Because college tuition and related educational costs are expensive, many students
and their families rely on loans to help finance their educations. Generally, there
are two types of education loans: Federal Education Loans
(those that are funded and/or guaranteed or insured by the federal government) and
Private Education/Alternative Loans (non-federal loans
funded by banks and other lending institutions).
Education loans can be a useful resource in helping to finance your education. However,
it’s important to note that by accepting a loan, you will be entering into a binding
agreement to repay monies borrowed plus any applicable interest that may accrue
(although most allow you to defer repayment until after you graduate).
Defaulting on a loan can negatively affect your credit and may have other serious
financial consequences. Therefore, when borrowing, be sure to carefully read and
understand the Master Promissory Note (MPN), which outlines the loan terms and conditions,
and borrow only what you need and can reasonably afford to repay.
Federal Stafford Loans
Federal Stafford Loans are fixed-rate student loans for undergraduate and graduate
students. They are the most common loan and one of the lowest-cost ways to pay for
school. They can be used to pay for tuition and other eligible school expenses.
Additional benefits include:
- The fixed rate may be as low as 3.86%.
- No payments are made until after graduation.
Contact your school’s Financial Aid Administer for information about applying for
the Stafford Loan.
Private Student Loans
Once you have exhausted scholarship and federal aid, your next step is to take out
a private student loan. Private student loans “fill the gap” in your financial aid
package by allowing you to borrow the difference between what federal financial
aid can cover and the total cost of your education. Additional benefits include:
- You can borrow up to the true cost of your education.
- Funds can pay for tuition, books, supplies, housing, and more.
Federal Student Loan Details
- Federal Subsidized Stafford Loans:These feature a low, fixed interest
rate of 3.86% (for loans disbursed after July 1, 2013). Awarded based on need, the
federal government pays the interest that accrues on these loans while you are in
school and during periods
of deferment. Currently, these loans are only available to undergraduate students.
- Federal Unsubsidized Stafford Loans: These feature a low, fixed
interest rate of 3.86% for undergraduate students and 5.41% for graduate or professional studies
(for loans disbursed after July 1, 2013). These loans are
not awarded based on need, and the student is responsible for paying the interest
that accrues. The interest may be paid while the student is in school, or it may
be capitalized and added to the principal loan amount to be paid later.
- Parent Loans for Undergraduate Students (PLUS): Guaranteed by the
government, these loans feature a low, fixed interest rate of 6.41% (for loans disbursed
after July 1, 2013). Not awarded based on need, PLUS Loans allow parents to borrow
up to the full cost of their child’s tuition and related educational expenses, less
any federal aid the student may receive.
- Federal Perkins Loans: These feature a low, fixed interest rate
of 5%. Subsidized and awarded based on need, these loans are administered through
schools by the Department of Education. The federal government pays the interest
that accrues while you are in school, during the 9-month grace period once you leave
school, and during periods of deferment. In addition, Perkins Loans offer a variety
of deferment and loan forgiveness options.
- Work-Study Programs: These are not loans, but are programs funded
by state and federal governments that allow students to work for an authorized work-study
employer, typically on campus, during the academic school year in exchange for funding
used to offset the cost of tuition and other education-related expenses.
Private Education and Alternative Loan Details
Commonly referred to as “alternative” loans, these are credit-based, variable-interest-rate
loans offered by banks and other private lenders that you and/or your family may
use to help pay for up to the full cost of your tuition and related educational
expenses (computer, books, lab fees, supplies, transportation, living expenses,
etc.), less any other aid you may receive. They are not need-based, and you do not
have to submit a FAFSA to apply.
Private education loans may be taken out alone or as a supplement to other financial
aid. When considering a private education loan, you may want to “shop around” for
a lender that offers the best interest rate, repayment terms, and deferment options,
as well as the lowest fees.