College application season is ending, which means that high school seniors around the United States are anxiously awaiting a decision from their first, second and third choice universities, wondering where they will matriculate next fall. For some, once the acceptances are received, it’s just a matter of choosing a favorite school and enrolling. However, for many students, another factor outweighs personal preference: financial aid.
With the rising cost of education, it should come as no surprise that many students and their families cannot foot a hefty tuition bill on their own. In fact, around 85 percent of full-time undergraduate students receive some sort of aid. Unfortunately, not all of this aid comes in the form of grants – money that the student will not have to pay back after graduating – but instead, many financial aid packages include a varying sum in loans.
The borrowing and repayment process for these loans can be less than straightforward, particularly for people, like high school seniors, who are not totally familiar with managing finances. The good news is that this will provide an excellent opportunity for budding entrepreneurs to learn some tips to get a business loan once they obtain their degrees. Until then, let’s look at some of the basics of student loans so that you can make an informed decision before accepting a financial aid package this spring.
Available Loan Options
When you receive an aid offer from a university, it’s important to realize that not all loans are created equal. Different loans have different rules and regulations that govern them, and you may want to take this into account before making a decision to accept an offer.
The most prevalent loan option will be some form of a federal loan. If you’re offered a Direct Loan, whether it’s subsidized or unsubsidized, or a Direct PLUS loan, your lender will be the U.S. Department of Education. Another federal loan option, the Perkins Loan, is borrowed from your college or university. The Federal Student Aid Office provides this helpful chart, so borrowers can quickly compare the eligibility requirements, interest rates and varying conditions of each loan they offer.
Another option you may have is to obtain a loan directly from your college or university. Many schools have pools of money specifically dedicated for providing small loans to students who may need more than what the federal government is willing or able to offer them. The terms of these loans can vary wildly, so it’s important to ask the institution’s financial aid office for the details and conditions of the loan before signing any forms.
The final option you have will not automatically appear on your financial aid summary, because it will not be directly affiliated with the college or university. If you do not receive enough aid from the first two sources to cover the cost of your education, you can apply for a loan through a private lender. It’s important to note that, unlike with most federal loans, you will likely be required to have a cosigner for loans from private institutions.
Paying It Back
Student loans are a good debt to have because, unlike other debts, student loans do not negatively impact your credit score. That being said, failing to pay back your loans can end in financial ruin, so it’s important to have a clear understanding of a loan’s terms of repayment and repayment options before taking out a serious chunk of change.
Federal loans are among the best to get because the government will work with you until you are able to make full payments. You are easily able to defer or forbear your payments if you meet the eligibility requirements. Even if you don’t qualify for a deferment or a forbearance, you still have the option to continue making payments, but at a reduced monthly rate, which is determined by your level of income. Consider your employment situation carefully before asking for reduced monthly rates.
Financing Your Education
Overall, taking out any type loan is no light matter. It’s very important that you make an informed decision before agreeing to the conditions of a loan. Failing to understand your obligations and your rights may lead to financial distress in your future.
Fortunately, while college tuition rates are quite high, there are a plethora of resources available to students who need assistance. Take advantage of these support networks, and you should have no problem getting your degree and paying back what you owe.