Government Student Loans: Basic Types

Government student loans in the US are administered by the federal government's Dept of Education. There are two types of government student loans – those given out to the students themselves, and those given out to their parents. There are definite plus and minus points to both varieties.

Direct Government Student Loans

First, there are the loans given directly to students. These have a much lower interest rate than the commercial rates at any given time. However, these loans are limited in the amount actually disbursed, and the final amount will depend upon the government's assessment of your actual needs. Stafford and Perkins loans are examples of this type of government student loans.

One big advantage with government student loans given directly to the student is that with many of them, you don't need to start repayments until six months after you've completed your course of study. Unsubsidized Stafford loans are an example of this. The interest rate for direct government student loans are fixed at 6.8% per annum, as of July 1 2006.

Parent Loans, PLUS Loans, Grad PLUS Loans

Secondly, there are government student loans given to the student's parents, and the parents are held liable for the repayment. If the repayment defaults, the parents' credit history suffers, not the student's. PLUS loans are an example of this type. These loans have a much higher credit limit, and you can use these to cover the whole expense of education, including food, board and other costs. The interest rate is higher, though, fixed at 8.5% per annum.

Recently another type of government student loans has been legislated into existence – PLUS loans that are issued directly to graduate students. These so-called grad PLUS loans are not need-based but demand-based, and whether you are given one will depend more on your credit history than on anything else.