The language of saving for college

Knowing what’s what can help you save for your or your student’s college education.
529 plan
A 529 college savings plan is a tax-advantaged account that lets you contribute money to be used for educational purposes. You choose how to invest your money from a selection of options, which may allow it to grow and compound over time. You pay no taxes on the money in the account, and if it is eventually used for educational expenses, you pay no income tax on qualified withdrawals. You may also be eligible for state tax breaks for your contributions. Be aware that making a nonqualified withdrawal from your 529 plan may subject you to taxes. 1 Click here to find common questions about 529 plans or find a 529 based on your state of residence.
Consolidation loan
A debt consolidation loan is a way to take several or all of your loans and combine the balances into a single loan. This could help you lower your monthly payment, reduce your interest rate or find alternate repayment plans. However, if your interest rate ends up being higher after consolidating, you may end up paying more money over time.
If your loan becomes delinquent (because of late payments), it could then go into default if you have not made a payment in more than 270 days. This can result in you losing eligibility for future federal student aid. There may also be legal and financial consequences.
Lenders may allow you to defer payment on your loan, which means you are not required to make payments for a period of time. This typically happens while you are in school or graduate school. Interest typically does not accrue during deferment, but be sure to check specific terms with your lender.
Demonstrated need
This is a calculation made when applying for federal financial aid that is determined by first taking the cost of education (COE) and subtracting the expected family contribution (EFC). The COE is the total price of school, including tuition, room and board, books, food and other expenses. The expected family contribution is an estimate of a parent’s and student’s ability to cover college costs.
The Free Application for Federal Student Aid is a form that needs to be filled out every year by current and prospective college students to be eligible for aid, including federal loans and types of scholarships and grants.
Fixed rate/Variable rate
A fixed-rate loan means the interest rate will stay the same through the life of the loan. A variable interest rate may change depending on any federal lending rate changes.
If you can’t afford your monthly payments, your lender may allow you to go into forbearance, which means you can stop making your monthly payments for a period of time. This may help keep you from going into default, but interest typically accrues during forbearance, so you may end up owing more on your loans later.
Loan types
  • Federal Stafford loan
    These loans are given directly by the government. They come in two types: Subsidized versions are available for undergraduate students only, based on financial need, and interest is not charged until after college. Unsubsidized versions are available to undergraduate or graduate students, but interest begins accruing as soon as the loan is taken out. The fixed interest rate on these loans is set by the government. For the 2018–2019 school year, it was 5.05%. For the 2019–2020 school year, it is 4.53%.
  • Private loan
    Private loans are offered by banks and other lending institutions. Unlike federal student loans, there is not a set interest rate—it will vary based on your credit score.
  • Federal Grad PLUS loan
    A Grad PLUS loan is a federal loan available to students attending graduate or professional school and is not based on financial need. For the 2018–19 school year, the interest rate was set at 7.6% fixed. For 2019–2020, the rate is 7.08%.
  • Federal PLUS loan
    A PLUS loan is a U.S. Department of Education loan available to parents of undergraduate students. For the 2018–2019 school year, the interest rate was set at 7.6% fixed. For 2019–2020, the rate is 7.08%.
  • Perkins loan
    Perkins loans are federal low-interest student loans for undergraduate or graduate students with exceptional financial need. Non-qualified withdrawals may be subject to federal and state taxes and the additional federal 10% tax.
Pell Grant
Pell Grants are awards given by the federal government based on financial need. Because they are grants, they do not need to be repaid.
1Non-qualified withdrawals may be subject to federal and state taxes and the additional federal 10% tax.
2Please refer to the Plan Disclosure Book on a state 529 plan’s website prior to investing, for details on risk, tax benefits, charges and expenses, and whether your home state offers tax or other benefits such as financial aid, scholarship funds, or protection from creditors for investing in its own 529 plan. Investments in the Plan are neither insured nor guaranteed and there is the risk of investment loss. Consult your legal or tax professional for tax advice, including the impact of the federal tax changes. TIAA-CREF Tuition Financing, Inc. (TFI) is the Plan Manager for several state 529 plans, and TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, is the distributor and underwriter for those plans.