College Financial Aid 101 − Loans

It’s a good thing there’s more financial aid out there today, because college isn’t getting any cheaper.

Luckily, you’ve got options. One option is a financial aid loan – money you borrow to cover your education expenses. You’ll have to repay the loans (usually with interest) within a specified amount of time, but they often have lower interest rates, flexible repayment options, and other favorable terms and conditions. Of course, as with any other loan, your income and credit history determine if you qualify for a loan and how much you are able to borrow.

Stafford loans

This is a federal program available in two forms. Provided by private lenders, such as banks and credit unions, these loans are guaranteed by the federal government.

• Subsidized. Stafford loans are given to students with proven financial need. The government pays the interest on the loan while you attend school and until repayment begins, at which time you become responsible for the payment of all interest. Repayment of the loan begins six months after you graduate, leave school, or cut back to part-time status.
• Unsubsidized. Stafford loans generally have the same amounts, interest rates and terms as the subsidized Stafford loans. However, students who use unsubsidized loans are responsible for all interest, from disbursement until the loan is paid in full. 

Federal Direct Student Loans

The only difference between this program and the Stafford loan program is that the funds are paid directly by the U.S. Department of Education. Participation in this program varies by college.

Federal Parent Loans for Undergraduate Students (PLUS) loans

Instead of the student, the parents are responsible for paying back a PLUS loan. These loans require a good credit history and are not based on financial need. Monthly repayments begin within 60 days after the money has been disbursed, but some lenders will allow you to make interest-only payments while your student is enrolled in college.

Perkins loans

For students with exceptional financial need, there are Perkins loans, where money is supplied in limited amounts by the federal government. Repayment begins nine months after the student graduates, leaves school or drops to part-time status. The government pays the interest on the loan while the student is in school and until repayment begins.

Private loans

Banks, credit unions and other private lenders offer a variety of loans that may provide options not available through the government loan programs.

Before you sign for any type of education loan, you should ask yourself:

• What are the terms of my loan?
• What, if any, portion of the interest is paid by the government?
• What is the interest rate, and when do I start repayment?
• How much will I owe by the time I graduate?
• What will my monthly repayment be?
• How much will my loan increase until it is paid in full?

And as with any kind of financial commitment, do your homework and research the type of loan that works for you.

The content contained in this article is intended to provide you with only a basic understanding of your situation and needs, not to provide advice of any sort. For a more in-depth and overall analysis of your specific situation and needs, please contact an investment professional.

Neither Nationwide nor any of our representatives give tax or legal advice. Federal tax laws are complex and subject to change. Please consult your tax or legal advisor for answers to your specific situation.

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