Today we move on to the final part of our Understanding Your Financial Aid Award Letter series. If you were lucky enough to have your entire tuition paid through free money for college, then you can stop reading now. But the vast majority of students who apply for aid will be awarded at least one less ideal form of financial aid. Sorting through the rest of your award letter is the tough part--this is where difficult choices may need to be made, including whether and how much to borrow.
Understanding Your Award Letter, Part III: Work-Study and Student Loans
While you probably would not want to decline any of the free money we discussed last week, you may want to turn down some of the aid covered today. You are allowed to decline any assistance on your award letter if you feel you will not need it, and you can also elect to take a smaller amount than what is given. Keep this in mind when budgeting for the year, and don't feel obligated to borrow more than you need. If you change your mind and need this aid later, you can usually get it back.
If you have remaining financial need after any grants and scholarships you've been awarded, you may see an award of federal work-study on your letter. This is a federally subsidized program for students working certain jobs on, and occasionally off, campus. Work-study is not money you will receive up front. You need to get a job that is funded through the work-study program to receive this money, and it will be given to you as a paycheck, not as money off your bill. Since many jobs on campus are reserved for work-study students, it can be a great option if you're planning to work while you're in college.
However, if you already have a job that is not funded through work-study or you do not plan to work, you may want to decline this award. There's no penalty for failing to use your work-study, but if you've been funded to your full need or cost of attendance, canceling your work-study may free up space for more or better student loans than you would have otherwise received.
There are two main categories of student loans: federal loans and private loans. Federal loans include subsidized and unsubsidized Stafford Loans, as well as Perkins Loans and PLUS Loans. Private loans come from banks and typically carry higher interest rates, though some states offer their own low-interest student loan programs. Depending on whether the school you attend participates in the Federal Direct Loans Program, or the bank-based Federal Family Education Loan Program, your federal Stafford Loans and PLUS Loans may be issued by a bank, but their terms are still set by the federal government. We have more detailed breakdowns of the different forms of student loans on our site, but here's a quick refresher, in rough order of desirability.
Federal Perkins Loans
Currently, Perkins Loans have limited funding and are often reserved for students with higher financial need. Schools award these at their discretion, but you apply for them through the FAFSA. However, if you receive one, you may want to take it, as they currently carry the lowest interest rates and some of the most favorable repayment terms. Perkins Loans have a fixed 5 percent interest rate and a 10 year repayment period. They are subsidized loans, which means interest does not accrue while you are in school. They also have a 9-month grace period before repayment begins. The current Perkins Loan limits are $5,500 per year for undergraduates and $8,000 per year for graduate students.
Federal Stafford Loans
Federal Stafford Loans
come in two varieties, subsidized and unsubsidized. Subsidized loans won't accrue interest while you're in college, while unsubsidized loans will. These are awarded automatically if you indicated on your FAFSA that you are interested in student loans. The interest rates on Stafford Loans are set by Congress, and are currently fixed at 6.0% for subsidized loans and 6.8% for unsubsidized loans for the life of the loan. Stafford Loans come with a six-month grace period and a variety of repayment plans, most in the range of 10 to 15 years. The amount you can borrow each year is based on your grade level, and ranges from $5,500 for dependent freshmen to $20,500 for graduate students.
You may or may not see a PLUS Loan listed on your award letter. This is a federal loan program that allows parents to borrow for their students, up to the student's full cost of attendance. Some schools include these to fill the gap between your financial aid and your cost of attendance, as a way of letting you know the option exists. While you are guaranteed to receive a Stafford Loan regardless of your credit, so long as you complete a few basic requirements, PLUS Loans, like private loans, require an application and a credit check (if your parents are denied a PLUS Loan, you can apply for additional Stafford Loans through the financial aid office).
Whether or not you see a PLUS Loan on your award letter, if you still need to borrow money to pay for school, this loan can be an option for many. PLUS Loans currently carry a fixed interest rate of 7.9 percent for Direct Loans and 8.5 percent for FFEL. Loans can be repaid immediately or starting six months after graduation, but interest will accrue while you're in school. Research the relative merits of PLUS Loans and various private loans and discuss with your family which option will be best for you.
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