When students are going to college, the best kind of aid is an outright grant or scholarship. However, parents shouldn’t count too heavily on those awards. The average amount received by a student was only $5,600, according to the most recent National Postsecondary Student Aid Study, and that won’t cover the costs of most colleges.
Beyond grants, aid may come in the form of loans.
Subsidized Stafford loans. They’re attractive because the federal government makes the interest payments while the student is in school. Interest rates on these loans are 6.8 percent, scheduled to drop to 6 percent in July. Although these loans are based on need, nearly 10 percent of subsidized Stafford loans are made to students with family incomes over $100,000.
Perkins loans. They offer lower interest rates and better prepayment terms than subsidized Stafford loans. However, Perkins loans are awarded only to students with exceptional financial need.
Unsubsidized Stafford loans. Even if no need-based aid is awarded, students can get an unsubsidized Stafford loan by filling out the Free Application for Federal Student Aid (FAFSA). The interest rate is fixed at 6.8 percent and payments can be deferred while the student is in school. Deferred interest is added to the loan balance.
