LOANS
A loan is money you borrow and must repay with interest over a specified period of time. For this reason, loans are  
the least desirable type of financial aid. That said, many students receive loans as part of their financial aid package, 
and when managed carefully, they can be a responsible investment in your future.
Loans are offered by the federal government, private banks, and financial institutions.
• Federal student loans, offered by the government, are preferable to private loans as they generally offer lower, fixed interest rates, 
and repayment does not begin until six months after you graduate or stop attending college. Repayment of private loans may begin  
as soon as the money is borrowed.
• You must complete the FAFSA to apply for all federal loans. Private loans require a loan application.
• To learn more about the difference between federal and private loans, visit www.studentaid.gov/understand-aid/types/ 
loans/federal-vs-private.
The most common types of college loans include:
Federal Direct Loans are available to all students enrolled at least half-time and feature low interest rates (currently 6.39%) and 
several repayment options. These loans can be “subsidized” or “unsubsidized.”
•Subsidized loans are based on financial need. The government subsidizes (pays) the interest on your loan while you are in school  
and for a grace period of six months after graduation or when you are no longer enrolled.
•Unsubsidized loans are not based on financial need. You will be charged interest from the time you borrow the money until the loan is paid 
off. The standard Federal Direct Loan limit is $5,500 for a first-year student (up to $3,500 can be subsidized and $2,000 unsubsidized).
Federal Direct PLUS Loans can be taken out by parents of dependent college students to help pay for educational expenses not  
covered by other financial aid. Parents must undergo a credit check. Like unsubsidized loans, interest (currently 8.94%) is charged  
on PLUS loans while you are in college. If your parents are ineligible for a PLUS loan due to a poor credit history, your college’s 
financial aid office may be able to certify you to receive more Federal Direct Unsubsidized Loans. Parent PLUS loans are capped at 
$20,000 per year, or $65,000 total for all four years of college.
Learn more about Federal Student Loans at www.studentaid.gov/understand-aid/types/loans.
Private Student Loans 
Loans from private institutions are available to pay college expenses, based on your credit history. Private loans usually have higher 
interest rates than government loans and less favorable repayment terms. Accordingly, you and your family should consider taking out a 
private loan only if you have exhausted all other loan options and know you will be able to meet repayment obligations. While all students 
are eligible to receive federal loans, private student loans may require a co-signer.
College-Based Loans 
Some colleges offer their own loans, which are managed directly by the university, rather than a bank. These loans typically do not offer  
a favorable interest rate.
Repaying Your Student Loans
Student loans can help you invest in your future; they can also limit your choices after graduation. You must understand fully the impact 
of the financial obligation you are assuming.
• Find out your student loan repayment options at www.studentaid.gov.
• The consequences of not paying your student loan can severely affect your credit rating far into the future, making it difficult for you  
to buy a car, purchase a home, or obtain a credit card.
• Learn more about managing your loans: www.aessuccess.org/manage; and the dangers of not paying student loans:  
www.studentaid.gov/manage-loans/default.
Paying for College
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