While paying for a college education is important for many young people, the high cost of this education makes it a prospect that is out of reach for a majority of the population. If you don’t have enough in savings to pay for school, you will need to investigate both federal and private loan options.
Federal Loans for College Students
Federal loans operate as money from the government that helps college students pay for their postsecondary education. Since this type of money works as a loan, you will need to repay the loan after you graduate or leave school.
These are the four types of federal student loans that students and parents can borrow from the federal government:
To receive federal loans, students must submit the FAFSA (Free Application for Student Aid). The U.S. Department of Education will use the FAFSA to figure out how much you and your family will contribute to your college education costs. This is what is known as the “Expected Family Contribution” (EFC). If you want to use a federal loan to pay for your education, you will need to enroll in an accredited postsecondary program.
Private Loans for College Students
You can obtain private loans from financial institutions such as credit unions, banks, and other types of lending establishments. These types of loans can pay for educational expenses that occur after you have used grants, scholarships, and federal loans. The majority of private loans get borrowed in the student’s name. This means that it is your responsibility, not your parents, to repay this financial obligation. After you apply for a private loan, you can then use the proceeds to pay for additional expenses such as laptops, books, and transportation that you will use to get to and from school.
Private Loans for College Students: Pros
- Simple application that doesn’t require you to make a trip to a bank or make a phone call
- You won’t have to complete the FAFSA
- You get the funds immediately after you’re approved
- You can use a co-signer to get a better interest rate
- You might have the ability to deduct the interest you pay on a private loan
- Many private loans don’t have a penalty for paying off the loan early
Private Loans for College Students: Cons
While the pros of taking out a private loan appear long and full of upsides, there are possible downsides that can sour the process of paying for your college education. First and foremost, you will need to have good credit to take out a private loan. You do not need good credit to take out a federal loan as they are backed by the federal government. If you have a subprime credit score, you can get a co-signer. Private loans also have higher interest rates than their federal counterparts. You will also have to apply for funds every year. Just because you were approved for funds one year does not mean you will get approved for the next academic period.
Private loan lenders charge borrowers higher interest rates, so you should always explore options for grants, scholarships and federal loans before you investigate private loans. If you’re looking to attend a non-traditional program such as a culinary school, investigate whether your potential program is accredited by a regional educational body. If not, you will need to pay for the program with a private loan.
Paying for a college education is a huge investment in your adult life. Making decisions about higher education are more than just worrying about the numbers. However, you just can’t ignore the numbers altogether. By investigating all of your options now, you can save you and your parents both money and time.