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Understanding Financial Aid

Overview
Scholarship and grant facts
Types of scholarship and grants
The scholarship and grant process
Scholarship pitfalls to avoid
Types of student loans
Federal Work Study
How to apply for financial aid
Scholarship and Grant Summary Chart
Loan Summary Chart

Types of Student Loans

These include government funded, government guaranteed, and private institution loans that must be repaid.

Federal Perkins Loans.  These are a special class of federal loans designed to help students with extreme financial need. These are subsidized 5% fixed interest-rate loans (no interest accumulates on the loan while students are enrolled in college).  Up to $5,500 per year can be borrowed and depend on colleges' available loan pools. There are no origination fees and you have up to 10 years to repay the loan. Repayment begins 9 months after the enrolled student graduates or drops to less than half-time.

Federal Stafford Loans.  These are loans from the federal government or are guaranteed by the federal government. They are fixed interest-rate loans: 6.0% for the subsidized loans and 6.8% for the unsubsidized loans. There is an origination fee of up to 2% and you have up to 10 years to repay the loan. Repayment of loans begins 6 months after the enrolled student graduates, withdraws from school, drops to less than half-time, or fails to make academic progress. Stafford loans can be either subsidized (need-based loans in which the government pays the interest on the loan while students are enrolled in college) or unsubsidized (non-need based loans in which students pay all the interest on the loan). You may be eligible for both subsidized and unsubsidized loans. Maximum loan amounts for each Stafford loan type is as follows:

Freshman year - $5,500. (total of both subsidized and unsubsidized Stafford loans).
Sophomore year - $6,500.
Junior & Senior years - $7,500 (each year).

PLUS Loans (Parent Loans for Undergraduate Students). These loans are provided to parents with good credit histories to pay education expenses of dependent undergraduate students. These are non-need based loans parents can borrow to pay the cost of college attendance minus any other financial aid you receive. These are fixed interest-rate loans: 7.90% for Direct Loans and 8.50% for FFEL Loans. There also is a 3% origination fee and 1% insurance premium.  You have up to 10 years to repay the loan.  Repayment of PLUS loans begin 60 days after the money is borrowed or you can wait until 6 months after the student completes their college degree or drops to less than a half-time student.

Private Education/Alternative Education Loans.  Students can borrow money from private banks and lenders to help pay for college expenses.  Terms of private education/alternative education loans depend on the lending institution.  Loan variables, such as interest rates, fees and loan limits depend on the credit history of the borrower (and co-signer) and on loan options chosen by the borrower (such as in-school deferment and repayment schedule).  Loan terms also vary by the total amount of money borrowed.

Private education loans usually cost more than federal government education loans, but are less expensive than credit card debt.  Also, federal education loans offer better forgiveness and repayment options. Because federal education loans are less expensive and offer better terms than private student loans, it is recommended that you deplete your eligibility for federal student loans before resorting to private student loans.

A comparison of the Private Education/Alternative Education Loans is provided by a Loan Summary Table.

Institutional Loans (from colleges and universities).  Some colleges and universities have funds to offer as loans.  Terms of these loans depend on the college or university.