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On average, college graduates earn $1 million more in earnings over their lifetime than high school graduates. Though we realize that it can be daunting to think about borrowing money to attend college, the financial benefits of a college degree are clear. And loans can be an important part of funding your undergraduate or graduate education. More than 70% of all college undergraduates use loans to help them attain their educational goals, and when taken responsibly, loans can be a helpful tool in financial planning.

Professor interacting with students in Budapest classroom.

Federal Loans

The first step in acquiring federal loans (including Parent PLUS Loans) is completing the FAFSA. Once submitted, your loan eligibility will be determined.

Student Loans

Students can take out federal student loans from the Direct Loans program. Direct Loans offer a low, fixed interest rate and flexible repayment terms. Eligible undergraduates may receive subsidized interest loans, which means interest does not accrue while the student is enrolled in college.

There are two types of Direct Loans:

Direct Subsidized Loans (undergraduate only)

  • Available to undergraduates with demonstrated financial need
  • Federal government pays the interest while in school, during the grace period, and during periods of authorized deferment

Direct Unsubsidized Loans

  • Available to undergraduate and graduate students, regardless of financial need
  • Student pays all interest

Direct Loan benefits:

  • Fixed interest rate of 4.99% for the 2022-2023 academic year
  • No payments while enrolled in school at least a half-time and during the 6-month grace period
  • Eligibility not based on credit

Parent PLUS Loans

Parents of dependent undergraduate students borrow the Parent PLUS Loan to help their children pay for college. The Parent PLUS Loan offers a fixed interest rate and flexible loan limits.

The Direct Parent PLUS Loan offers a fixed 7.54% interest rate for the 2022-2023 school year and flexible loan limits. To be eligible, a parent can’t have an adverse credit history. Parent PLUS Loans have a 4.228% origination fee for loans first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2022.

Graduate PLUS Loan

The Grad PLUS Loan is a federal student loan available to students attending graduate school and professional school. The Grad PLUS Loan offers a fixed 6.28% interest rate for the 2021-2022 school year and flexible loan limits. To be eligible, a student can’t have an adverse credit history. A 4.228% fee is deducted from the loan amount before the funds are sent to the school.

The Grad PLUS Loan allows you to borrow up to the full annual cost of attendance (COA) minus other financial aid received (scholarships, fellowships, grants, federal student loans, private student loans). There is no aggregate (cumulative) loan limit.

Key benefits of the Grad PLUS Loan:

  • The interest rate is fixed at 7.54% for the 2022-2023 academic year
  • Loan payments can be deferred while you are enrolled on at least a half-time basis at an accredited graduate school or professional school
  • A cosigner is not required
  • Multiple repayment plans (including income-based) available
  • The interest paid on the loan may be tax deductible

Alternative Loans

The term "alternative student loans" is often interchangeable with "private student loans". These loans are often referred to as "alternative" because the most typical method of borrowing money for college is through Federal loans that are either underwritten or guaranteed by the Federal government.

Alternative Student Loan Information

Alternative student loans, or private lender student loans,differ significantly from their Federal counterparts. Federal loans are backed or guaranteed by the government, and qualification for a Federal loan is determined by the student's financial need. To qualify for a Federal loan program you must fall within a certain income bracket, have a demonstrably low EFC and prove that you have no history of defaulting on any previous student loans.

Alternative student loans, unlike Federal loans,are backed by private lending companies such as Bank of America, Wachovia or Citibank. Private student loans are determined by your credit score, and this can be a problem for many applicants. Students fresh out of high school, looking for their first college loan, are likely to have little or no credit history. This can be circumvented by using a cosigner, usually a parent or guardian, with an acceptable credit score. A cosigner agrees to be responsible for all payments against the loan should you default at any time. A cosigner with a particularly good credit rating can help you secure a loan with better interest rates and more attractive repayment terms.