What Are These Loans on My Financial Aid Offer?

When students and their parents receive college financial aid offers, they are often quite surprised to find education loans as part of the package. "How can a loan be considered financial aid?" they ask. Not all loans that appear on a financial aid offer are financial aid. However, the most common education loans found on an offer are considered financial aid because they typically have lower interest rates, lower fees, in-school deferment, and the ability for an 18-year-old with little credit and income to borrow on his or her own without a co-signer. Most students will find some type of education loan on their offers, and it's important to understand the differences among them. Below are some common loans that families may find on a financial aid offer. Note that students are not required to borrow any loans they receive. They are offered only as options to help pay the bill.

Category: Student Loans

Education loans are considered "student" loans when the student serves as a borrower on the loan. For the student loans listed below, repayment doesn't begin until after the student has graduated or left school. These loans are considered financial aid because they do not require established credit or a co-signer and have favorable repayment terms. Students simply need to submit the FAFSA^® to apply for these loans. The financial aid office will be in touch with students who accept these loans after the May 1^st deposit deadline with additional loan information. Students will have to sign a promissory note to state their agreement to repay the loan in full.

Federal Direct Subsidized and Unsubsidized Loan

• Current Interest Rate: You can find that here
• Borrower: Student only
• Lender: U.S. Department of Education
• Loan Maximum: $5,500 for freshman year
• Types:
  
  • Subsidized: For students with financial need as determined by the financial aid office; no interest accrues while in school; Maximum $3,500 for freshman year
  • Unsubsidized: Interest accrues while in school; Maximum $5,500 minus any Subsidized Loan offered for freshman year
• Origination Fee: Changes each year. Find the latest rate here
• Standard Repayment Term: 10 years; other repayment terms available
• Other Details: Student borrowers must complete entrance counseling to learn their rights and responsibilities as a borrower. Some schools still use the loan's old name: Stafford

Massachusetts No Interest Loan Program

• Current Interest Rate: 0%
• Borrower: Student only
• Lender: Commonwealth of Massachusetts
• Loan Maximum: $4,000
• Current Origination Fee: 0%
• Eligibility: Created for Massachusetts residents with high financial need as determined by the financial aid office
• Standard Repayment Term: 10 years

Category: Parent Loans

Some colleges may list a parent loan on an offer. These loans are actually not financial aid and only a suggestion from the financial aid office. They do require an application and have credit requirements. Parent Loans should be looked at as one of many options that families can consider to pay their balance due.

Federal PLUS Loan

• Current Interest Rate: You can find that here
• Borrower: Parent of undergraduate students only (student is not a borrower)
• Lender: U.S. Department of Education
• Loan Maximum: School's Cost of Attendance minus any financial aid received
• Current Origination Fee: You can find that here
• Standard Repayment: 10 years; other repayment terms available
• Other Details: The student must file a FAFSA if a parent desires to apply for a PLUS Loan. Parents with adverse credit history will not be approved

Category: Private Loans

If families need to borrow additional funds to pay for college, they can explore private loans, which are offered by outside entities such as banks, credit unions, and state financing authorities such as MEFA. Students should be sure to borrow their Federal Direct Student Loans first before exploring private loan options. Private loans do not appear on the financial aid offers, though many colleges have private loan lender lists and comparison tools on their websites. Many have lower interest rates and fees than the Federal PLUS Loan. These loans are credit based. Depending on the lender, interest rates can be fixed or variable, and repayment options and credit criteria can also vary. If you plan to borrow a private loan, only borrow what you need. You can find out more borrowing tips on our website here.

Need more help analyzing your financial aid offers and coming up with a payment strategy? Call MEFA at (800) 449-MEFA (6332) or email us at collegeplanning@mefa.org. Our College Planning Representatives stand ready to help!