Student Loans
The two basic forms of financial help for college students are: 1) Student loans and 2) Grants and scholarships.
Scholarships and grants are essentially the same thing—money given to students to help cover the expenses of attending college. While grants and scholarships may come with conditions, such as, maintaining a minimum average grade, they do not need to be repaid.
On the other hand, student loans, like all loans, need to be repaid and with interest.
According to the U.S. National Center for Education Statistics, the total amount of grants and scholarships given to students each year is nearly identical to the amount of student loans.
More students receive grants than receive loans, but the average loan amount is higher.
|
Grants and Scholarships |
Loans |
Percent of students who receive |
50.4% |
35.1% |
Average amount they receive |
$4,000 |
$5,800 |
Average for all students (Percent of students x average amount) |
$2,016 |
$2,035 |
The grants and loans come from a variety of sources including the federal government, state governments, the schools themselves, foundations, and private banks.
The federal government and some states also fund work-study positions for college students. In a work-study program, students will get jobs, usually at the school they attend, and are paid at least the federal minimum wage.
When all sources are included, 76 percent of students receive financial assistance of some sort.
Types of Student Loans
Federal Perkins Loans:
These need-based loans have a low, fixed interest rate of five percent. You borrow the money through your school.
- Federal Stafford Loans:
There are two characteristics of Stafford loans. The first is whether the loans are Direct or Federal Family Education Loan (FFEL) loans. Direct Stafford loans are made by the Department of Education through the student’s school. FFEL loans are guaranteed by the federal government but are issued by private lenders. The terms of the loan are usually the same regardless of whether they are direct or FFEL. One possible difference is that some FFEL lenders will waive part of the 2.5% origination fee.
The second characteristic is whether the Stafford loan is subsidized or unsubsidized. This distinction can make a big difference to the student. The subsidized loans are based on need and the government pays the interest while the borrower is still in school. The interest paid by the government can add up to several thousand dollars. The unsubsidized Stafford loans are not based on need and the interest accumulates while the borrower is still in school though repayment is delayed until after they leave school.
Most subsidized loans go to students whose families have adjusted gross incomes of less than $50,000 per year.
- Federal Plus Loans:
Like a Stafford loan, PLUS Loans can be direct or FFEL. These loans are made to graduate students or parents of undergraduate students. There is no “subsidized” option for the PLUS loans. They have a higher interest rate than Stafford loans.
- Private Loans:
These loans are not guaranteed or subsidized by the government. Like consumer loans, the terms depend on the borrower’s credit rating (FICO score insert link), market conditions and the lender.
Dependency status has a significant impact on the types and amounts of aid for which students can qualify. Click here to see whether you are “dependent” or “independent.”
Click here to learn more about applying for a student loan.Click here for a summary of Stafford and PLUS loans.