Use caution when borrowing

College is an investment in your future. And, in some cases, it takes a literal investment pay the bills.

A loan is someone else’s money you repay over time. The amount of money you borrow is called the principal. For the privilege of using that money, you pay the lender a fee, usually a percentage of what you borrowed, for as long as it takes you to repay the loan in full. This is known as interest.

Student loans are an important funding source that can supplement your needs when your other resources are not enough. Some student loans are offered by the federal government while others are available through private sources, like financial institutions. It is important that you understand who is making the loan and its terms and conditions before you borrow.

Student loans may vary with regard to:

  • Who is allowed to borrow
  • The amount you may borrow
  • The time you are allowed for repayment of the debt
  • When those payments begin
  • The interest charged on the loan
  • Fees (e.g., administrative, origination, late)

You borrow federal student loans, like subsidized and unsubsidized Direct loans, in your own name.

  • Subsidized loans are awarded when a student demonstrates financial need. They do not accrue interest while the borrower is enrolled at least half-time in a degree program.
  • Unsubsidized loans are available to students with or without financial need. The interest on unsubsidized loans begins to accrue as soon as the loan is disbursed.
  • With both federal loan programs, you do not begin repaying the loan until six months after you are out of school, or until you are no longer enrolled at least half-time.

Federal loans generally have lower interest rates and more favorable repayment terms, such as income-driven repayment. Federal loans also may be eligible for forgiveness and cancellation, if certain terms are met. They are limited in the amount you can borrow each year and your eligibility over time. Find details on federal loan limits on the Department of Education’s website, www.studentloans.gov. Links to an external site.

 

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