Types of Federal Student Loans and Student Aid

There are a wide variety of different places that you can obtain student loans, grants, and other student aid, but none are so common as federal student loans. There are many different options, however, so it's worth spending time understanding the differences, the qualifications, and trying to identify your best fit, in terms of amount available, eligibility and speed of payment.

FEDERAL PERKINS LOANS

What is a Federal Perkins Loan?
A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate students with financial need. Your school is your lender. The loan is made with government funds, and your school contributes a share. You must repay this loan to your school.
How much can I borrow?
 Depending on when you apply, your level of need, and the school’s funding level, you can borrow up to Other than interest, is there any charge to get these loans?
No, you’re not charged any fees to take out the loan. But, if you skip a payment, make a payment late, or make less than a full payment, you might have to pay a late charge. If you continue not making payments as required, you might have to pay collection costs as well.

How will I be paid?
Your school will either pay you directly (usually by check) or credit your account. Generally, you’ll receive the loan in at least two payments during the academic year.*

 Can I cancel the loan if I change my mind, even if I’ve signed the promissory note agreeing to the loan’s terms?
Yes. Your school must notify you in writing whenever it credits your account with your Perkins Loan funds. The school must send you this notification no earlier than 30 days before, and no later than 30 days after, the school credits your account. You may cancel all or a portion of your loan if you inform your school you wish to do so within 14 days after the date your school sends you this notice, or by the first day of the payment period, whichever is later. (Your school can tell you the first day of your payment period.) If you receive Perkins Loan funds directly by check, you may refuse the funds by returning the check.

When do I pay back this loan?(1)
If you’re attending school at least half time,* you have nine months after you graduate, leave school, or drop below half time* status before you must begin repayment (you might have longer than nine months if you’re on active duty with the military). This period of time is called a grace period. If you’re attending less than half time,* check with your financial aid administrator to determine your grace period. At the end of your grace period, you must begin repaying your loan. You may be allowed up to 10 years to repay.

Examples of Typical Payments for Perkins Loan Repayment

Total Loan
Amount
Number of
Payments
Approximate
Monthly Payment
Total Interest
Charges
Total Repaid
$4,000
120
 $42.43
$1,091.01
$5,091.01
$5,000
120
 $53.03 $1,364.03 $6,364.03
$15,000
120
 $159.10 $4,091.73 $19,091.73

(1) The U.S. Department of Education (ED) has issued special guidance for those called to active duty as a result of the September 11 terrorist attacks. If a borrower’s loans are in an in-school status, in-school deferment status, or in a grace period when the borrower is ordered to active duty or reassigned, the loan holder must maintain the loans in that status during the period of the borrower’s active duty service or reassignment, plus the time necessary for the borrower to resume enrollment in the next regular enrollment period reasonably available to the borrower. The maintenance of loan status may not exceed a total of three years, including the period of time necessary for the borrower to resume enrollment.
How much can I borrow?

For a borrower whose loans are in repayment, the loan holder must grant a forbearance (temporary suspension of repayment) for the expected period of the borrower’s active duty status, beginning on the first day of active duty, not to exceed one year. Forbearance beyond the initial period will require supporting documentation and a written agreement by the borrower.

For more information about loan repayment options that might be available to a borrower in this situation, the loan holder should be contacted directly.


How much will I have to repay each month?
Your monthly payment amount will depend on the size of your debt and the length of your repayment period. The table at left shows typical monthly payments and total interest charges for three different 5-percent loans over a 10-year period.

 Are there any tax credits available for paying back these loans?
Yes, there are tax incentives for certain higher education expenses, including a deduction for student loan interest for certain borrowers. This benefit applies to federal and nonfederal loans used to pay for postsecondary education costs. The maximum deduction is $2,500 a year. IRS Publication 970, Tax Benefits for Higher Education, explains these credits and other tax benefits. You can find out more by calling the IRS at 1-800-829-1040. TTY callers can call 1-800-829-4059.

Is it ever possible to postpone repayment of my Federal Perkins Loan?
Yes, under certain conditions, you can receive a “deferment” or “forbearance” on your loan, as long as the loan isn’t in default.* During a deferment, you’re allowed to temporarily postpone payments, and no interest accrues (accumulates). Look under “Perkins Loans” on the chart for the list of deferments available. Also, the school that made you your loan must automatically defer your Federal Perkins Loan(s) during any periods where you perform a service that qualifies you for loan cancellation. (See below for a description of loan cancellation; see the next page for a list of service cancellations.)

Deferments are not automatic. You must apply for one through your school, generally by using a deferment request form your school can give you. You must file your deferment request on time or you’ll pay a late charge. For more details on deferments, contact your school’s financial aid office.

