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  • Kaitlin Jones

A No-Nonsense Guide to Student Loans & Grants

If you’re a student or parent embarking on the Big Life Event of a college education, first of all, congratulations! There is so much information to take in when it comes to higher education, whether you’re sending a kid off to undergrad for the first time or returning to school for a graduate program yourself. We know it can be tricky to understand what is a wise financial decision when it comes to funding your education. Which types of student loans should you take on? How will this debt affect your overall financial well-being? What does unsubsidized even mean??

Our advisors can help answer these questions and, to start, we’re going to break down the different types of student loans with this digestible, no-nonsense guide.

When you complete the Free Application for Federal Student Aid (FAFSA) through your school, you’ll find out what and how much aid you are eligible for.

Federal Loans

The U.S. Department of Education offers three types of student loans. Note that there are a few types of federal loans that you may see referenced out there (such as Perkins loans, FFEL loans, or HEAL loans) but these programs have been discontinued.

Direct Subsidized Loans

  1. This type of loan is for undergraduate students who demonstrate financial need.

  2. The Department of Education will pay the interest on these loans while you’re enrolled in school at least half time, so you want to prioritize this type of loan if you qualify.

  3. Interest rate: 4.99% (2022-23)

Direct Unsubsidized Loans

  1. The important difference with an unsubsidized loan is that the government does not pay interest on it. If you don’t make interest payments while in school, the accrued interest is added to your balance when you graduate.

  2. Undergraduate, graduate, and professional students can apply for an unsubsidized loan and eligibility is not based on financial need.

  3. Interest rate, undergraduate: 4.99% (2022-23)

  4. Interest rate, graduate: 6.54% (2022-23)

Parent PLUS Loans and Grad PLUS Loans

  1. Parent PLUS Loans are given to parents (adoptive, biological, or stepparent) of dependent undergraduate students. Grad PLUS Loans are available to graduate and professional students.

  2. Eligibility is not based on financial need but it’s important to note that, unlike subsidized and unsubsidized loans, PLUS loans require a credit check.

  3. Interest rate: 7.54% (2022-23)

Federal Grants

The federal government will also award grants to students who qualify based on financial need, the largest and most common of which is the Pell Grant. These grants will be included automatically in your financial aid package if you qualify, and you don’t need to repay them.

Private Loans

Once you’ve maxed out all your eligible federal student aid, you have the option to apply for private loans to cover any remaining costs. These can come from a bank, credit union, or other lender who is not the federal government, and often require a credit check. Because these loans might not have the same protections and flexibility (e.g. fixed interest rates and loan forgiveness) as federal student loans, these should be your last resort after exhausting all your federal aid and you should review your options carefully.

This is just the tip of the iceberg when it comes to student loans and grants! If you haven’t done so yet, start by submitting your FAFSA. And if you have more questions about these financial decisions, your Northstar advisors are here to help.


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