Types of Federal Student Loans

Federal loans come in three types:

• Subsidized loans, which are need-based.

• Unsubsidized loans, which don't require you to demonstrate need

• PLUS loans, designed for parents and graduate students.

Subsidized loans include:

• Perkins loans. These are the best student loans of all and are awarded to students with "exceptional financial need" and come with a 5% fixed interest rate. You can borrow up to a maximum of $27,500 for undergraduate education and $60,000 for undergraduate and graduate school combined. Perkins loans can be canceled if you work in certain fields, such as nursing and law enforcement, volunteer for the Peace Corps or teach in a low-income area.

• Subsidized Stafford loans. Stafford loans are fixed at 5.6%, but the rates are scheduled to decline over the next three years until they hit 3.4% in 2011. The College Cost Reduction and Access Act of 2007 lays out the following rate schedule:

School year	Subsidized rate	Unsubsidized rate
2009-10	5.6%	6.8%
2010-11	4.5%	6.8%
2011-12	3.4%	6.8%
2012-13	6.8%	6.8%

About two-thirds of subsidized Stafford loans go to families with adjusted gross incomes of $50,000 or less, Kantrowitz said.
If you don't qualify for a subsidized Stafford loan, you may be offered the unsubsidized version. As with subsidized Staffords, the rate you pay will be fixed. Unlike the subsidized version, however, the government doesn't pay the interest for you while you're in college, so you could have sizable interest accrued by the time you graduate.
The limits on Stafford loans depend on several variables, including whether they are subsidized or unsubsidized, the degree sought and type of study.
There's one other major type of federal student loan program: PLUS loans.
PLUS originally stood for Parent Loan for Undergraduate Students. But the program was expanded in 2006 to allow graduate and professional students to take out PLUS loans to fund their own educations. The loans typically allow the borrower to receive the difference between a financial-aid package and the full cost of his or her education, including books, supplies, room, board and other living expenses.
The maximum rate that can be charged for PLUS loans is 8.5%, although some lenders offer lower rates. Unlike the student loans discussed so far, however, you have to have decent credit to get these loans, and you'll need to start making payments shortly after the money is disbursed.

How do you get these loans? 

To get Perkins or Stafford loans, you must first fill out a Free Application for Federal Student Aid, or FAFSA, before the start of each school year. You've got to jump through this hoop even if you don't expect to get any need-based aid or subsidized loans.

Perkins loans are made by the schools themselves. If a school participates in the Federal Direct Loan Program, then Stafford and PLUS loan applications also can be made through the school.Otherwise, you'll need to apply to a bank, savings and loan or credit union that provides money under federal student loan programs. Your college's financial-aid office may recommend lenders, but you're free to choose your own.
To get PLUS loans, you don't have to fill out a FAFSA. Instead, the borrower submits a loan application and signs a promissory note. A credit check is required, and the application may be denied if the borrower has an "adverse credit history," which includes being 90 days or more late on a bill or being in default on a loan.