If you temporarily can’t meet your repayment schedule but aren’t eligible for a deferment, you can receive forbearance for a limited and specific period. During forbearance, your payments are postponed or reduced, or your repayment period might be extended. Interest continues to accrue, however, and you’re responsible for paying it.

Forbearance isn’t automatic either. You may be granted forbearance in intervals of up to 12 months at a time for up to 3 years. You must apply in writing for forbearance to the school that made your loan or to the agency the school employs to service your loan. You’ll have to provide documentation to show why you should be granted forbearance.

You must continue making scheduled payments until you’re notified that deferment or forbearance has been granted. Otherwise, you could become delinquent or go into default.*

Is it ever possible to have my Federal Perkins Loan canceled?
Yes. Federal Perkins Loans can be canceled if the borrower dies or becomes totally and permanently disabled, for example. A loan can also qualify for cancellation under certain other conditions, as long as you’re not in default.* See the table below for the list of cancellation provisions. For more information, contact your financial aid office.

If you serve as an enlisted person in certain specialties of the Armed Forces, the U.S. Department of Defense might, as an enlistment incentive, repay a portion of your student loan. Note that this is not a cancellation. For more information, contact your recruiting officer.

Another type of repayment assistance (again, not a cancellation) is available through the U.S. Department of Health and Human Services’ Nursing Education Loan Repayment Program (NELRP). This program will help repay student loans for registered nurses in exchange for their service in eligible facilities located in areas experiencing a shortage of nurses. All NELRP participants must enter into a contract agreeing to provide full-time employment in an approved eligible health facility (EHF) for 2 or 3 years. In return, the NELRP will pay 60 percent of the participant’s total qualifying loan balance for two years or 85 percent of the participant’s total qualifying loan balance for three years. For more information, call NELRP, toll-free, at 1-866-813-3753 or visit www.bhpr.hrsa.gov/nursing/loanrepay.htm.

If you have any questions about the terms of your Federal Perkins Loan, repayment obligations, deferment, forbearance, or cancellation, check with the school that made you the loan. Only that school may grant deferment, forbearance, or cancellation, or make other decisions concerning your loan.

Perkins Discharge/Cancellation Summary(1)
Cancellation Conditions
Amount Forgiven
Notes
Borrower’s total and permanent disability(2) or death
100%
 Service qualifies for deferment also.
Full-time teacher in a designated elementary or secondary school serving students from
low-income families
Up to 100%
 Service qualifies for deferment also.
Full-time special education teacher (includes teaching children with disabilities in a public or other nonprofit elementary or secondary school) Up to 100% Service qualifies for deferment also.
Full-time qualified professional provider of early intervention services for the disabled Up to 100% Service qualifies for deferment also.
Full-time teacher of math, science, foreign languages, bilingual education, or other fields designated as teacher shortage areas Up to 100% Service qualifies for deferment also.
Full-time employee of a public or nonprofit child- or family- services agency providing services to high-risk children and their families from low-income communities Up to 100% Service qualifies for deferment also.
Full-time nurse or medical technician Up to 100% Service qualifies for deferment also.
Full-time law enforcement or corrections officer Up to 100% Service qualifies for deferment also.
Full-time staff member in the education component of a Head Start Program Up to 100% Service qualifies for deferment also.
Vista or Peace Corps volunteer Up to 70% Service qualifies for deferment also.
Service in the U.S. Armed Forces Up to 50% in areas
of hostilities or imminent
danger		 Service qualifies for deferment also.
Bankruptcy (in rare cases) Up to 100% Cancellation is possible only if the
bankruptcy court rules that repayment
would cause undue hardship.
Closed school (before student could complete program of study) 100% For loans received on or after
January 1, 1986.



1.   As of October 7, 1998, all Perkins Loan borrowers are eligible for all cancellation benefits regardless of when the loan was made or the terms of the borrower’s promissory note. However, this benefit is not retroactive to services performed before October 7, 1998.

2.   Beginning July 1, 2002, a borrower who is determined to be totally and permanently disabled will have his or her loan placed in a conditional discharge period for three years from the date the borrower became totally and permanently disabled. During this conditional period, the borrower doesn’t have to pay principal or interest. If the borrower continues to meet the total-and-permanent disability requirements during, and at the end of, the three-year conditional period, the borrower’s obligation to repay the loan is canceled. If the borrower doesn’t continue to meet the cancellation requirements, the borrower must resume payment. Total and permanent disability is defined as the inability to work and earn money because of an injury or illness that is expected to continue indefinitely or to result in death. For more information on qualifying for this discharge, review your promissory note* and contact your loan holder. More information on teaching service cancellation/deferment options can be found at www.studentaid.ed.gov At the site, click on “Repaying,” then on “Cancellation and Deferment Options for Teachers.

Source: U.S. Department of Education, Student Aid Department