Types of Aid
There are a variety of ways to fund your education, including grants, scholarships, and loans—we will explain your options and demystify the application process.
Grants are “gift aid” which do not need to be repaid. They are awarded on the basis of demonstrated financial need. Most state grants are offered on a first-come, first-served basis. All grants require the completion of the Free Application for Federal Student Aid (FAFSA) every year.
Basic information about each type of federal grant is provided below.
Federal Pell Grants
- Undergraduate student that has not received a previous bachelor’s degree
- Award is determined by the federal government based on the family’s expected contribution amount as calculated by the FAFSA.
- Award is pro-rated based on enrollment status.
- Must meet Federal eligibility requirements
Student loans are designed to help you pay for tuition. Loans must be paid back, and they accrue interest over time.
Federal Direct Loans
Through the Federal Direct Lending Program, borrowers receive federal loan funds directly from the U.S. Department of Education. There are two types of Federal Direct Loans:
Subsidized: The federal government pays the interest on this loan while the student is enrolled at least half-time or during times of authorized deferment. Direct Subsidized Loans are awarded based on federal financial need and grade level.
Unsubsidized: Students are responsible for paying the interest that accumulates after the loan has been disbursed. The interest can be paid while in school or the accrued interest will be capitalized (added to the principal balance). Unsubsidized Stafford Loans are awarded based on grade level, and financial need is not considered.
- Effective on July 1, 2021, the interest rate for both Subsidized and Unsubsidized loans is fixed at 3.73%.
- A fee of 1.057% is deducted from the loan amount at every disbursement.
- Repayment begins six months from the date of graduation, full withdrawal, or enrollment less than half-time.
- There is no pre-payment penalty.
- 150% Loan Limit Rule – Beginning July 1st, 2013, any first-time borrower, (which is defined as someone who has either never borrowed a federal student loan previously, or has borrowed previously but currently has a zero balance), will only be able to borrow federal direct subsidized loans for a maximum of 150% of the published program length in which they are enrolled. Once a student reaches the 150% mark, they will not be able to borrow further subsidized loans, however, they may be eligible for unsubsidized loans. Additionally, those subsidized loans that had been borrowed up to the 150% point will lose further government subsidy and interest on these loans will begin to accrue. From the 150% point forward, these subsidized loans will become unsubsidized loans. For example, if the published length of a program is the equivalent of four years, a student may borrow subsidized loans for the equivalent of six years while in the same program, if all other eligibility requirements are met.
- Professional judgment is the authority granted to financial aid administrators by the Higher Education Act (HEA) to make changes to a student’s cost of attendance, financial information used in the FAFSA to calculate the student’s EFC, or to change a student’s dependency status from dependent to independent.
Federal Direct Parent PLUS Loan
The Federal Direct Parent PLUS Loan Program provides a borrowing option for parents of dependent undergraduate students to help finance their student’s education. The maximum amount a parent can borrow is the cost of attendance less other sources of financial aid. The student’s award letter will indicate the maximum amount eligible. This amount can be reduced or declined; no parent is required to borrow a Federal Direct PLUS Loan.
The funds are borrowed directly from the U.S. Department of Education. This is a credit-based loan. As of July 1, 2021, the interest rate is fixed at 6.28%, and there is a 4.228% fee deducted from every disbursement. Interest accrues from the first date of disbursement. Repayment begins after the loan is fully disbursed; however, deferment options are available to delay repayment. There is no pre-payment penalty.
To borrow through the Federal Direct PLUS Loan program the parent must pass a credit check, which is valid for 90 days. Parents without adverse credit will be approved for the loan. Adverse credit is defined by regulation as: 90 days or more delinquent on any debt or having a credit report that shows a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt, during the five years preceding the date of the credit report. Parents denied a Federal Direct PLUS Loan will be offered the option to appeal or apply with a credit-approved endorser. Please see below for upcoming changes to the regulations on adverse credit history.
On March 29, 2015, the new Direct PLUS Loan regulations on adverse credit history were implemented. The new regulations provide that a PLUS loan applicant has an adverse credit history if, in addition to other conditions (e.g. bankruptcy, foreclosure, tax lien, or a default determination), the applicant has one or more debts that are 90 or more days delinquent or that are in collection or have been charged off during the two years preceding the date of the applicant’s credit report, but only if the total combined outstanding balance of those debts is greater than $2,085. Special loan counseling will also be required for any PLUS Loan applicant who has an adverse credit history but who qualifies for a PLUS Loan through the process for reconsideration due to extenuating circumstances or by obtaining an endorser for the loan. While the counseling is mandatory only for these borrowers, the Department of Education will offer voluntary counseling for all PLUS Loan borrowers.
