Federal Pell Grants and Stafford Loans

Each year, various forms of US government financial aid-including Pell Grants and Stafford Loans-make it possible for millions of students to attend college and earn a degree. If you assume that you or a loved one will be unable afford a college education, think again because you may be wrong: Federal Pell Grants and Stafford Loans could help turn your college dreams into a reality.

In light of the fact that the average college graduate earns approximately $1 million more over the course of a career than a non-graduate, it's safe to say that US government financial aid such as Pell Grants and Stafford Loans could permanently improve your long-term financial outlook, too.

Of course, to take full advantage of US government financial aid, you need to start doing your homework early, complete the necessary paperwork and submit your applications on time. Fortunately, that's all relatively easy to do once you know how the system works.

Stafford Loans
Stafford Loans for students are administered by the US Department of Education's Federal Family Education Loan (FFEL) and William D. Ford Federal Direct Loan programs. Although some colleges participate in both the FFEL and Direct Loan programs, many opt to participate in just one of the two. Depending on which program administers your Stafford Loan, the funds will be made available either by the government directly or through an intermediary, such as a bank or credit union.

Stafford Loans come in two types-subsidized and unsubsidized. Eligibility for subsidized Stafford Loans is determined by income. With subsidized Stafford Loans, the US government pays your interest expenses while you are still a student, plus six months after you cease being a student. You may be able to defer repayment of a subsidized Stafford Loan, but only after receiving formal approval to do so. With an unsubsidized Stafford Loan, on the other hand, you are responsible for the interest, but you are not required to pay it while you are in school.

Stafford Loans impose annual borrowing limits, which are determined by how many years you have attended college. For example, during the 2007/08 academic year, first-year dependent undergraduate students could borrow up to $3,500 in subsidized Stafford Loans. Second-year students could borrow up to $4,500, and students who had completed at least two years of college could borrow as much as $5,500.

Graduate students and those pursuing professional degrees are eligible to receive even more in Stafford Loans: a maximum of $20,500 annually, although subsidized Stafford Loans could account for no more than $8,500 of that debt. Overall, graduate and professional students can use Stafford Loans to borrow a maximum of $138,500, of which only $65,500 may be attributable to subsidized Stafford Loans.

Federal Pell Grant
A grant is essentially a financial gift; it does not need to be repaid. Pell Grants, therefore, are a form of US government financial aid that does not require students to assume new debt. Generally speaking, only undergraduate students are eligible to receive Pell Grants. However, Pell Grants may be made available to those who want to enroll in a teacher certification program.

There is an annual limit to the amount of money you can receive from a Pell Grant. In the 2008/2009 academic year, the limit is $4,731. However, you may not necessarily receive the maximum amount available from a Pell Grant. Your actual Pell Grant payment will be determined by financial need, anticipated costs and status as either a part-time student of full-time student.

Beyond Pells and Staffords: Other Forms of Financial Aid
While Pell Grants and Stafford Loans often get the most attention in the government financial aid universe, Perkins Loans and PLUS Loans (for parents) may also be able to play an important role in your college planning strategy.

Federal Perkins Loans are distributed by participating colleges and universities to undergraduate, graduate and professional students. These loans, whose interest is lower than the interest for Stafford Loans, are awarded based on financial need; students who receive Pell Grants are on the top of the eligibility list. PLUS Loans, on the other hand, are a form of US government financial aid available to qualifying parents of students, rather than students themselves.

Keep in mind that when applying for government financial aid, you will be required to complete an in-depth financial form called the Free Application for Federal Student Aid (FAFSA). This will help determine your Expected Family Contribution (EFC), which is the amount of money a student's family will be expected to pay for college costs.