Universities provide loans to students with unmet financial need.
Universities have a responsibility to provide each student with a solid financial aid package, sufficient to meet any unmet need. Each student's family must contribute a certain amount to cover educational costs as assessed through the Free Application for Federal Student Aid (FAFSA). Colleges and universities benefit from all available funding sources that can increase students' financial aid amounts. Loans are offered in most financial aid packages.
Subsidized Loans
The school financial aid office attempts to include the best type of loan for the largest amount available. The best type of loan a college can offer a student and his family is a subsidized loan from the federal government. A subsidized loan is an interest-free loan: The student pays back the principal only after he is out of school. Financial aid offices offer the maximum subsidized award before including any unsubsidized loans in a financial aid package.
Unsubsidized Loans
The university financial aid office can also provide unsubsidized loans to most qualifying students and families who do not exceed a set annual household income. The initial benefit of taking out an unsubsidized or subsidized loan is that there is no credit approval process or a risk of denial. An unsubsidized student loan will have lower interest than a private loan or credit card interest, plus it can also be deferred after graduation.
Perkins Loan
Many colleges and universities can also offer smaller loan amounts through the Perkins loan program. The financial aid office allocates Perkins loans based on the availability of funds. The amount for distribution fluctuates based on previous borrowers paying loans back. This is also a low-interest loan. Some colleges also offer short-term emergency loans for under $500 and up to 30 days to help students with urgent needs.
Universities Benefit from Loan Programs
Colleges and universities benefit from providing solid financial aid packages comprised of grants and loans because they are able to provide all qualified students with financial support. Less grant resources need to be utilized when more interest-free or low-interest loan funds are available. Universities can be more competitive by offering an abundance of grants to highly qualified candidates and more loans to less qualified candidates. Loans can be administered relatively easier than matching a candidates qualifications with grant requirements. Loan programs give universities flexibility to award grants to the most deserving or well-acclaimed students.
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