College Loans 101: How To Fund Your College Expenses

Many students borrow money as a way to make their college dreams come true. Unlike grants and scholarships, loans are funds that have to be repaid with interest. Loans are available from the federal government as well as private institutions such as a bank. Students in need of a loan should consider federal student aid first as these loans offer many benefits not typically offered by private loans. To borrow wisely, it is crucial for students to have basic knowledge of the way loans work and gain a full understanding of the terms and conditions of the specific loan they take on.

Types Of Loans

Federal Loans

  • Loans provided by the federal government to students and their parents to aid in paying for a college or career school education. Federal loans often offer students lower interest rates and have more flexible repayment terms than those offered from a bank or other financial institution. Federal student loans do not have to be repaid until the student graduates, leaves school, or changes their enrollment status to less than half-time. The U.S. Department of Education offers two federal student loan programs, the William D. Ford Federal Direct Loan Program and the Federal Perkins Loan Program.

Private Student Loans

  • Loans made by a private lender, such as a bank or other financial institution. Private loans are typically more expensive than federal student loans and may require payments while the student is still in school. Students should only consider obtaining a private loan if they have maxed out their Federal Loan options. It is always beneficial for students to compare loans in order to determine which is the most sensible option. The Loan Analyzer Calculator can assist in comparing different programs.

How To Apply

The application process for Federal Student Loans and Private Loans differs. Students may apply for a federal student loan by completing a Free Application for Federal Student Aid. Financial aid offers, including loan options, will then be sent to the student by the college or career school.

The process for applying for a private loan depends on where the loan is coming from. There are no federal forms to complete. Students must apply directly with the financial institution offering the loan. Normally, students will be asked to fill out a form with basic personal and financial information as well as choose the interest rate type and repayment option for the loan. The student may also choose to apply with a creditworthy cosigner during the application process.

Loan Consolidation

Over 44 million Americans have student loan debt today. Often times, individuals have a mix of both federal and private loans. This can make it difficult to keep track of total debt, minimum payment, and monthly due dates. For this reason, students with multiple student loans can opt to simplify their payments by consolidating them through loan consolidation. This method combines all of the student’s old loans into one new loan.

Direct Consolidation Loan

  • A federal loan that allows students to combine all federal student loans into one new loan. This is only available to students who have federal education loans. Most federal loans can be consolidated and there is no application fee. The resulted interest rate is a weighted average of the prior loan rates. Typically, if the student’s monthly payment decreases, the result of lengthening the term can mean paying more interest over time. Direct Consolidation Loans can also give access to additional loan repayment plans and forgiveness programs.

Private Consolidation Loan

  • Allows students to consolidate multiple student loans or refinance a single private student loan. Students must work with a private lender, requirements and eligibility vary from one to another. One of the biggest benefits of private student loan consolidation is the ability to refinance and secure a lower interest rate. This will be based on the student’s credit worthiness rather than a weighted average. Refinancing allows students the option of combining both federal and private loans in order to lower interest rates or monthly payments.

Finding The Right College

There are many factors to consider when choosing an education including location, size, cost, academic quality, campus safety, choice of majors, online vs. in-person curriculum etc. Learn how to create a solid plan to focus the college selection process and find the right fit for you!

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