College Financing Options

When the Family Share Is More than You Can Afford

There are a variety of financing options available for families who are concerned about their ability to meet their family share of costs. These alternative sources of aid, most often in the form of loans, can help families cover financial aid "gaps," or unmet need in a financial aid package.

Student Loans

If you meet certain criteria, you could qualify to borrow an additional student loan such as an unsubsidized Stafford loan or a private education loan. Note: these loans tend to be more expensive than need-based loans.

Federal Unsubsidized Loans

Students who don't demonstrate need, or need to borrow more than the subsidized loan amount, can borrow unsubsidized Stafford loans. Unlike subsidized loans, you are responsible for paying interest on the loan while in school. The College Board offers unsubsidized federal Stafford loans through its Education Loan Program.

Private Student Loans

There are a number of privately-funded (non-government) loans available to students to help meet the family share. These loans are also known as alternative loans or supplemental loans.

Parent Loans

Parents can also take on loans to help cover the expected family contribution. Certain rules -- such as demonstrating good credit -- will apply, depending on the loan. Parent loan options include federal PLUS loans and private loans.

Federal PLUS Loans

PLUS Loans are the most popular loans for the parents of dependent undergraduate students. Parents can borrow up to the full cost of education minus any financial aid. The interest rate is fixed, currently 8.5 percent for July 1, 2006 - June 30, 2007. Repayment of both interest and principal begins 60 days after the loan is fully disbursed to the school. Learn more about PLUS Loans.

Federal Grad PLUS Loans

Graduate students can borrow up to the full cost of education minus any financial aid. The interest rate is fixed, currently 8.5 percent for July 1, 2006-June 30, 2007. Students receive an automatic deferment while in school. There is no grace period, however, students may request up to a 6 month forbearance after leaving school.

Private Education Loans for Parents

There are a number of private (non-government) education loans for parents. Many of these loans are available from banks.

Home Equity Loans

If your parents are homeowners, it's likely that they can "borrow against their home." Your parents may be eligible to borrow as much as their equity, which is the difference between the market value of their house and how much is owed on the mortgage. This money can be used to pay for education costs. The rate is comparable to other borrowing options.

An advantage of a home equity loan is that the interest paid may be deductible on your parents' federal tax return. A disadvantage is that they may have to pay a fee for this type of loan.

IRA Withdrawals

An IRA is a savings account designed to put aside money for retirement. The main options are the Traditional IRA and the Roth IRA.

Under either plan, you can be charged a 10 percent fee if you withdraw money before you reach age 59 1/2. If the money is used to pay for college expenses, the 10 percent fee is waived. However, you may be required to pay federal and state income tax on your withdrawals.

Tuition Tax Credits

A tax credit is an amount of money you can subtract from your federal tax bill. It is a dollar-for-dollar reduction of the amount you owe. If you have family members in college, and your income doesn't exceed certain limits, you may apply for a credit of up to $1,500 per year.