Financial Aid Types
A loan is a form of financial assistance that must be repaid, with interest. There are two main categories of educational loans: need based and non-need based.
– Need based loans are insured and subsidized by the federal government. These loans are awarded to families to assist when no cash is available.
– Non-need based loans are insured but not subsidized by the federal government. These loans are awarded to families regardless of income or assets.
Federal Stafford Loans
Under the William D. Ford Federal Direct Loan (Direct Loan) program, students borrow from the federal government at participating schools. The student must repay the loan to the government. Under the Federal Family Education Loan (FFEL) program, students borrow money from a private lender (i.e. a bank, a credit union). The student must repay the loan to the lender. There are two types of Federal Stafford loans available to students: subsidized and unsubsidized.
Parent Loans for Undergraduate Students (PLUS) Loans
Undergraduate dependent students are eligible to borrow up to a base loan amount. PLUS Loans enable parents with good credit histories to borrow funds for the remaining education expenses of their children. Parents must meet citizenship requirements and must not be in default on prior loans. The borrower must repay the loan to the lender.
Federal Perkins Loans
A Federal Perkins Loan is a low-interest loan for both undergraduate and graduate students with financial need. The school is the lender and the student must repay this loan to the school.
A Federal Consolidation Loan is not an actual loan type, but a method for student and parent borrowers to simplify loan repayment by allowing the borrower to consolidate several types of federal student loans with various repayment schedules into one loan (with only one payment per month).
Federal Subsidized and Unsubsidized Stafford Loans
There are two main categories of educational loans: subsidized loans (need based) and unsubsidized loans (non-need based).
Need based loans are issued by either the federal government or a private lender , but are insured and subsidized by the federal government. They are awarded to families to assist when no cash is available.
Non-need based loans are also by either the federal government or a private lender and are federally insured, however they are not subsidized by the federal government. Regardless of family income or assets, this lower cost student loan is available. The other significant difference of the unsubsidized loan compared to the subsidized loan is that although the principal payments on the loan are deferred while the student is in school, the interest begins to accrue once the unsubsidized loan is originated. Students have the option of paying the interest while they are in school or waiting until the principal repayment plan begins..
PLUS Loans are loans taken out by the parent(s) of the student. Parents can borrow up to the total cost of attendance (minus any other financial aid received) at a low interest rate. Although the loans are insured by the federal government, parents are responsible for the accrued interest on the loan as soon as the loan is originated. Repayment of a PLUS Loan begins 60 days after the loan is received and may extend for 10 years. A PLUS Loan is considered to be an unsubsidized Stafford Loan for parents.
Federal Perkins Loan
Federal Perkins Loan funds come from the federal government and are administered by the institPCTIon. These loans can be deferred while the student is in school, and the federal government will pay the interest. In fact, the federal government continues to subsidize the loan, paying the accrued interest to the lender, until nine months after the student either graduates, leaves school, or drops below half-time status.
A Federal Consolidation Loan is not an actual loan type, but it enables a student to bundle all of the federal loans received into a single loan. When the consolidation loan is issued, the lender will pay off all outstanding balances of all loans placed into consolidation.