An Introduction to the Range of Education Loans

As you probably know, there are lots of loan options out there, both for your child and you.

Some Facts

• Other education loans are not need-based. Instead, they're designed to help pay the family share of costs.
• Fifty-four percent of all financial aid comes in the form of loans.
• Some loans are need-based-meaning that they're awarded when the family demonstrates financial need.  

Some Advice

Need-based loans tend to have better terms, so you should consider those loans first

Parent Loans

The Federal PLUS Loan program is the largest source of parent loans. Parents can borrow up to the full cost of attendance minus any aid received, and repayment starts 60 days after funds are sent to the school.

Student Loans

There are three main types of federal student loans:

Perkins Loans are need-based loans and are awarded by the financial aid office to students with the highest need. The interest rate is very low-5 percent-and your child would not be required to make any loan payments while in school.

Subsidized Stafford Loans are need-based loans with interest rates in the 2-4 percent range. The federal government pays the interest on the loan while your child is in school and during the six-month grace period following graduation. This is why they're called subsidized loans.

Unsubsidized Stafford Loans aren't based on financial need and can be used to help pay the family share of costs. Your child is responsible for paying interest on the loan that accrues during the in-school period. Your child can make interest payments while in school or have the interest added to the principal amount upon graduation.

Other Student Loan Options

Private student loans: A number of lenders and other financial institutions offer private education loans to students. These loans are not subsidized and can usually carry a higher interest rate than the federal need-based loans.

Other loans: Besides setting up scholarships, some private organizations and foundations have loan programs as well. Borrowing terms may be quite favorable. Use the College Board's Scholarship Search to find these.