Dealing with College Debt

Now, if this is your first time in college or you’re sending your first child off to it, your financial aid package probably says a lot of things that you don’t understand. Two things that you may see on there, especially if you are in a lower-income household, are two different types of loans: Perkins Loans and Stafford Loans. There actually are differences between these loans that people don’t realize, and we’re going to look at that some today as we explore college debt and how it can affect you in the future.

Stafford Loans are the most common student loan out there. They’re non-need based, so your income only matters as to whether the loan is unsubsidized or subsidized (whether interest accrues during your time in school or not, respectively). Stafford Loans used to have a variable rate based on your income as well, but that changed in 2005 and all graduate and unsubsidized Stafford Loans now have a 6.8% interest rate. New undergraduate subsidized loans have varied due to College Cost Reduction and Access Act of 2007 and are currently at 4.5%. Next year, they will be 3.4% and then the following year they will be back to 6.8% like the other Stafford Loans. Undergraduate Stafford Loans also have a lifetime limit of $31,000 for dependent undergraduates, $57,500 for independent undergraduates and $138,500 for graduate students. The unsubsidized loans give you a little more of an aggregate limit that you would without them.

Perkins Loans, on the other hand, are need-based. Now I bet you’re thinking “how can a loan be need based? If you’re in need, why would you want to borrow money?” Well, first, it’s because there’s only so much money that can and will be distributed via grants and scholarships. Second, it’s because there’s multiple people in as much need or more than you are if you’re in a situation where a Perkins Loan is made available to you. These actually financed much of my undergraduate career, and they are primarily available to undergraduate students (in special cases where a graduate student is in extreme financial need, they may be able to get one as well).

Unlike Stafford Loans, Perkins Loans are made available through your college or university. They have a limited pool of funds to distribute amongst their neediest students. So, these aren’t necessarily available to everyone at every institution because not every institution has this available. The government basically pays your interest until you’re done with school, and then after the 9-month grace period, it’s your responsibility. The interest is at a 5% fixed rate and it’s always adjusting as time goes on and things change.


Don’t be puzzled when you look at your financial aid package. Know what the different kinds of loans are and take only what you need to get through your year without struggling or driving yourself crazy. Knowing the difference between Stafford and Perkins Loans will help you with that in the future.

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