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How the Borrowing Process Works

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Non-Need-Based Loans

These outside-of-need loans are used to help families that can't afford to pay their expected contribution from savings and current income. Some colleges will include one or more of these loans in your child's award letter. When reviewing your child's aid, these loans should be removed and put to the side. When you calculate your family's share of costs, you may find that it is more than you can afford. If so, it's time to consider these loans.

Features of Non-Need-Based Loans

Non-need-based loans:

  • Usually have higher interest rates
  • Have no in-school interest subsidy
  • May also require immediate repayment of principal

Three Non-Need-Based-Loans

The three main types of non-need-based loans are unsubsidized Stafford or unsubsidized direct loans for students, PLUS Loans for parents and private loans for students.

  • Unsubsidized Stafford or direct loans Your child must file a FAFSA before applying for an unsubsidized Stafford Loan. The Student Aid Report (SAR) will show if your family has need. If so, your child can take out a subsidized loan and save money on interest payments. We recommend checking with the college to learn what application procedures to follow. Your child must complete the same master promissory note whether the Stafford or direct loan is subsidized or not. Once the loan is approved, the funds are sent to your child's school.
  • PLUS loans This is a parent loan, sponsored by the federal government, that is unrelated to need. Generally, parents can borrow up to the total cost of education, minus any aid received. Many lenders will provide quick pre-approval for a PLUS loan within minutes, either online or over the phone. Once the application is completed and the loan is approved, the money is sent to the student's school.
  • Private or alternative loans Private education loans are available to students, usually at higher interest rates than the federal loans described above. In almost all cases, a credit check and approval is required. Colleges and universities may provide a list of private loan sources. You can check with banks or other financial institutions with which you have accounts.

While not considered financial aid loans, for many families, these non-need-based loans can play an important role in making college affordable, particularly for families that are unable to pay the family share from current income and savings.