For high school students with dreams of becoming university and college students, deciding on where to go to school is a fast-approaching reality. And so are the discussions about how to pay for it.
There’s no time like the present to explore financial options that can help pay for higher education costs, especially because many funding sources have firm application deadlines. With the abundance of information out there, it can be a daunting task. But with a bit of knowledge, students and their families can feel more confident about making one of the biggest investments of their lives.
Master loan lingo
Student loans are one of the most popular tools used to pay for college. Not all student loans are the same, however, and it’s critical to understand the type of loans available.
For starters, loans can be federal or private.
Federal loans are backed by the U.S. government. The fixed interest rates are set by Congress and remain the same throughout the life of the loan. These student loans can be either subsidized or unsubsidized.
- Direct subsidized loans are reserved for undergraduate students with financial need and do not accrue interest while a student is in school at least half-time.
- Direct unsubsidized loans are not based on financial need, and interest starts accruing as soon as the loan is funded.
Applying for any federal student loans starts with completing the Free Application for Federal Student Aid, also known as a FAFSA. Colleges and universities use the information provided to determine both the amount students can borrow and what type of assistance they are offered in their financial aid package.
Private loans are provided by more “traditional” lenders, such as banks, credit unions and sometimes even schools themselves. Generally, they make up a smaller percentage of student loans. Loan terms, including fixed versus variable interest rates and repayment guidelines, vary greatly with private loans, so it's important to read the fine print.
Study up on your financial aid package
Student loans are part of an overall financial aid package. Your college or university will provide details for your customized aid offer. Once received, it’s important to review it in detail to fully understand the variety of financial aid resources being offered.
- Scholarships are provided by a variety of businesses, community organizations, schools, civic groups and many others. Scholarships do not have to be paid back and can be awarded on a variety of criteria, including academics, athletics, college major and much more.
- Grants typically do not require repayment either. They are usually need-based, but not always. One of the most well-known grants is the Federal Pell Grant, provided for those with the greatest financial need. Like scholarships, grants are distributed by private groups, corporations and schools themselves.
- Work-Study is just like it sounds. Students who receive this offering as part of their financial aid package are provided a part-time job — usually on campus — that they can use to help pay for their education. If possible, the jobs provide experience in the student’s chosen field of study.
Take a nontraditional path
Recent statistics show that the average public university student borrows $30,030 to attain a bachelor’s degree. This is a lot for many families to pay, but if a four-year school is where you want to go, try to find the best in-state institution. Average 2021-2022 annual tuition for public, four-year colleges was $10,740 for state residents and $27,560 for out-of-state residents, according to CollegeBoard data. Taking a different path to accomplish your career goals can reduce your loan amounts as well.
- Junior colleges and community colleges generally provide courses at a fraction of the price of larger colleges and universities. They offer two-year associate degrees that students use to enter the workforce upon graduation. Many junior colleges and community colleges also serve as “feeder schools” to larger four-year schools where their credits are accepted for those who want to pursue a bachelor’s degree.
- Trade school is a viable option for those wanting to enter the workforce directly with hands-on training. Trade school programs typically have a shorter training duration, reducing the amount of loans you may need to borrow. Many community colleges offer coursework in these areas as well. If you choose a trade school, ensure that it is accredited and that it accepts federal financial aid.
If you’re an experienced job seeker, you may be able to skip the student loan process altogether. Why? Because you may not need a degree in today’s marketplace. Many companies are taking a new look at potential employees who have years of invaluable work experience, but do not have a college degree. If this is your situation, research companies that value experience just as much as a formal education.
There’s a lot of information out there about student loans. But being informed about them and other sources of financial aid can get you to the head of your class, with less stress on your bank account.
To learn more about repaying student loans, understanding how they are calculated and more, check out this Financial Education for College Course from KEYS® Online for free, interactive courses.
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