A college education has become a significant expense for most families and requires careful planning. Whatever your financial situation is, we encourage you to use this information to help you understand college funding so you can navigate the financial aid process with greater ease.

Federal Financial Aid Information

Understanding Your Financing Options

Learn how to estimate your education costs and know your financing options with Wells Fargo’s five short videos.

Federal Student Loans

Student loans, unlike grants and work-study, are borrowed money that must be repaid, with interest, just like car loans and mortgages. You cannot have these loans canceled because you didn’t like the education you received, didn’t get a job in your field of study or because you are having financial difficulty.

Federal loan programs change occasionally so for the most up to date information about federal loan programs and other federal student financial aid programs you should visit the U.S. Department of Education’s website at

https://studentaid.ed.gov/types/loans

Types of Loans

The U.S. Department of Education has two federal student loan programs:

  • The William D. Ford Federal Direct Loan (Direct Loan) Program is the largest federal student loan program. Under this program, the U.S. Department of Education is your lender. There are four types of Direct Loans available:
    • Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
    • Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan.
    • Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.
    • Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer.
  • The Federal Perkins Loan Program is a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is lender.

Federal Perkins Loans

Perkins Loans are low-interest (5 percent) loans for undergraduate, graduate and professional students with financial need. These loans are offered through a participating school’s financial aid office, and the school acts as the lender. Up to $5,550 may be borrowed for each year of undergraduate study, while up to $8,000 may be borrowed for each year of graduate or professional study.

Direct Subsidized Loans

Direct Subsidized Loans are low-interest, need-based loans made to undergraduate, graduate and professional students attending school at least halftime. Interest is paid by the federal government while the borrower is attending school, during the six-month grace period and during specific loan deferment periods. Repayment begins six months following a borrower’s graduation or when the borrower ceases to be enrolled at least halftime.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are low-interest, non-need-based loans made to undergraduate, graduate and professional students attending school at least halftime. Borrowers are responsible for all interest accrued on unsubsidized loans from the date the loan is disbursed, including the time that the borrower attends school, during the grace period and during periods of deferment. Repayment begins six months following the borrower’s graduation or when the borrower ceases to be enrolled at least halftime.

Direct PLUS Loans

Direct PLUS Loans are made to parents of dependent undergraduate students and to graduate or professional students. These loans are not based on financial need. The amount that can be borrowed depends on the school’s cost of attendance and any other financial aid that the student may receive, including other loans. Applicants with unfavorable credit histories are usually not eligible for a PLUS loan.

Borrowers are responsible for all interest accrued on PLUS loans from the date the loan is disbursed, including the time the borrower or student attends school, during the grace period and during periodsof deferment. Graduate and professional students must have appliedfor the annual loan maximum eligibility under both the Direct Subsidized Loans and Direct Unsubsidized Loans programs before applying for a graduate or professional PLUS loan. Repayment varies depending on the type of PLUS loan awarded and the loan’s disbursement date.

Tax Credits for Higher Education Expenses

Two tax credits help offset the costs (tuition, fees, books, supplies, equipment) of college or career school by reducing the amount of your income tax:

  • The American Opportunity Credit allows you to claim up to $2,500 per student per year for the first four years of school as the student works toward a degree or similar credential.
  • The Lifetime Learning Credit allows you to claim up to $2,000 per student per year for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school.

For More Information

IRS Help Line

800.829.1040

IRS Publication 970, Tax Benefits for Higher Education

www.irs.gov or consult your tax adviser.