How the Borrowing Process Works

Federal loans are the largest form of student aid, making up 41% of the total aid awarded to undergraduates each year. Here's a primer on the process.

Need Loans vs. Outside-of-Need Loans

Today loans are the largest form of student aid, making up 41% of the total aid awarded to undergraduates each year. Most students can expect to receive a loan as part of a financial aid package. There are two broad categories of loans: loans based on financial need and loans not based on financial need.

Loans Based on Financial Need

The federal government is the principal provider of need-based loan funds. Your child's award letter will list the type and amount of need-based loans.

Features of Need-Based Loans

Need-based loans usually share three distinct features:

Three Need-Based Loans

Typical need-based loans are Perkins Loans, subsidized Stafford Loans and subsidized direct loans. For loans based on financial need, the aid office will help guide your child through the process.

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:

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.

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.