Southwestern

Engaging Minds, Transforming Lives

Financial Aid

Learn About Loans

If your scholarships, grants, income and savings won’t cover the cost of college, you may consider taking out a loan. When you take out a college loan, you borrow money and have to repay it. You also have to pay interest—a charge for borrowing the money. Different types of loans have different interest rates. The lower the interest rate, the less money you pay. 

  • Federal Direct Subsidized Loans

    These need-based government loans currently have a low interest rate of 3.86%, and the government pays the interest charges while you’re in college. This interest rate is fixed, which means it will not change over time. You can borrow up to $3,500 your freshman year, and this limit increases each year.

  • Federal Direct Unsubsidized Loans

    These non-need-based loans have the same interest rate as Subsidized Loans. Unlike with the Subsidized Loans, however the student will be responsible for repaying the interest that accrues while he is in school. You can pay the interest while you’re in college or add it to the amount of your loan. The second option means you’ll end up paying more money over time.

  • Federal Perkins Loans

    Colleges award these loans to students with the highest financial need, using federal government money. The 5 percent fixed interest rate is low, and you don’t make any loan payments while in college. The interest on the Perkins Loan is subsidized while the student is in school. 

  • Federal Parent PLUS Loan

    These non-need-based government loans allow parents to borrow the total cost of your college education, minus any other aid received. They currently have a 6.41% fixed interest rate.

  • Private (Alternative) and State Loans 

    These loans from banks, colleges, private organizations and state government agencies usually are not need-based or subsidized. They require good credit, which often means a parent with good credit must cosign the loan. Interest rates on these loans are often higher than on federal loans, and the rates may rise over time.

(source: Quick Guide: Which College Loans are Best? and College Loans: The Basics)