Student Loans, a Breakdown
Updated: May 5, 2022
School can be expensive, and the costs can add up quickly when continuing your education. Unfortunately, most people don't have the option to pay out of pocket. This is where grants, scholarships, and student loans come in. We've broken each one down to help you decide which option, or combination of options, is right for you.
Grants and scholarships.
Grants and scholarships should be the first step when looking to pay for school. Grants are need-based, while scholarships are typically merit-based. Both are great options to pay for your schooling that you don’t have to pay back. (Free money!) For more information on federal grants and scholarships that may be available to you, visit StudentAid.gov. You can also find information on grants and scholarships available through your state here.
Student loans.
After grants and scholarships, student loans are the most common way to help pay for college costs such as tuition, books, and living expenses. There are two types of loans to look at, federal and private.
Federal loans are offered to students through the U.S. Department of Education. Sometimes, you'll see federal student loans referred to as Stafford Loans or Direct Stafford Loans, even though that's not their official name. These loans often have lower interest rates and repayment plans that are more flexible than private loans. Rejections are also rare with federal loans.
Private loans are loans taken out through banks, credit unions, or other financial institutions. Private loans will typically have higher interest rates and their own set of conditions that must be met. In addition, approval may be more difficult due to credit score and credit history requirements.
Subsidized or unsubsidized.
Another aspect to consider is whether or not the loan is subsidized or unsubsidized. Subsidized student loans are needs-based and help you out while enrolled in school, for up to 6 months post-graduation, and anytime your loans are in deferment. During these periods, you don’t have to worry about the interest accruing; the government will take care of that. With unsubsidized loans, it is entirely your responsibility to repay the interest that accrues while you are in school.
To help you out with the differences:
Topic | Federal | Private |
---|---|---|
Payments Due | Must be enrolled at least half-time. Payments don’t become due until after you graduate, leave school, or enrolled credit hours decrease to less than half-time. | Private loans will typically require you to make payments while you're attending college. |
Interest Rate | Interest rates are fixed and, for the most part, much lower than private loans. | Interest rates may be variable or higher than federal loans. |
Subsidies | Depending on your situation, you may qualify for a subsidized loan. This means the government will pay interest while you attend school. | Most private loans will not be subsidized, which means you are required to pay all interest on the loan. |
Credit Check | No credit check is needed. | A credit check is required. Lender may want to see an established credit history or a cosigner. |
Consolidate and Refinancing | Loans can be consolidated. | Can’t be consolidated but can be refinanced. |
Repayment Plan | Several types, including an income-based option. | Check with your lender to determine options. |
Loan Forgiveness | May be eligible for forgiveness for public service. | Private lenders do not offer loan forgiveness. |
Postponement | If you are having difficulty paying, you may be eligible for a temporary postponement or lowered payment. | Check with your lender to see the options they have. |
With the rising costs of tuition, books, and housing, you may not be able to afford college on your own. However, with the information provided, you can hopefully make a more informed decision about how to proceed with your education.
For more information on student loans, please visit StudentAid.gov.