When you’re preparing to go to college, you need to know how to pay for your education. Unless you've got a great scholarship package, come from fabulous wealth, or are attending a community college or U.S. Service Academy, there's a good chance you will need to explore the possibility of college loans. Fortunately, college loans are relatively easy to receive. However, before you apply for college loans, there are some things you need to know:
- According to Federal Student Aid, there are federal student loans and private student loans. Federal students loans are often preferable because they have lower interest rates, meaning they are easier to pay back. Private student loans come from privately-owned banks or finance companies, meaning they’re seeking a profit and, therefore charge higher interest.
- However, federal student loans may be limited in size, meaning you will probably not be able to pay for an expensive degree with only federal loans. Choosing to attend a very expensive college may necessitate some use of private loans, which are more expensive.
- Federal student loans have a fixed interest rate, meaning your monthly payments will not change. This interest rate is locked in and uniform for all college student recipients. Private student loans can be either fixed rate or have adjustable interest rates. Just like with an adjustable rate mortgage, an adjustable rate student loan can result in the interest rate rising, meaning higher monthly payments. These loans can be inadvisable because student loans typically take years to pay off and monthly payments could rise unexpectedly multiple times.
- Despite being limited in size, federal loans are particularly advantageous because recipients do not have to start paying them back until six months after graduation. This allows students to finish their degree before being saddled with loan payments, but it can also be risky. Students can develop a false sense of security and not realize they are racking up "hidden" debt that can be crippling six months after graduation.
- Neither private student loans nor federal student loans are excused or forgiven if you do not graduate. If you drop out of college, you are still responsible for that debt. This can be especially tough in regard to private loans, some of which require you to start making monthly payments immediately. Even if college is tough, remember that you will have to pay off your student loans if you drop out.
- College loans cannot be discharged if you declare bankruptcy. No matter what, unlike some other types of debt, you will be required to pay off your college loans. If you fall behind on your loan payments and begin to default on your college loans, your wages can be garnished, meaning part of your pay automatically goes to pay your college loans. If this happens, it will damage your credit score.
- Finally, you can minimize the number of college loans you need by applying for scholarships and grants, which are forms of financial aid you don’t need to repay. Scholarships often come from the college itself or from various nonprofit organizations. Grants typically come from the college, state, or federal government. Applying for federal grants and scholarships can be done for free by filling out the Free Application for Federal Student Aid.
