The Best Student Loan Options
After the joy of that acceptance letter wears off, you may find yourself reeling with sticker shock. So, let’s talk about how to pay for college. From grants and scholarships to the best student loan options available to you.
College is expensive, and getting more expensive all the time. College tuition has gone up by more than 1000% since the late seventies. Gone are the days of working a summertime job to pay for college the next year.
These days there is a big discussion going on about what to do about college costs in general. While that discussion continues, you still have to deal with the realities of that tuition bill.
How to Pay for College
There are many options for paying for college.
Grants happen based on meeting specific eligibility requirements and often given based on need and enrollment status.
These may come from the federal government in the form of Pell Grants. Or may come from schools themselves in the form of needs-based or talent grants. Grant programs require no repayment.
Scholarships are an earned financial aid, usually based on scholastic or athletic achievement. Students can earn scholarships for competing in certain educational competitions or essay contests. Or for being part of certain organizations or ethnic groups. Scholarships, like student grants, require no repayment.
Loans are well, loans. The federal government or a financial institution or school provides them. Students may take out a certain amount in loans to pay for their education. Unlike scholarships and grants, loans do require repayment.
Before taking out student loans, it is important to exhaust all other financial aid options. Filling out a FAFSA will determine your eligibility for certain federal programs. You can also visit sites like Scholarships.com to find the best scholarship options.
When it comes to any debt, you want to take on as little as possible. Regardless of what loans you decide to go with.
After you’ve exhausted all your other options, take a look at what amount you will still owe for school. This is the amount you will need to borrow.
So now that you have a dollar amount, what are the best student loan options?
Well, you have a few choices. Let’s go through them.
Federal loans financed through the federal government come in subsidized and unsubsidized varieties. The terms on these are slightly different, and not everyone qualifies for both types.
Federal loans also referred to as Stafford or Direct Stafford loans, but come with different strings attached.
Both types are secured by the US government, meaning that they come with lower rates than private loans. However, federal loans have stricter borrowing limits and eligibility requirements as compared to private loans.
- Available only to those with financial need
- The amount loaned may not exceed financial need as determined by the school
- The federal government pays the interest while you are in school and during your grace period
- Allowable only for 150% of the published time-frame of your program
- Available to all students regardless of financial need
- The student must pay all of the interest
- Added to the principal of the loan is unpaid interest
- The federal government regulates both subsidized and unsubsidized loans
There are borrowing limits on both types of loans, both yearly and lifetime. Your enrollment must be half-time or above to qualify for either.
Private student loans are available through banks, credit unions, or schools themselves.
These are similar to any other type of loan and are bound by things such as your credit score. Students just entering adulthood and without established credit will probably need a cosigner.
However, there are not usually borrowing limits on private loans. So, they can be one of the best student loan options. Especially for students who have already reached the maximum loan amount for federal loans.
They are also available from multiple institutions, allowing you to shop around for the best rates and terms. The terms for private loans are not dependent on a school determining your need. In fact, there is more flexibility in terms of how much you can borrow.
It is also important to understand that private loans are not as forgiving as federal loans. Some may even require payment while the student is in school. They are also unlikely to offer loan forgiveness, particularly when it comes to banks and credit unions. This could damage ones credit, in the event that the student leaves school and is unable to make payments.
There is more flexibility here, but more risk as well.
What are the Best Student Loan Options for Me?
Leaving college debt-free is always preferable. For a first time undergraduate student, it’s always best to exhaust all other aid options before even looking at loans. Make sure you have searched for grants and scholarships that may be available to you.
This is not to say that you may not need private loans by the time you finish with school. However, if you can avoid them, you should.
Federal loans allow you to defer payments until after you finishing with school. The rates are going to be lower than private. In addition, you may even be able to have some of your loan forgiven, under specific circumstances.
Depending on the school, the maximum awards for federal loans deplete quickly. In that case your best student loan option is by default, a private loan.
But make sure you search for financial aid in the order listed below. It will ensure you are taking on as small a debt load as possible.
- Federal Loans
- Private Loans
How did you pay for your education? Thought of something we missed? Leave us a comment below to let us know?
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