Worsham College strongly recommends that students and families exhaust all other sources of funding, including federal student and parent loans before borrowing private/alternative loans. Federal student and parent loans carry benefits, including deferment and cancellation clauses which may not be available on private/alternative student loans. Federal loans typically carry lower fixed interest rates and offer more flexible repayment options.
Private loans are non-federal, credit-based education loans, borrowed from a private lending institution that must be repaid. The loans are typically issued in the student’s name with a required co-signer. The maximum amount a student may borrow is the cost of attendance minus any other financial aid or the maximum limit established by the lender. Families are encouraged to fully explore federal loan options, (e.g. Perkins, Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans), before securing a private loan due to the benefits and consistencies that the federal loan programs provide.
Comparing Federal and Private Loans
In determining which loan is best for your needs, it is important to research and compare loan interest rates and fees, repayment options, and eligibility requirements. Compare the Federal PLUS Loan and Private Education Loan with this helpful comparison chart:
|Private Student Loans
|Federal Student Loans
|May require payments while you are still in school
|Repayment begins after you graduate, leave school or change your enrollment status to less than half-time
|Can have a variable interest rate, some greater than 18%
|Interest rate is fixed and in many cases lower than private student loans
|Unsubsidized; eligibility for other Federal financial aid assistance cannot be determined without submitting a FAFSA
|Students with greater financial need might qualify for additional financial aid assistance, including subsidized loans (in which the government pays interest)
|May require an established credit record; the cost depends on your credit score
|No credit check required (except for Parent PLUS loans)
|May need a co-signer to get the best deal
|No co-signer required
|Interest may not be tax deductible
|Some interest is tax deductible
|Cannot be consolidated with the federal loan consolidation program
|Loans can be consolidated into a Direct Consolidation Loan
|May include prepayment penalty fees
|No prepayment penalty fee
Questions to Ask When Shopping for an Alternative Loan
It is important to ask questions and compare lenders to make the choice that is best for you.
- What is the interest rate and is it fixed or variable?
- What is the maximum interest rate?
- If the interest rate is variable, how often will it change and how high could it go?
- When is accrued interest capitalized (added to the principal balance)?
- Is a co-signer required? Will having a co-signer lower my interest rate?
- Are there any application, origination, disbursement, or repayment fees?
- What will the minimum payment be?
- How long will I have to repay the loan? Are there any prepayment penalties?
- Are payments required while I am in school?
- What options are available if I cannot make my payments due to a job loss or economic hardship?
When a Private Loan is an Appropriate Option
A private loan may be an appropriate choice for you, if:
- You understand and have compared the terms of the Federal Parent PLUS loan and the terms of a private loan offered to you, and have determined that the private loan is a better choice for your family.
- You have applied for the maximum amount of all federal loans available to you and still have a difference between the cost of attendance and the total financial aid you have received.
- You are a dependent undergraduate student and your parents will not borrow (or have been denied) a Federal PLUS Loan.
- You owe a balance from a previous semester. You may be able to receive a private loan for an earlier loan period.
- You are an international student with limited borrowing alternatives.
Researching Alternative Loan Lender Options
We encourage students to carefully research and compare private loan options before borrowing. Please keep the following in mind while researching your options.
- Terms and conditions vary widely among lenders.
- Consider contacting lenders or other financial institutions (such as banks, credit unions, or higher education authorities) with whom you already have a working relationship.
- Many states have a higher education agency that offers financial assistance (grants and/or loans), and/or offers services to assist students in finding and comparing private student loans.
Worsham College cannot recommend a lender or lenders for you to use for your private loan. You can use the tools on this page as a way to compare lenders and the loan products they offer. You are not limited to any of the lenders you find through our resources and may borrow with any lender of your choice.
We are happy to help you understand the private loan process, especially how it relates to your other financial aid, so please contact us if you have questions.
TIP: To avoid deceptive student loan offers, visit the Federal Trade Commission’s Facts for Consumers.