There are three main types of federal student loans available to finance college costs: 1) Subsidized Stafford Loans are available based on financial need and the government pays interest while enrolled. 2) Unsubsidized Stafford Loans are available to all students but interest accrues while enrolled which increases total cost. 3) Perkins Loans are similar to Subsidized Stafford Loans with some interest covered after graduation. Private student loans from parents or banks can also be options to cover remaining college costs beyond federal loans. Understanding the loan types is important for developing a financial plan to pay for higher education.

1. LOANS
What are the differences
between each type of loan?
While scholarships and grants are
typically easy to understand and
apply for, loans are another story
altogether. Understanding the
different types of loans available
is one of the most important steps
you can take as you put together
a payment plan for your college
education.
Federal loans are the loans
most students rely on to finance
college costs. They are financed
by the U.S. Government; most are
administered through the Federal
Direct Student Loan Program
(FDSLP), also known simply as
“Direct Loans.” These loans are
provided directly to the students
and their parents, without going
through a third party.
There are three types of federal
student loans:
Subsidized Stafford Loans
are available to students with
demonstrated financial need as
determined by the information you
provide in the Free Application
for Federal Student Aid (FAFSA),
online at www.fafsa.org. One of the
most important advantages is that
the government pays for the interest
on the loan while you are in school,
and so you do not start accruing any
interest until after you graduate.
Unsubsidized Stafford Loans are
available to all students, regardless
of financial need. However, you are
responsible for all the interest on
it, and must either start paying it
while you are in school, or capitalize
the interest (which means that the
interest payments will be added to
your loan balance, increasing the
amount and cost of the loan).
You can also receive both subsidized
and unsubsidized loans at the
same time, and there is a six-
month “grace period” that starts
immediately after you graduate, to
give you time to find a job before
you are required to start making
payments on the loans.
The amount that you can borrow
What you should
know about
financial aid
By Anne Chaconas
The question of how you and your
parents will be able to afford college
isn’t easily answered. However, by
arming yourself with knowledge
about the types of financial aid
available you’ll easily be able to win
the financial aid battle.
What types of financial aid
are available?
Financial aid primarily exists in three
types: Loans, scholarships, and grants.
• A loan is money that you borrow
either from the government (known
as federal loans) or a private lender
such as a bank or educational
institution at a specific interest rate,
which varies from loan to loan. With
most educational loans, you are not
required to start paying the loan back
until after you have graduated school.
However, with some loans, interest
will be added on to your original loan
amount while you are in school.
• A scholarship is money given to
you by an institution, corporation
or individual that you do not have to
pay back. Typically you must meet in
order to be eligible to receive them.
They can be merit-based, need-based,
based on your gender, race, ethnicity,
religion, parents’ employer, etc. or
based on the field of study you are
going into.
• Students must apply for grants,
either in a formal application or essay
competition. Grants are most often
one-time awards, but once a student
receives a grant it cannot be taken
away. Undergraduate institutions and
the federal government have grants
available for students.
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NextStepU Magazine January/February 2011 www.NextStepU.com10

2. through the Stafford Loan
program is limited (http://
studentaid.ed.gov).
Perkins Loans are awarded
to students demonstrating
exceptional financial need
and are similar to subsidized
Stafford Loans, because the
government pays the interest
on the loan while you are in
school, and they also pay it for
a nine-month “grace period”
after you graduate.
• If you still need additional
funds, your parents can
take out a Parent Loan for
Undergraduate Students, or
PLUS Loan.
• Your parents can apply for
private loans through a banking
institution to cover the cost of
your education.
Grants and scholarships can range
from a few hundred dollars to
tens of thousands of dollars, and
can be obtained by submitting
applications, entering contests
or petitioning companies. Some
of the best resources to find
scholarships and grants are:
1.Federal Student Aid on the Web
(http://studentaid.ed.gov).
2. Your state’s Department of
Higher Education.
3. The Counseling Office. They
will have the scoop on scholarships
offered to graduates of your high
school.
4. Your future undergraduate
institution’s Financial Aid page.
There you’ll find information
on any institutional grants
and scholarships available to
incoming freshmen, as well as
any requirements and forms you’ll
need to complete for each.
5. Every year, scholarships are
awarded by the National Merit
Scholarship Corporation, Gates
Millennium Scholars and the
Coca-Cola Scholars Foundation,
as well as many other national
programs.
6. Your parent’s employer. Ask
your parents to check with their
Human Resources Department
to see if this is something that’s
available to them.
GRANTS AND SCHOLARSHIPS
How to help your
parents pay for
your college?
The more you help your parents out,
the better your chances will be of
finding more sources of funding for
your education.
Consider the following:
• Open a Upromise account.
Upromise is a company that helps you
earn money as you spend money on
everyday items. They have partnered
with more than 600 online stores,
more than 8,000 restaurants and
thousands of grocery and drugstore
item providers.
Every time you make an eligible
purchase, the partners return a
portion of that money back to you.
Those earnings accumulate in your
Upromise account until you decide to
use it to invest in a College 529 plan.
To learn more, go to www.upromise.
com.
• Invest in a 529 Plan (the sooner, the
better!). A 529 Plan is an education
savings plan operated by a state or
educational institution, which is
designed to help your parents set aside
money for college. Almost every state
and many financial and educational
institutions have 529 Plans. Contact
your state’s Department of Higher
Education to learn more.
• Be proactive in your scholarship
search. Use all the tools at your
disposal to search for as many
scholarship and grant opportunities as
possible.
• Boost your standardized test
scores. Many universities base
scholarships based on your SAT or
ACT scores. Check with the schools
you’re interested in and ask if they
provide these kinds of merit based
scholarships.
• Have your parents talk to schools
directly. If you have multiple financial
aid offers, you can ask schools to
match another offer. Contact the
Financial Aid Office of the schools
you are interested in to see if they can
match other offers.
• Keep looking for money, even
the summer before you go off to
school. Just because you’ve gotten the
acceptance letter in the mail doesn’t
mean there aren’t other scholarships
and grants out there still available.
Anne Chaconas is the director of
admissions counseling
for PowerScore Test
Preparation (www.
powerscore.com).
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January/February 2011 NextStepU Magazine 11