The most common form of financial aid, especially at public universities, is student loans and federal work-study programs. At Living Wealthy Advisors, we do not view education loans or work-study awards as financial aid; tuition grants and scholarships are the ultimate financial aid goal of Wealthcare education planning.
There are a myriad number of federal and state government-sponsored lending programs available to students and parents to finance the cost of higher education.
The most appealing but least available federal student loan program is the Perkins loan. This is a needs-based lending program, with below-market interest rates, no interest accrual and deferred repayment until after the student graduates from college or ceases attendance.
More commonly available loans are federally guaranteed private student loans. Subsidized student loans are needs-based and look similar to the Perkins loan program, whereas the unsubsidized student loan is not needs-based, accrues interest from the borrowing date, but repayment is deferred until the student graduates or stops attending college.
Each state (in Pennsylvania it is PHEAA) offers a number of education financing programs, including deferred student loans, loan forgiveness programs for certain industries, grants and scholarships.
For parents, the Parents for Undergraduate Students (“PLUS”) loans are private loans on behalf of their child attending college that offer prevailing market rates of interest with long repayment terms that commence immediately. Since most of these loans are not guaranteed by the government, the parents’ credit standing will determine the degree to which they can finance their child’s higher education goals using PLUS loans.
Finally, while home equity, 401(k) plan assets and cash value in life insurance are alternative sources of educating financing, they are resources of last resort to meet any education funding shortfalls.
