Flipbook_College_2017 - page 18-19

Three types of federally sponsored loans are available to
help students and parents pay for college.
This hypothetical example is used for comparison purposes only and does not represent any
specific investment or loan. Actual results will vary.
$139,327
Monthly cost
$1,161
Total cost
15 years
15 years
10 years
10 years
$350
Although federally sponsored college loans typically have low interest rates, the cost of
borrowing can still be very expensive compared with the financial resources required to
accumulate savings.
Consider the hypothetical example below, which compares a savings program to
accumulate $100,000 over 15 years with a $100,000 loan (with a 10-year payoff period)
borrowed by the student at age 18. The total out-of-pocket cost would be $63,000 for saving
and investing, compared with paying $139,327 in principal and interest for borrowing.
About
68%
of students who earned a bachelor’s degree
in the 2014–15 academic year graduated with debt.
The average amount owed was
$30,100
.
Source: Project on Student Debt, The Institute for College Access & Success, 2016
Borrowing Versus Saving
College Loans
Saving
(15 years, 6% average annual return)
Borrowing
(10-year loan, 7% interest rate)
A fixed, low-interest federal loan
available to undergraduate and
graduate students who demonstrate
the greatest financial need. The
school is the official lender, but not
all schools participate in the Perkins
program. While the student is in
school, interest does not accrue
and no loan payments are due.
Repayment with interest generally
begins nine months after the
student leaves school.
Another type of low-interest
federal loan available to under­
graduate and graduate students.
Direct Subsidized Loans (for
undergraduates only) are based
on need, and the government
pays the annual interest while
the student is in school. Direct
Unsubsidized Loans are not based
on financial need, and interest
accrues while the student is in
school. Repayments for Direct
Loans are delayed until six months
after the student leaves school.
Available to parents of dependent
undergraduate students (as well
as to graduate students). The
government is the lender, but the
interest rate is somewhat higher
than Perkins or Direct Loans.
Parents can borrow up to the total
cost of attendance minus any
other aid received. Repayments
and interest accrual begin after
loan funds are fully disbursed,
but parents may request a deferral
of payments while the student is
in school.
Federal Perkins Loan Direct Loan
Direct Plus Loan
1
2
3
Private-sector loans are also available, but they usually carry significantly higher
interest rates and have less flexible repayment options than federal loans.
$63,000
1,2-3,4-5,6-7,8-9,10-11,12-13,14-15,16-17 20
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