Your admitted to your dream school. Now you have their offer of financial aid. But your confused about what you are being offered. Is a Stafford Loan good, or bad? How about a PLUS loan?
Remember that in college financial aid there are only three types of aid. Grants and Scholarships which are free money, loan till payday that are meant to be repayed, and work study.
Take a look at your financial aid award letter and see what grants or scholarships you are being offered. This is the best kind of money because they don’t need to be paid back. They may have a name on them such as the name of the person who donated the money for the scholarship. Don’t worry, that generally doesn’t make any difference. If you are not sure, call the college and confirm that a particular grant or scholarship has no obligation to be repaid.
The biggest area of confusion tends to come with college loans. The two major types of federal loans are the Stafford loans and the Perkins loans. Stafford loans come in two types. The best ones are those that are subsidized. That means that the federal government will pay the interest on the loan while you are in school. An unsubsidized Stafford loan means that you have to pay the interest on the loan even while you are in school. You can defer the interest until you graduate but then the interest will end up accumulating and making your loan amount that much greater.
If the loan says it is something other than a Stafford or Perkins loan you want to ask the college who this loan is from and what the terms of repayment are. If they are suggesting a private loan be very careful of accepting it. These loans often have much higher interest rates and less favorable repayment terms than the federal loans.
Some colleges will also put a PLUS loan in a financial aid package. However, this is misleading because this isn’t really financial aid at all. A PLUS loan is a federal loan that your parents can take out to help pay for the cost of college.
PLUS loans can make a lot of sense for families that don’t have cash to pay the college costs each year but they can make it look like you are getting a better deal than you are if they are part of the financial aid award.
If you are trying to compare financial aid awards you should subtract out of any award anything except grants, scholarships, federal Stafford and Perkins loans and work study. Then subtract off what you are being awarded from the cost of the college to see what you will really have to pay for each college.
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