Unlike scholarships and grants, loans must be repaid. However, loans are an important source of funds for education expenses and represent a sound investment in a student's future. In order to keep loan indebtedness to a reasonable level that can be repaid after college, students are encouraged to earn as much as possible and keep expenses to a minimum. Because a loan must be repaid, students are urged to borrow no more than necessary.

Deferments and cancellations are available to recipients of Federal Perkins, Federal Stafford, and Direct Loans under certain conditions that vary by loan program. Conditions may include: teaching students from low-income families, other designated teaching, military and volunteer service, unemployment, and economic hardship. Additional information on deferment and cancellation provisions is provided in entrance and exit interviews for federal loan borrowers and is available from the Office of Financial Assistance.

There are two types of Direct Loans: subsidized and unsubsidized. Federal regulations state that to qualify for a Direct Loan, applicants must submit a Free Application for Federal Student Aid (FAFSA) for their eligibility to be determined. Students who demonstrate financial need are eligible for a Subsidized Direct Loan. Repayment on the subsidized loan begins six months after graduation or when the student ceases to be enrolled at least half time. No interest is charged during college enrollment.

Unsubsidized Direct Loans are available to students who do not qualify for the Subsidized Direct Loan. Interest on an unsubsidized loan does accrue during periods of enrollment and deferment, but may be either paid or capitalized, i.e., added to the amount borrowed. Repayment of both principal and interest begins six months after graduation or when the student ceases to be enrolled at least half time.

Nearly all students with financial aid, including scholarships and tuition remission, totaling less than the cost of attendance are eligible for either a Subsidized or Unsubsidized Direct Loan, regardless of family income. Students who do not receive a Direct Loan as part of a financial aid award may call the Office of Financial Assistance at 617/353-5615 to request a Direct Loan.

The total amount of Direct Loan for which freshmen are eligible is $2,625. Sophomores are eligible to borrow up to $3,500 per year, and juniors and seniors may apply for up to $5,500 annually. Boston University will award one-half the annual amount for students enrolled for only one semester of an academic year. Total outstanding Federal Direct and Stafford Loans may not exceed $23,000 for undergraduate study. These loan limits apply to either a subsidized or an unsubsidized loan or to a combination of both loans.

Additional Unsubsidized Direct Loans are available to some students. Independent students may be eligible to borrow an additional $4,000 as freshmen and sophomores and $5,000 as juniors and seniors. These loans may also be available to students whose parents fail to meet credit criteria for a Federal Direct PLUS loan. These additional borrowing limits are for the Unsubsidized Direct Loan only and are in addition to the maximum annual Direct Loan for each class year as stated above.

Any amount borrowed for summer enrollment may reduce the amount for which a student is eligible during the next academic year.

Interest rates are the same for both subsidized and unsubsidized loans. The rate is variable and is set annually at the bond equivalent rate of the 91-day Treasury bill auctioned just prior to June 1, plus 1.7 percent during in-school, grace, and deferment periods and 2.3 percent during repayment, but it is capped at 8.25 percent. A three-percent origination fee will be deducted from all loans before disbursement.

The minimum amount that may be borrowed is $2,000. The fixed interest rate for 2000/2001 was 7.85 percent, with an APR of 8.49 percent. Repayment of a fixed-rate loan begins one month after the loan is made and extends over 15 years. The variable-rate loan's interest rate is set annually in April for the following academic year; the 2000/2001 interest rate was 7.50 percent. Repayment of a variable-rate loan begins one month after the loan is made and extends over 15 years.