Melody Muñiz

When the word “college” pops up in your head, is the next word “tuition”? “Money”? Or maybe the phrase, “way too expensive”? That’s completely understandable; college tuition can be as financially burdensome as buying a house or a new car. You have probably heard of the FAFSA (if not, check out our blog on the topic), but you may be wondering how the FAFSA actually helps. By understanding the different types of federal loans (subsidized vs unsubsidized) and the other ways you can score more cash from your FAFSA (pell grants), college tuition can seem less daunting, and hopefully more achievable.

Understanding the Basics

First, we’ll start simple: what is a student loan? It’s money the bank gives you specifically for college that you pay back with interest at a later date. There are two types of student loans: federal and private. Within federal loans, there are subsidized loans and unsubsidized loans.

Unsubsidized Loans vs Subsidized Loans

The biggest difference between the two is that when you take out a subsidized loan, the Education Department pays for the interest the bank charges you while you’re enrolled in school. On the other hand, with an unsubsidized loan, the bank will charge you interest as soon as it’s dispersed to you, including while you’re enrolled in school. The current interest rate for undergraduate borrowers is 2.75% and it is fixed, meaning it won’t decrease or increase for the entirety of the loan. In order to receive a subsidized loan, you need to qualify for FAFSA. This is another reason why getting your FAFSA done on time and correctly is extremely important; it will determine your eligibility for all financial aid. One last key difference is that the subsidized loan borrowing limit–the maximum amount of money you can take out as a loan–is lower than that of unsubsidized loans. The numbers differ depending on your independent/dependent legal status and what year of college you are in, but usually the subsidized loan borrower’s loan limit is less. You can read more about these loan types on the federal student aid website. 

Private Loans

When it comes to student loans, it’s best to stick to federal loans rather than private ones. Private loans carry higher interest rates and require a cosigner if the student borrower does not have a credit history. If you do decide to go for a private loan, shop around first to look at all the interest rates, as well as their forgiveness and repayment options. Read more about public vs. private loans by checking out our previous blog post!

Pell Grants

Federal Pell Grants are cool because they are pretty much free money. You don’t have to pay them back. When you fill out the FAFSA form, they decide if you are financially in need of a Federal Pell Grant based on a number of factors: household income, cost of your school’s tuition, etc. Pell Grants are only awarded to undergraduate students, and they are usually awarded half in the fall semester, and the other half in the spring semester. There are other types of grants offered as well.

 College loans and Pell Grants are all forms of financial assistance. There’s absolutely no shame in taking out student loans, in fact, most college students receive some form of financial assistance for four-year and two-year programs. Taking ownership of your finances can seem confusing and a little scary, but there are a lot of resources to help.

You can also ask your school counselor or financial advisor for advice on the best options for your specific situation. It is a little complex, but with the right amount of financial understanding, you could be well on your way to earning that college degree!