While federal student loans and private student loans get most of the attention when it comes to paying for college, there are other types of student loans available to borrowers as well. State-run student loan programs are one example. Institutional student loans are another.
What is an institutional student loan?
An institutional student loan is a student loan made available through an educational institution such as a college or university. While not every institution offers these loans, many colleges and universities do as a way to help students fill gaps left between federal and state aid.
Because institutional loans are not mandated by federal or state law, each college or university that offers such loans has a wide berth to determine the terms of these loans, including eligibility requirements, maximum amounts which can be borrowed, interest rates, and repayment options.
Typically, students must complete their FAFSA application in order to apply for an institutional loan.
Institutional Student Loan Interest Rates
Each individual college or university that offers institutional student loans has the power to charge whatever interest rate they wish. Often, these interest rates are as low as, or lower than, the interest rates charged by federal student loans. Interest rates can be either fixed or variable in nature.
Often, though not always, interest is subsidized while a student is actively enrolled in classes, and only begins to accrue after the student has left school.
On the other hand, the interest rate for federal student loans is set by Congress, the interest rate for private student loans is set by the private lender, and the interest rate for state loans is set by the individual state legislature.
Understand the terms of your loan, including the interest rate and how interest accrues, before agreeing to it.
Institutional Student Loan Eligibility
Each college or university offering institutional loans can choose its own eligibility requirements. Some institutions make loans available based upon the student’s financial need. Others may make loans available only to students from certain regions, or who are enrolling in certain programs.
The only eligibility requirement common between all institutions is that the student must be enrolled in that particular institution.
Check with your institution’s department of financial aid if you have questions about whether or not the school offers institutional loans and, if so, whether or not you are eligible to borrow.
Institutional Student Loans vs. Grants
An institutional student loan is, as its name suggests, a loan. It must be repaid, typically with interest, unless it is forgiven.
A grant, on the other hand, is free money provided to a student to help them pay for college. As such, grants typically do not need to be repaid. Grants can come in a number of varieties, including federal grants, state grants, and institutional grants.
Institutional Student Loans vs. Scholarships
Scholarships are a lot like grants in that they are typically free money made available to students. As such, they do not need to be repaid. Institutional student loans are a form of debt which must be repaid, typically with interest.
How to Apply for an Institutional Student Loan
Typically, most colleges and universities will require you to complete the Free Application for Federal Student Aid (FAFSA) in order to apply for any institutional loans or other aid which may be available. If you would like to learn more about the types of institutional loans offered by your school, you should check with the office of financial aid.
Alternatives to Institutional Student Loans
When it comes to paying for college, all borrowers should begin by completing the Free Application for Federal Student Aid (FAFSA). Doing so will help you understand what types of federal and state aid you may qualify for, including federal student loans, which come with some of the lowest interest rates and most beneficial terms that you will find.
If the federal student loans do not cover all of your educational costs, you should then turn to any state-run student loan programs available to you. These loans often come with lower interest rates than private loans.
If you still need funds after that, then private student loans can help you fill the gap, though these tend to be more expensive, and come with fewer protections, than virtually all other forms of aid.
Of course, all sources of free funding, such as grants, scholarships, and work study should be accepted first before any student loans are borrowed.