Student Loan Options to Fund College

To start your student loan process, you must fill out a FAFSA (Free Application for Federal Student Aid). This form is used to determine your eligibility for federal financial aid, and it’s also required for many private loans and scholarships. You’ll have to fill out a new one each year that you apply for aid, even if you stay at the same school. 

Based on your FAFSA, you’ll receive a financial aid offer from your school, which will include any federal student loans you can accept. 

Federal Loans

There are three types of federal loans:

Direct Subsidized Loan: A loan based on financial need. The government pays the accruing interest while the student attends school at least half-time, as well as during the 6-month grace period after you leave school and during any deferment periods. Once it is time for you to start making payments, you start paying the interest that is accruing.

Direct Unsubsidized Loan: A loan not based on financial need. Interest starts accruing as soon as you accept the loan offer, although you don’t need to make payments until after you’ve graduated and it’s time to start.  

Direct PLUS Loan: Only for parents borrowing money for their dependent undergraduate students or eligible graduate students. The maximum amount is determined by the cost of attendance and other financial aid. 

Federal student loans have many benefits:

• Interest rates are fixed and lower than most private loans or credit cards.
• Most federal loans don’t require a credit check or cosigner.
• There are flexible repayment plans and forgiveness options. 

Private Loans

If federal student loans won’t cover your tuition or other college expenses, you can apply for alternative loans, such as private student loans.

Private student loans are financed through a credit union or bank that sets its own terms. Some defer payments until you finish school, while others require payments throughout school. Most private loans accrue interest as soon as you accept the loan, and some have variable interest instead of a fixed rate. This means you could end up with a higher interest rate at some point during the loan, which would increase your monthly payments. 

One important thing to check when you’re looking into a private student loan is whether it has prepayment penalty fees. The faster you pay a loan off, the more you save on interest, so it’s smart to plan ahead and make sure that’s an option without penalty in the future. 

Carefully calculate your expenses and make sure you’re getting the best loans available before you accept any offers. It’s important to only borrow what you need. Don’t take out more money than necessary to pay for your education expenses, and always apply for as many scholarships as you are eligible for.
Want to learn more? Check out our financial education resources for more smart money strategies.