A primer on student loans

The Federal Direct Loan Program is the largest federal student-loan program and includes four kinds of loans:

Direct subsidized

• For undergraduates who demonstrate financial need

• Department of Education pays the interest while the student is in school at least half-time, for the first six months after the student leaves school and during a period of deferment (a postponement of loan payments).

• Interest rate currently at 3.86 percent

Direct unsubsidized

• For undergraduate, graduate and professional students

• No requirement to show financial need

• Student is responsible for paying interest

• If students choose not to pay the interest during school, grace periods and deferment, interest will accrue and be added to the principal loan amount

• Interest rate currently at 3.86 percent for undergraduates and 5.41 percent for graduate students

Direct PLUS

• Made to graduate or professional students and parents of dependent undergraduates

• Borrower must have good credit history

• Fixed interest rate of 6.41 percent

Direct consolidation

• Allow borrowers to combine all of their eligible federal student loans into a single loan with a single loan servicer

• Interest rate is the weighted average of the interest rates on the loans being consolidated. This rate is fixed for the life of the loan and capped at 8.25 percent.

Other federal loan programs:

Stafford loans

• For undergraduates and graduate students enrolled in college at least half-time

• Unsubsidized and subsidized options

• Fixed interest rate, currently at 3.86 percent for undergraduates and 5.41 percent for graduate students

Perkins loans

• Low-interest, need-based loans for low-income undergraduate, graduate and vocational students attending eligible institutions

• Loan amount depends on a student's financial need and the availability of his or her school's funds

• Fixed interest rate of 5 percent


Unlike loans, grant money does not have to be paid back. Grants are provided by federal and state governments:

Pell Grants (federal)

• Amount depends on a student's financial need, costs to attend school, status as a full-time or part-time student and plans to attend school for a full academic year or less

• Loan amounts change annually. The maximum for the 2013-14 award year is $5,645

Cal Grants (state)

• Can be used to pay for expenses (from tuition and room and board to textbooks) at any qualifying California school

• Applicants must fill out FAFSA or California Dream Act Application, be a U.S. citizen or eligible non-citizen or meet AB540 (California Dream Act) criteria, be a California resident when they graduated from high school, have financial need, have family income and assets below established ceilings, meet minimum GPA requirements, be enrolled at least half-time, not owe a refund on a state or federal grant or be in default on a student loan.

Source: Federal Student Aid office website, part of the U.S. Department of Education


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