When applying for financial aid, it is important to understand the types of education loans provided by federal, state and private sources.  The two main types to look out for fall into the categories of “Need Based” and “Non Need Based.”  Knowing the type of loan suitable to your personal financial situation will make finding and applying for said loans much easier and less stressful, as it will eliminate those that you are not eligible for or that may not be beneficial to you.  Listed below are some features of each kind of loan, as well as examples of frequently applied for loans in each category:

Need Based Financial Aid

  • In order to qualify for need based loans, you must depict a significant amount of financial need, which is determined by the federal government based on applications like the FAFSA and the loan applications themselves.
  • Since the federal government is the main provider of need based loans, they have lower interest rates. 
  • Need based loans follow methods of deferred payments, which means that the principal loan payment is not required until after graduation.
  • The loans are subsidized, meaning the government pays the interest that accumulates on the loan while you are attending school or up to six months following graduation.
  • Perkins Loans are highly sought after need based loans rewarded to students with the highest needs, as well as a low interest rate of only 5 percent.
  • Subsidized Stafford Loans are need based loans with a fixed interest rate of 6.8 percent; the federal government pays the yearly interest while you are attending school. 

Non-Need Based Financial Aid

  • Non need based loans are available to students and families who cannot afford to pay the entire cost of college, along with tuition and all of the other expenses.  These loans are directed toward those individuals and families who did not qualify for need based loans due to the amount of their personal assets.
  • There is usually a higher interest rate associated with non need based loans, as the government will not pay it for you while you are enrolled in school.  This indicates that they are unsubsidized, and may require a repayment of the principal loan amount.
  • Unsubsidized Stafford Loans focus on aiding the family in paying in paying their share of the cost, with no attention being centered on financial need.  Since you are responsible for paying the interest on the loan, you can choose to capitalize said interest, which will simply add the extra amounts onto the principal amount of the loan itself.  While this allows interest payments to be deferred for quite some time, you may be faced with a hefty lump sum at the end when it is time to make payments.
  • Grad PLUS Loans are non need based loans sponsored by the federal government and directed toward graduate students.  Since these loans typically enable students to borrow up to the total cost of their education, they allow for a greater amount of money to be borrowed.  However, these tend to be higher interest loans, which may result in paying more than you would for other loans, like unsubsidized Stafford loans.

In order to qualify for need based financial aid, students are typically required to submit financial aid applications, including the FAFSA and CSS Profile. It is often a good idea to consider a financial aid consultant when discussing your options and determining if you have demonstrated financial need.

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