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Uncle Sam offers a number of programs to help relieve some of the burden of paying for higher education, from Pell grants to Perkins loans.

Here’s a rundown of the programs and how you can take advantage of them:

As noted earlier, the first step to receiving federal aid is filling out a FAFSA form, which can be obtained online, from a high school counselor or by calling (800) 4-FED-AID.

The U.S. Department of Education administers federal college aid programs. To be eligible for federal student aid, you must:

  • Demonstrate financial need (not part of the criteria for some loans).
  • Be a U.S. citizen or eligible noncitizen with a valid Social Security number.
  • Show, by any of the means below, that you’re qualified to obtain a post-high school education:
    • Have a high school diploma or a General Education Development, or GED, certificate.
  • Pass a test approved by the Department of Education.
  • Comply with any state standards the Department of Education approves.
  • Complete a high school education through a state-approved home-schooling program.
  • Be enrolled as a regular student (that is, you have to be working toward a degree or certificate) in an eligible program.
  • Register with the Selective Service, if required.
  • Not be in default on a federal student loan or owe money on a federal student grant.
  • Not be convicted of selling or possessing illegal drugs.
  • Maintain satisfactory academic progress once in school.

After you’ve proved that you fulfill all these requirements and you submit your FAFSA, the government will consider you for the aid programs they offer.

Federal student aid comes in two flavors: gift aid and self-help aid. You don’t have to pay back gift aid, and the self-help aid programs allow you to earn money or to borrow money for school. Borrowed money, as it implies, must be repaid.

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Pell grants and FSEOGs

Gift-aid programs include the federal Pell grant program and the Federal Supplemental Educational Opportunity Grant program. These grants are generally available only to students who do not yet have bachelor’s degrees. In some cases they might be awarded to students enrolled in post-baccalaureate teacher certification programs.

Pell grants come in varying amounts — depending on your need and the cost of attendance and whether you attend full time or part time — from several hundred to several thousand dollars.

FSEOGs go to students with exceptional financial need. As with Pell Grants, FSEOG-award amounts range from several hundred dollars to several thousand a year, depending on the student’s financial need. Students who receive Pell grants also are at the top of the priority list for receiving FSEOGs.

Grants and loans
  • Pell grant program
  • Federal Supplemental Educational Opportunity Grant program
  • Federal work-study program
  • Perkins loan
  • Stafford loan
  • Parent Loan for Undergraduate Student (PLUS)

FSEOGs have a few limitations that Pell grants don’t. For one, the amount of your FSEOG can be reduced if you receive other forms of student aid. Also, each school receives a limited amount of FSEOG money; when it’s gone, it’s gone. That’s why it’s very important to apply for financial aid as early as you can. You’ll have a better chance of obtaining FSEOG money if you’re eligible for it.


The Federal work-study program is a key form of self-help aid. Work-study allows undergraduate and graduate students to work part time and earn money while they’re in school. And more money earned equals less money needed in student loans.

Work-study jobs are usually on campus, but some schools make arrangements for private, non-profit organizations or public agencies to provide work-study jobs, too. These jobs pay undergraduates by the hour and at least the minimum wage. Graduate students may earn an hourly wage or a modest monthly salary. Students aren’t allowed to work more than the number of work-study hours awarded to them in their financial-aid package.

Like FSEOGs, work-study funds at each school are limited, and are doled out on a first-come, first-served basis. Students who apply for financial aid early have a better chance of getting work-study funds — and a campus job they might actually like.

Perkins loans

Low-interest-rate federal Perkins loans are another first-come, first-served option. The federal government only guarantees each school only a certain amount of Perkins loan money each year. This program is yet another reason for students to fill out FAFSAs as early as possible.

Unlike grants, loan money must be paid back. However, students can take up to 10 years to repay Perkins loans. If you attend school at least half-time, you have nine months after you graduate, leave school or drop below half-time status to begin to repay your loan, or perhaps longer if you’re in the military. Payments are scheduled over a 10-year period. Perkins loans carry fixed interest rates.

Perkins loans also can be discharged or canceled in full or in part for various reasons, including for graduates who are employed in specific teaching positions, certain public or nonprofit family services jobs, and law enforcement or in military service in certain hostile areas.

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Stafford loans

Federal Stafford loans are the backbone of the Department of Education’s self-help aid program for students. The advantage of Stafford loans is that their interest rate is lower than what students or parents could get through a private lender. However, it’s usually higher than the rate for a Perkins loan. Stafford loans are available to students enrolled in an eligible program at least half-time and carry variable interest rates that are adjusted each July 1 for the following 12 months.

There are two types of Stafford loans — Direct and FFEL. Direct Stafford loans are made through the William D. Ford Federal Direct Loan (Direct Loan) program, while FFEL Stafford loans are made by the Federal Family Education Loan (FFEL) program. The terms and conditions are much the same, but in the Direct Loan program, the money comes directly from the U.S. government. If your school does not participate in the Direct Loan program, the money is lent to you from a bank, credit union or other lender that participates in the FFEL program.

A Stafford loan may either be subsidized or nonsubsidized. Subsidized loans are based on financial need, and the federal government pays interest on the loans while the student is in school. Students pick up the payments on loan interest and principal six months after they graduate.

Students who don’t show financial need, according to the Department of Education’s guidelines, but still need more money for school, may qualify for an unsubsidized Stafford loan. This type of loan doesn’t offer the interest grace period. The borrower is responsible for interest charges beginning the date the loan is disbursed.

Students can take from 10 to 30 years to pay off their Stafford loans, depending on the amount they owe and the type of repayment plan they choose. Under certain conditions you can receive a deferment or discharge of the loan. For more on deferment or discharge, see Chapter 5.

Loans for parents

Federal loans also are available to parents of college students, and can help bridge an important college funding gap. Parents may borrow up to the full cost of a student’s education, minus any financial aid received, with a Parent Loan for Undergraduate Students, or PLUS. These loans are government-sponsored and have a variable interest rate that is capped at 9 percent.

Families must pass a credit check to qualify for a PLUS loan and the student must meet certain eligibility requirements. Monthly payments begin within 60 days of the loan disbursement. Repayment on a PLUS loan is 10 years, with no early repayment penalty. Generally, PLUS loans carry the same deferment and discharge policies as Stafford loans.

Although many families prefer not to borrow money at all, it’s important to remember that federal loans tend to have lower interest rates and more flexible repayment policies than other types of loans. Families who need to borrow money for college should be sure to exhaust all federal loan options before turning to private lenders.

For more information on federal student aid programs, go to FAFSA or StudentAid. And to find up-to-date interest rates in your city and state on Stafford loans, PLUS, alternative loans and home equity loans, visit the Compare Rates tab on Bankrate’s College Finance home page.