The main difference between the two loan types comes down to who pays interest.
What is a Perkins Loan?
A Federal Perkins Loan is financial assistance for needy undergraduate and graduate students given by the school, using school and government money. There are about 1,700 higher education institutions participating in the program.
Since the amount of Perkins Loan money available varies from one school to the next, each institution has its own income cutoff. You could be eligible for the loan if:
- You are an undergraduate or graduate student in exceptional financial need.
- You are enrolled in the school on a full-time or part-time basis.
- You attend a school that is part of the Federal Perkins Loan system.
New loans are funded mainly by three sources: the federal government, repayments of existing loans, and money from participating schools. Although the loans are disbursed by colleges, not all schools participate. Some colleges have more money for Perkins loans than others. As a result, students looking to take advantage of a Perkins Loan should apply to several schools if they want to secure a bigger loan.
The amount you can borrow depends on:
- Your financial need.
- The availability of funds at your career school or college.
- The amount of other aid you receive.
Considering that the funds available for a Federal Perkins Loan are limited, not everyone who qualifies will receive one. Therefore, it is important to submit your application early. Undergraduate students receive a maximum of $5,500 per year. The maximum they can borrow is $27,500. Graduate and professional students qualify for up to $8,000 per year and a maximum of $60,000.
Perkins Loan examples
Financial aid administrators at the institutions participating in the Federal Perkins Loan program are given substantial flexibility in awarding loans to their students.
A Federal Perkins Loan has a fixed interest rate. Repayment starts nine months after a student leaves the school. The monthly repayment amount depends on how much is owed and the repayment period. Under certain conditions, loan beneficiaries may receive a deferment on the repayment as long as they are not in default. Deferments can be obtained only by applying through the school.
The loan comes bundled with free insurance, so the debt is canceled if a beneficiary becomes disabled or dies. Some borrowers who plan to enter public service may get their employer to repay a portion of their loan.
Tax deductions for interest paid on Federal Perkins Loan are available, with a maximum of $2,500 a year.