Many college-bound families look to federal student loan options provided by the U.S. Department of Education to bridge the gap between what they have saved or what funds have been gifted (through scholarships or grants) for college and what their cost of attendance will be.
There are three different student loan options through the federal government:
1. Federal Direct Student Loan (Subsidized)
2. Federal Direct Student Loan (Unsubsidized)
3. Parent PLUS Loan
Each of these loans has different pros and cons, and college-bound families should carefully consider all of their options before applying for funding.
Federal Student Loan Options
Federal Direct Student Loan (Subsidized):
Federal Direct Student Loan (Unsubsidized):
Subsidized vs. Unsubsidized Loans
Subsidized and Unsubsidized Federal Student Loans are typically where all families should begin their borrowing journey. This program is the only loan that does NOT require a parental co-signer. It is strictly a loan agreement between the federal government and the student which maxes out at $27,000 over four years.
There are a few key differences between subsidized and unsubsidized federal student loans. First and foremost, subsidized loans are offered to families who demonstrate financial need.
If awarded the subsidized portion of the loan, it will be interest-FREE until the student graduates and begins payments.
This isn’t the case for unsubsidized loans where the interest will accrue upon disbursement in college. No payments are required on these loans while the student is in school. Payment begins typically 6 months after graduation. Learn more by watching the video below.
Parent PLUS Loan
Parent PLUS loans are uniquely designed for parents with dependent students. These loans are taken on by the parent directly (not as consignors) and can cover the full cost of attendance at your student’s chosen school. Parents must have a good credit history to qualify.
Unlike the Federal Direct Student loans, PLUS loans have no max annual borrowing award. While this may sound like a great option, remember, you will have to repay it eventually!
Paying for college may involve multiple funding sources for your family. If loans are part of the equation for your family, we recommend you start with the federal loan options.
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