A Question I Hear A Lot: How an Undergraduate Can Get Additional Funding

I have a confession. There's one particular question I often get that always makes my heart sink. There's no easy answer; in fact, the only answer is the one the person doesn't want to hear. But I still get it all the time.

Here's how the question goes:

An undergraduate student will tell me they've exhausted all of their financial aid options through the school. They've gotten their awards package and the amount just isn't enough. They haven't gotten any scholarships/grants, or the ones they have aren't enough to cover the bills. Their parents can't or won't take out a PLUS loan in their name. Many parents outright refuse. A job can't possibly make up the difference.

And they ask me, besides a private loan (more often than not with a cosigner attached), what other options do they have?

The unfortunate answer is always no. Unless you can get a high-paying part time job, you only have a few options to help you pay with school:

1. Scholarships and Grants (Pell included)

2. Perkins Loans

3. Stafford Loans

4. PLUS loans

5. Private or Alternative Loans

That's it. There's nothing else to receive. If the school doesn't award you enough in Stafford/Perkins loans, you're on to PLUS loans. If your parents won't take one out, then on to private/alternative loans.

I hope that one day a type of loan will appear that undergraduate students can take out, similar to the GradPLUS for graduate and professional students. Until that day though, there really is no easy solution.

So what can the undergraduate do?

The only two options I'm aware of are the following. I do not recommend either, but sometimes there's just no other option left:

1. Take out a credit card and put any remaining balance on the card. Clearly this is not the optimal idea as credit cards are one of the higher risk debts to have in your name.

2. Peer to peer lending. If you google this term you'll find a few different websites where people lend money directly to each other. This is actually not a bad system, although the interest rates will likely be higher than with a bank and the loan amounts may be lower than what you need.

Calculating Student Loan Interest

Your student loans accrue interest every day. The only exception to this is that Stafford subsidized loans do not accrue interest while you are on a deferment. For example, when you are on an in-school deferment any subsidized fund you have will not have any interest accruing.

Unsubsidized, PLUS and GradPLUS loans will all accrue daily interest at all times. At the end of any deferment or forbearance if this interest is not paid, the interest will become part of your principal balance.

If you want to know your daily interest, here's a simple formula to calculate it:

Principal balance x interest rate / 365.

That's your principal balance multiplied by your interest rate and divided by the number of days in the year. Viola! Your daily interest.

As your principal balance lowers, your daily interest will also lower. This is why there is no prepayment penalty on these loans - if you pay off your entire balance plus the amount of interest that you've accrued as of that day, you will not pay another dime for that loan.

Now to define some terms!

You will know which loans are "subsidized" and "unsubsidized" by your financial aid awards package. They designate these totals on the package for you. You can also call up the servicing agent and ask.

You can also call or check your account online for the amount of interest due. If at all possible, make payments toward your interest while on a deferment or forbearance. It can save you thousands in the long run.

Deferments and forbearances are ways to pause your payments. If you are ever struggling to make payments on your account, call your servicing agent immediately! Chances are they CAN lower or pause your payments. You will spare yourself the hassle of delinquency and could even avoid default. Honestly, defaulting on student loans takes effort! Call as soon as you have a problem and you can avoid all of the pain.