Young woman with a magnifying glassHigh school graduation is in the rearview mirror and by now you’re immersed in summer break.  Whether you’re working, job shadowing, or vacationing this summer, one thing is for sure; summer flies by quickly! Before you know it, you’ll be packing for college.

The least exciting part of college is paying for it!  Now is the time to review the financial aid offer you received from your college, in addition to any outside scholarships you may have been awarded. Were you offered enough financial aid to cover your direct costs for the entire academic year, or is there still some unmet need? If you have a gap between expenses and what you were offered, federal loans might be necessary. Here’s some insight on federal loans as well as important terms to know.

Direct vs Indirect Costs

The Cost of Education (COE) is typically listed on your student portal (school account), or on the award offer the college sent to you. If you cannot locate the COE, contact the college’s Financial Aid Department. The goal is to determine what your direct costs (tuition & fees, books & supplies, room & board) will be, and if you have enough aid coming in to cover those expenses. If you’re lacking aid to cover your direct costs, then you may need to consider federal student and/or parent PLUS loans.

Indirect costs (personal & transportation) are figured into the COE but are not paid to the college.  Indirect costs are estimated expenses that your college anticipates you’ll spend throughout the school year on items such as gas, dining off-campus, toiletries, etc. You need to determine if you want to borrow for these expenses, or better yet, just cover them as they are incurred.

Types of Loans Available

Your college may offer one or both types of federal direct student loans; Subsidized and/or Unsubsidized Stafford loans. Subsidized Stafford loans are interest-free loans, meaning the government is covering the interest while you are enrolled in college at least part-time.  Unsubsidized Stafford loans will begin accruing interest as soon as the loan is dispersed.

If you still have expenses to cover you may also see an option on your award offer called a Parent PLUS loan.  This is a federal loan that is offered to your parents to help cover your college expenses.  Parent PLUS loans are taken out in your parent’s name and are subject to credit approval.  Just like the Unsubsidized loans, Parent PLUS loans also begin accruing interest while you’re enrolled in college.

2022-23 Loan Interest Rates

Beginning July 1, 2022, the interest rates on all Subsidized and Unsubsidized undergraduate Stafford loans have been set at 4.99%.  This is a fixed interest rate, so any loans borrowed for the 22-23 school year will remain at 4.99% for the life of those loans.  The 22-23 Parent PLUS loan interest rate has been set at 7.54% which, again, is a fixed rate for the life of that loan. Refer to EducationQuest’s loan chart for additional information.

Borrow Wisely

If you filed the Free Application for Federal Student Aid (FAFSA), the college may have offered you federal student loans. However, there is a limit on how much you’re eligible to borrow each academic year. Freshmen can borrow a maximum of $5,500, sophomores up to $6,500, and in both junior and senior years, you’re going to be capped at $7,500 per year. Remember, you will need to submit the FAFSA each school year to be offered aid for the following academic year.

Parent PLUS loan offers are determined by taking your COA and subtracting all of the aid you have been offered, including student loans. If there is still a balance or “unmet need,” then your parents may be offered a Parent PLUS loan to cover that gap.

You’re not required to borrow! You can reduce the amount you wish to borrow or decline federal loans altogether. We always recommend that you borrow only what you’ll need to cover educational expenses! Eventually, any loan dollars that you borrow will have to be repaid, with interest!

Federal Student Loan perks

If you plan to borrow, federal student loans should be your first choice. They offer relatively low, fixed interest rates, they don’t require a co-signer, and they have favorable terms and conditions. Also, you’re not required to make payments while you’re enrolled in college at least part-time, and there are several options once you do enter repayment.

Take Action

There’s typically a 30-day delay for first-time borrowers, so if you plan to utilize student loans, a good rule of thumb is to complete the following tasks by mid-July:

  • Accept the student loan on your financial aid offer. (If declining, no further action is required)
  • Visit Gov to sign a Master Promissory Note for Undergraduates and complete entrance counseling.
  • Parents needing to borrow will log into the same site and complete a Master Promissory Note for Parents as well as filling out the Apply for Parent PLUS loan form.

I hope this sheds some light on borrowing for college. If you have further questions, contact the EducationQuest office nearest you to speak with a College Planning Specialist.

By Jacquie Butler