Overview of Student Loans and Grants
Determining the best financing strategy for a college education is often as difficult as getting accepted in the first place. There are many different options for students opting to attend accredited institutions that enable the student to qualify for federal financial aid programs, and for students who may be eligible for other outside sources of funding.
The most well-known source of financial aid for college educations is the student loan. While student loan generally refers to a Federal Stafford Loan, it can also refer to a whole host of other borrowing options. Here are a few different types of student loans:
- Federal Stafford: The Federal Stafford Loan is a loan that is guaranteed by the federal government, which offers a lower interest rate than private loans and can be deferred until six months after the student separates from the institution. There are two distinct Stafford Loan programs offered to students. The first is the subsidized program, which allows students to borrow – but not to face any type of repayment during their education. Additionally, the interest that accrues during the student’s enrollment is subsidized by the federal government. The second option is the unsubsidized Stafford Loan, which offers higher borrowing limits and is used in combination with the subsidized loan program. With this program, students are required to pay interest quarterly throughout their enrollment.
- Federal PLUS Loan (The Parent Loan): Many know the PLUS loan as the parent version of the Stafford Loan. The interest rate on this loan program is currently fixed at 8.5%, and the loan is issued through a private lender but guaranteed by the federal government. Parents must be credit worthy, and repayment begins shortly after the time of disbursement with most lenders. There is one advantage to parents who are not credit worthy completing the application – even if they do not qualify for a PLUS loan. That benefit is that students whose parents are denied a PLUS loan are often able to borrow additional unsubsidized Stafford Loan funds.
- Private Student Loans: Also known as alternative student loans or gap student loans. These loans are made directly to the student or the parent of the student. Unlike federal student loans, the funds from private student loans may be used for any educational expense. There are no deadlines for application and generally take only a few weeks to process. While students may apply on their own for these loans, they are based on the borrower having a positive credit, income and employment history. As such a student would be best served having a credit worthy co-signor available when obtaining a private student loan.
The most popular sources for financial aid are grants. Grants are almost always need-based financial aid that will never need to be repaid by the student. Not every student will qualify for every grant. Depending on the issuer, there may be specific requirements for grant awarding. There are federal, state and institutional grants available for students who need assistance in paying for their education. Students who complete the Free Application for Federal Student Aid are automatically evaluated for federal grants, and the financial aid officers at most schools are prepared to determine state and institutional grant eligibility.