Loans

Loans are one form of financial assistance that students (or their parents) may choose to use to help pay for postsecondary education or training.  Offered by both the federal government and private institutions, loans are money that you borrow to attend college. You must repay your loans with interest. Loans provide students and families with immediate access to funds to help cover the cost of college. There are two types of loans: Federal loans and those offered by private institutions.

BRIEF SUMMARY

Loans are one form of financial assistance that students (or their parents) may choose to use to help pay for postsecondary education or training.  Offered by both the federal government and private institutions, loans are money that you borrow to attend college. You must repay your loans with interest. Loans provide students and families with immediate access to funds to help cover the cost of college. There are two types of loans: Federal loans and those offered by private institutions.

KEY POINTS

  • Federal Loans: The two main types of federal loans available for college students include:
    • Subsidized Loans– Subsidized student loans are available for students who have demonstrated financial need. They have slightly better terms than unsubsidized student loans, because the US Department of Education pays your interest while you are in school and for a six month grace period after you graduate.
    • Unsubsidized Loans– Unsubsidized loans are available to students regardless of financial need. Students are responsible for repaying interest during all periods.
  • Other types of Federal Loans: There are also specialized student loans available, such as PLUS loans and Perkins Loans:
    • PLUS Loans – PLUS loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for expenses not covered by other financial aid options.
    • Perkins Loans– Perkins loans are school-based loans for undergraduate and graduate students with exceptional financial need.
  • Private Loans: Private loans are granted by private banks and may help to bridge the gap between the cost of your education and the amount of financial aid you receive from the government. Eligibility for private loans often depends on your credit score, and private loans tend to have higher interest rates than loans that the government offers. Students are encouraged to pursue all options for federal student aid before entering into a private loan. In general, private loans are not subsidized or need-based. They also often require a parent to commit to repay the money, as a co-signer on the loan, if the student fails to. Banks and other financial institutions usually have the highest interest rates.
  • Some families choose to start saving early to minimize or eliminate the need for student loans.  Indiana’s 529 plan is designed to help families start saving for postsecondary costs early.

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