With the exception of the 2010-2011 and 2011-2012 school years when Stafford loan rates temporarily dip, Perkins loans are considered the cheapest of the mainstream federal student loan programs. They are issued only in a subsidized format, with their 5 percent interest rate being paid by the government while the student remains in school.

Perkins loans are reserved for students demonstrating a high level of financial need, with many Perkins loan students also qualifying for the coveted Pell Grant. These loans are highly sought after by future teachers and certain other professionals, due to special loan forgiveness programs attached to Perkins loans.

The biggest nonnegotiable requirement for a Perkins loan is that the student demonstrate substantial financial need. There is no such thing as an unsubsidized Perkins loan for students who do not qualify based on financial need.

In addition, Perkins loans recipients must:

Unlike Stafford and PLUS loans, Perkins loans are not subject to any upfront origination or default fees.

Perkins loans, although much more favorable on their loan terms than Stafford and PLUS loans, have a much lower lifetime limit on borrowing. Remember, though, that Perkins loans can be used in conjunction with Stafford and PLUS loans, so the lower limit does not mean you will come up short on money if you are offered Perkins loans. It just means that any funds borrowed in excess of the Perkins loan limits will have to come from Stafford or PLUS loans.

For undergraduate students, the 2010 Perkins loan limits are $5,500 per year and $27,000 for a student’s lifetime. For graduate students, the annual limit is increased to $8,000 and the lifetime limit is increased to $60,000.