Sources of money to pay for college
1. Money you DO NOT have to pay back:
- Scholarship money
- Military benefits
- Tuition assistance
2. Money paid out of your pocket from earnings and savings
3. Money that you pay back with interest:
- Borrowed money such as direct loans or private and bank loans
After you've added up the amount you'll get from scholarships, grants and your own money, you may still need to borrow money from the federal government, banks and other sources. A student loan is borrowed money that must be repaid with interest. When you take out a student loan, you are making a legal obligation to repay the loan, so carefully consider the amount you borrow.
1 Be a responsible borrower and only borrow what you need.
Remember, when you borrow money, you will have to pay it back with interest. Interest can be considered as the cost of borrowing money. If you want to borrow money, you will be charged an interest rate, which is the percentage over and above the original loan.
2 The higher the interest rate, the more you will owe over and above the loan amount
To better understand interest and how it can impact how much you will owe in finance charges over and above your loan amount, please access the Department of Education's loan calculator.
William D. Ford Direct Loan Program
Always apply for Direct Loans before applying for other private student loans. The federal government provides a number of loan programs intended to help students and parents finance the cost of education. Most of these programs are not credit based and usually feature lower interest rates than private loans or credit cards. The Direct Loan Programs offer lower interest rates and more flexible repayment plans than most private loans.
Qualification for Direct Loans is dependent on financial need. The Free Application for Federal Student Aid (FAFSA) determines if you qualify for one of the following loans:
Federal Perkins Loans
Perkins Loan is a subsidized loan, meaning the federal government pays the interest while you are in school on at least a half-time schedule, and for nine months after you leave school. The interest rate is only 5 percent, and there is a 10-year repayment period. The Perkins Loan is awarded to students with financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government.
A Perkins Loan is limited to $4000 per award year.
Direct Subsidized and Unsubsidized
All Direct Loans are either subsidized (the government pays the interest while you're in school and for the first six months after you stop attending at least half time) or unsubsidized (you pay all the interest, which you can allow to accrue (accumulate) and have it added to the principle balance of you loan while you are in school at least half time). To receive a subsidized Direct Loan, you must be able to demonstrate financial need.
Direct Loans have annual limits, based on a student's dependency status and grade level. The loan is limited to the following amounts for a dependent undergraduate student whose parents are able to obtain a Direct PLUS Loan:
- First year - $3,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized
- Second year - $4,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized
- Third, fourth and fifth year - $5,500 combined subsidized and/or unsubsidized, plus $2,000 additional unsubsidized
A Subsidized Loan is limited to the following amounts for an independent undergraduate student or a dependent undergraduate student whose parents are unable to obtain PLUS loans due to adverse credit or other documented exceptional circumstances:
- First year - $3,500 combined subsidized and/or unsubsidized, plus $6,000 additional unsubsidized
- Second year - $4,500 combined subsidized and/or unsubsidized, plus $6,000 additional unsubsidized
- Third year - $5,500 combined subsidized and/or unsubsidized, plus $7,000 additional unsubsidized
Direct Subsidized and Unsubsidized Loans have interest rates of 4.60% for those loans disbursed between July 1, 2014 and June 30, 2015.2 Repayment begins six months after graduation or six months after your academic schedule falls below half-time status.
Graduate students seeking a professional degree can receive up to $20,500 in unsubsidized loan funds per academic year. Graduate Loans have an interest rate of 6.21% for those loans disbursed between July 1, 2014 and June 30, 2015.2
Graduate students may also apply for Graduate PLUS Loans for up to the cost of attendance minus other estimated financial assistance.
Direct PLUS loans (for parents)
A Direct Plus Loan for Undergraduate Students (PLUS) lets parents borrow money to cover any educational costs not already covered by their dependent student's financial aid package. PLUS loans have a fixed interest rate of 7.21% for those loans disbursed between July 1, 2014 and June 30, 2015.2. Repayment begins 60 days after the funds are disbursed with repayment terms of up to 10 years. If needed, there are special provisions to delay repayment until after the student graduates or his/her academic schedule falls below half-time status.
The parents, not the student, are responsible for the repayment of PLUS loans. If the student agrees to make payments on the PLUS loan, but fails to do so, the parents are held responsible.
Entrance and exit counseling for direct loans
You must complete both entrance and exit counseling as a condition of receiving any Direct Loan awards. Information on these processes is available from your student finance specialist.
Federal student financial aid penalties for drug law violations
A conviction for any offense involving the possession or sale of illegal drugs, during a period of enrollment for which you receive Title IV federal student aid, may result in the loss of future financial aid eligibility. If you are convicted of possessing or selling drugs after you submit your Free Application for Federal Student Aid (FAFSA), you must notify your Financial Aid Administrator immediately.
If a student successfully completes a drug rehabilitation program, the student may regain federal student aid eligibility on the date the program is successfully completed. For further information, please contact
Repayment of your direct loans - Don't Default
If you are a Direct Loan recipient, there are two key points to remember:
1. The interest you pay is lower than commercial/private bank rates because the federal government subsidizes the rate.
2. If you are a student borrower, you don’t have to begin repaying your Perkins or Direct Loans until you leave school or become less than a half-time student.
As generous as these terms are, you should not forget that you have to repay your loans. Failure to do so will result in your loans being declared delinquent or in default. This will have a negative impact on your financial status and creditworthiness in the future.
Defaulting on your direct loans can have serious consequences. Learn more about the risks and repayment options.
Disputing a Direct Loan or Perkins Loan
If you are in a dispute about your Direct Loan or Federal Perkins Loan, you may contact the Federal Student Aid Ombudsman Group:
Mail: U.S. Department of Education
FSA Ombudsman Group
830 First Street, N.E., Mail Stop 5144
Washington, D.C. 20202-5144
Even after receiving grants, scholarships and federal loans, many students still need to seek additional financial assistance.
1 Private loans help students and their families bridge the gap between the cost of education and the amount covered by other student finance programs. Because private bank loans are credit-based, they may require you to find a qualified co-borrower (or co-signer).
Once you have consulted with your own bank, credit union, or lending institution to see what they may have to offer, the student financing office at your campus location can assist in determining the next steps.
Important information about private loans, including APEX institutional financing:
Federal student loans are required by law to provide a range of flexible repayment options, including, but not limited to, 1) income-based repayment and income-contingent repayment plans, and loan forgiveness benefits, which other student loans and APEX institutional financing are not required to provide; and (2) federal direct loans are available to students regardless of income.
What is a co-borrower?
For many loans you will need a co-borrower. A co-borrower (sometimes referred to as a co-signer) is a person other than you who signs the promissory note (promise to pay back) as support for repayment on the loan. A co-borrower might be a parent, a grandparent or a friend, someone with good credit who will sign with you for the loan. Someone who sees how committed you are to attend college.
Many students need a co-borrower, especially if under the age of 24. A co-borrower with a good credit score can help secure a loan with the best possible interest rate.
1Financial aid is available to those who qualify
2Rates subject to change at any time