In “How to Afford College”, we broke down how to determine your cost of attendance, seeking family contributions, and the types of grants that students can apply for. So, you found out your general ballpark cost and asked for help. Where do you go from there?
Well, the most common step for students who need financial aid is to fill out the Free Application for Federal Student Aid, or the FAFSA. The FAFSA helps determine the amount of aid that the federal and state government and your school can provide based on your family’s income and expected contributions. The application opens annually on October 1.
Once the FAFSA application is complete and has been sent to your school(s) of choice, stay tuned to receive financial aid offers from those schools. A financial aid offer is the amount of federal loan that the school is willing to accept for tuition costs and is paid for by the U.S. Department of Education. You have the choice to accept or decline the offer, and you do not have to accept the entire amount. If you think you’ll need less than the maximum, say so.
Federal loans can be subsidized or unsubsidized. Subsidized loans have a few advantages and are offered based on need. These loans will not start to add interest until you either graduate, stop school, or drop below half-time enrollment. Unsubsidized loans are not based on need – they’re based on the remaining amount of money that you’d need to pay your tuition after family contributions and subsidized loans. These loans start to add interest as soon as they have been disbursed to your college. Both subsidized and unsubsidized options do not require repayment until six months after the student graduates, stops school, or drops below half-time enrollment, however, students can opt to start their repayments early should they prefer.
Alternative Loan Options
Sometimes, after considering what is available in a student financial aid offer, there is still a gap in funding for a student. Currently, many families wonder if they have additional options. The answer is yes! One such option is the Parent PLUS Loan.
Federal Parent PLUS Loan
In this loan type, the parent is the borrower, and approval for the loan is based on the parents’ credit history. On Parent PLUS loans, the interest rate is fixed, and repayment begins 60 days after the college or university receives the funds. The parent can request payments to be deferred while the student is enrolled at least half-time, or even up to six months after the student drops below half-time. Unlike other federal loans that may require multiple loans to cover the student’s educational costs, qualifying Parent PLUS applicants can cover the complete educational expense in one loan. It’s helpful to note that if a parent is not approved for the Parent PLUS loan, the student can become eligible for additional unsubsidized loan funding. One advantage of applying for this loan is that it results in someone (either the student or the parent) becoming eligible for more funding.
Another funding option is a private loan. Private loans, sometimes referred to as Alternative Loans, are not funded through the government. They may come from banks or other lending services and require a credit check. Each lender has its own set of application, credit, and co-signer requirements, and interest rates may be fixed or variable. You might be thinking, “why would anyone use a private loan?” Well, there are some positives.
You might be able to get a lower interest rate than on federal loans. Since federal loans are given from the government, their interest rates and terms are the same for everyone. That isn’t the case with private loans. If your credit score and/or the credit score of your cosigner are in good standing, you might get a break on the interest percentage. Private loans also allow you to take advantage of variable interest rates, potentially widening the savings. See some questions you should ask when considering a private loan.
Whether you’re looking at federal loans, private loans, or both, borrow responsibly. Only take out as many loans as you need. If there are other ways to pay for college, weigh those options first! Between these loan options and other financing options, you’re well on your way to affording college.