Weigh Your Options: Perkins Loan vs. Stafford Loan

Affording higher education is made easier by the variety of loans there are available to prospective students. Federal student loans are generally more generous and with the low interest rates that usually come attached, most families look here first when trying to figure out how to finance schooling that isn’t covered by grants or scholarships. Perkins loan vs. Stafford loan are two different types that are offered through the federal government, and they each come with certain pros and cons.

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The Similarities They Share

With them both being direct federal loans, there are a few more ways than one in which they are very much alike:

  • Borrowers that have sufficient financial need are offered these choices.
  • These loans are available to all qualifying graduate students.
  • As long as certain criteria is met, the borrower may be eligible for loan consolidation. Loan forgiveness is also available in some cases.
  • Institutions that participate in the federal student loan program administer both of these types through their financial aid offices.
  • To apply for either a Perkins loan vs. Stafford loan, you must complete a FAFSA application that includes a promissory note which states your full intention to repay the amount you borrow.
  • The student must apply and be approved for the loan each academic year.
  • The loan money must be used for approved educational expenses like tuition, books and room and board and cannot be used for secondary school purposes.
  • Taxpayers are able to deduct interest paid on their loans whether they itemize their deductions or not.

The Ways They Are Different

Who can qualify? Perkins loans are designed to address students with serious financial need and that is addressed by the responses submitted through the FAFSA application and a school’s guidelines. While Stafford loans also require strong financial need, having both types of loans available ensures that a wider range of income points can qualify and more students can be helped. Those that get Stafford subsidized loans are clearly in more severe financial situations than those with unsubsidized loans. Subsidized Stafford loans are open to middle-class students that meet all necessary criteria. The Perkins loan vs. Stafford loan are open to qualified undergraduate students while graduate students are the only ones eligible for the Perkins loan or unsubsidized Stafford loan.

Loan subsidizing. Perkins loan vs. Stafford loan are subsidized by the government, so while you’re in school, the government pays the interest that builds on your loan. The unsubsidized Stafford loan interest is paid off solely by the borrower.

Fees. There are no fees associated with taking out a Perkins loan, but a Stafford loan usually has a 1% origination fee that is tacked on to the balance of the loan.

Interest rates. Perkins loans vs. Stafford loan generally have a flat interest rate of 5% for all students while Stafford loans are at 4.66% for both subsidized and unsubsidized undergraduate loans and 6.21% percent for graduates. Interest rates for Stafford loans are tied to a 10-year treasury note with a set margin.

Availability. There’s a larger pool of financial resources available for the Stafford loans than there is for the Perkins loan. While Perkins loans have federal limits in place on how much each student is allowed to borrow, the institutions themselves most usually set their personal in-house limits far below that mark to avoid the depletion of their funding pool.

Loan limits. Stafford loans have different limits in place for graduates and undergraduates, subsidized loans and unsubsidized loans. Students that claim themselves on their tax returns are known as independents, and that makes them eligible to receive larger unsubsidized loans than the dependents that are claimed on someone else’s tax returns. Perkins loans have one yearly limit for undergraduates and a separate higher limit for graduate students.

Repayment time. The repayment term for a Perkins loan vs. Stafford loan is always ten years. This is usually the case for Stafford loans as well, but there are cases where payments can be stretched out over a much longer period of time up to about twenty-five years.

The Nitty Gritty

With college becoming more and more expensive for the average family and student to afford, most people in pursuit of higher education today have to borrow the money they need to attend an institution of learning. If you’re an undergraduate student that’s eligible for a Perkins loan, you’re probably also eligible for a subsidized Stafford loan. The questions then becomes about which one is best for you to choose.

For the 2014-2015 school year, the 5% Perkins loan vs. Stafford loan interest rate is higher than the 4.66% undergraduate interest rate for the Stafford loan, but the Perkins loan also doesn’t charge an origination fee. Working out a few lengthy but crucial math equations should help you best determine which loan will afford you the most for your dollar and your education!