Financial Aid Terms

So just what is the difference between a grant and a loan? Between subsidized and unsubsidized? To help you get all your ducks in a row, the following is a list of some financial aid terms to help you master the lingo low-down. You may want to familiarize yourself with these words, as you will see them many times throughout your college career.

Direct and FFEL Stafford Loans: are the Department of Education's major form of self-help financial aid. Direct Stafford Loans are available through the Federal Family Education Loan (FFEL) program. Under the Direct Loan program, the funds for your loan are lent to you directly by the U.S. government. Direct and FFEL Stafford loans are either subsidized or unsubsidized.

Federal Perkins Loan: is a low-interest loan for undergraduate and graduate students with exceptional financial need. Your school is your lender. The loan is made with government funds with a share contributed by the school. You must repay this loan to your school. Depending on when you apply, your level of need, and the funding level of the school, you can borrow up to $5,000 for each year of graduate or professional study.

Grants: are financial aid awards that do not need to be repaid. For example, the Pell grant is the largest federal grant program and can provide you with up to $3,000 a year based on financial need.

Loans: are amounts of money that must be paid back. For a loan to be considered financial aid, it must carry a lower interest rate than the current commercial rates. The Stafford loan program does not require borrowers to pay either the loan's principal or interest until after completing their studies.

PLUS Loans: enable parents with good credit histories to borrow to pay the educational expenses of each child who is a dependent undergraduate student enrolled at least half-time. PLUS loans are available through both the Direct Loan and FFEL programs.

Scholarships: are awarded by a variety of organizations, and do not have to be paid back. You may, however, have to maintain a certain GPA if you receive an academic scholarship, or remain eligible for a sports team for an athletic scholarship.

Subsidized: these loans are awarded on the basis of financial need. You will not be charged any interest before you begin repayment or during authorized periods of deferment. The federal government "subsidizes" the interest during these periods.

Unsubsidized: this type of loan is not awarded on the basis of need. You will be charged interest from the time the loan is disbursed until it's paid in full. If you allow the interest to accumulate, it will be capitalized-that is, the interest will be added to the principal amount of your loan and additional interest will be based upon the higher amount.