or medical technician, work in certain law enforcement fields or for child or family service agencies, or serve as a full-time volunteer in specific programs (such as the Peace Corps). You may also be able to defer repayment if you resume your studies on at least a half-time basis.
Federal Work-Study Program (FWS)
The Federal Work-Study (FWS) Program is a campus-based program that provides jobs for undergraduate and graduate students with demonstrated need who are enrolled on at least a half-time basis. Students are generally paid at least the prevailing federal minimum wage and may work as many as 40 hours a week (although 10-15 hours is more typical).
A student's FWS award depends on when the student applies, the student's level of need, and the funding level at the student's school.
Most FWS jobs are on-campus jobs, although some are off campus. Students who work on campus usually work for their school. Those working off campus usually work for a private nonprofit organization or a public agency, performing work in the public interest. Some schools may have agreements with private for-profit organizations for FWS jobs -- these must be relevant to the student's course of study.
Federal Loan Repayment
Most federal loans come with a 6-month grace period and choice of repayment plan. For more information on student loan repayment, check out our college loan repayment section.