Truth is, there is a lot to be excited about when it comes to college: new friends, a new routine, (college parties!), and more independence. But along with all these perks, it’s also time to start thinking about your finances.
Whether you’re reaching your final year of high school or just planning your education ahead of time, it’s important to know your options.
College is expensive, but luckily there are a lot of available options to some financial help. You may be able to get a scholarship or grant, or you may have a small source of income if you work part-time. You also may need to borrow money throughout your collegiate years in the form of a loan.
The responsibility of taking out a loan may seem overwhelming, but understanding student loans and student loan terms before you borrow could prevent financial hardships and allow you to decide which loan options are best for you. If you’re thinking about student loans, here are some things you should know.
What is a Student Loan?
A student loan is money borrowed from the government or a private institution like a bank to help you pay for college. Loans provide students with funds that will cover most, if not all, college expenses depending on the type of loan you choose.
While a loan is a type of financial aid, a loan is much different than a scholarship or grant. The main difference is that it has to be repaid, while scholarships and grants do not. Loans are also not based on academic performance or athletic ability as some scholarships or grants tend to be. Rather, loans can be based simply on your credit score or your financial need.
While each student’s eligibility plays a huge role, most loans can be used to cover your educational expenses such as:
- Room and board
- Books and supplies
- Student service fees
- Miscellaneous costs (cell phone, child care, etc.)
These loans are offered and available to all students with financial need. Usually, the loan needs to be paid back once you’ve completed your education, though some private loans require payments while you are still in school.
There are two types of student loans: Federal and private. Both can cover your educational expenses but they differ greatly when it comes to interest rates and repayment options.
Federal Student Loans
- Direct Subsidized Loans: These loans are given www.getbadcreditloan.com/payday-loans-de to students who demonstrate financial need determined by federal regulations. This is usually calculated by the difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). With this loan option, the U.S. Department of Education pays your interest while you’re attending school and for a six month grace period after you graduate.
- Direct Unsubsidized Loans: These loans are not based on financial need – they’re based on the cost of attendance for your particular school. Capitalized interest is applied to your loan, which in the end will increase the amount of your federal loan. However, students are responsible for repaying interest during all periods.
- Direct PLUS Loans: These loans are for the parents of a student. They can help pay for tuition and additional costs after all of your financial aid is exhausted.
To apply for federal loans, you need to fill out an online form called a Free Application for Federal Student Aid (FAFSA). This form will need to be filled out every year that you attend college in order to receive financial assistance. Once sent, you’ll receive a Student Aid Report (SAR) which will let you know what your eligibility is.