Student Loans

Posted on July 28, 2016 in Scholarships

Of the many ways to pay for college, student loans are often the most cringe-worthy. No one wants to take on debt, but sometimes personal savings and scholarships aren’t enough to cover all of your college expenses.

Understanding some basic facts about student loans can help you determine if applying for a loan is right for you, and what type of loan you should consider.

Private vs. Federal Student Loans

Federal student loans are very common and often the most talked about, but students (and/or their parents) have taken out billions of dollars in private student loans in recent years. Both types of loans are deferred while you are attending college, so you are not required to pay back any funds as long as you can prove that you are enrolled in classes each semester.

Private student loans are loans from banks and credit unions, similar to personal loans or car loans from such lenders. Private student loans are usually based on your personal credit score, income or savings, and sometimes require a co-signer (usually a parent or guardian). They often have variable interest rates and strict repayment terms and timelines.

Federal student loans from the government and are usually based on you and your family’s financial needs to pay for college. There are different types of federal student loans, all with specific criteria that students must meet and different loan amounts available. The interest rate on a federal student loan is usually a fixed rate, and the repayment terms of the loan have some flexibility, often even for several years after graduation.

Another difference between private and federal loans is the amount of money that you can borrow for each year that you attend college. Private loans do not have a limit. Technically, you could take out a different private student loan from four or five lenders. Federal student loans have annual limits, no matter how much financial assistance you need to pay for tuition.

There are pros and cons to both types of loans, and neither is a sure bet. You may not be approved for a private loan, and federal loans are not given to everyone. Only you can decide which loan is best for your financial situation. Remember that you will be responsible for paying back your student loans soon after you stop attending classes, or graduate, whichever comes first.

If You Want Federal Student Loans, You Must Submit a FAFSA

There is only one way to apply for federal student loans: by completing the Free Application for Federal Student Aid (FAFSA). The FAFSA is used to determine each student’s eligibility for federal student loans, as well as federal grants and work-study programs, which can also help you keep your college bills from skyrocketing.

The FAFSA is free to complete, and can be accessed online or from any college or university financial aid office. If you have questions or need help filling out your FAFSA, you can contact the Federal Student Aid Information Center or your college’s financial aid representative. Never pay someone to complete your FAFSA for you; these services are often scams.

If you’re under the age of 23 and do not meet certain criteria, the government considers you to be a “dependent student” and requires you to provide some personal and financial information about at least one parent or legal guardian.

When you fill out your FAFSA, you will indicate the college or universities at which you have applied. If you qualify for federal student loans, the government will issue the funds directly to the college in which you eventually enroll. After your student loans have been applied to your tuition and other fees, the financial aid office will let you know the amount of remaining expenses, and you will be responsible for paying for them out of pocket (or through a scholarship or grant that you have received).

You do not have to take out a federal student loan just because you submitted a FAFSA and qualified for a loan. If you change your mind and want to take out a loan the next year, you must submit another FAFSA, as loan eligibility does not carry over from the previous year.

Paying Back Student Loans

As previously mentioned, the repayment terms for private student loans and federal student loans are often different. Both types of loans usually have a “grace period” of six months, which means that the student does not have to start repaying on the loan until six months after they have completed classes. This gives students the opportunity to get a job or earn money to start paying down their debts.

Loan payments are usually required each month, but depend on the type of loan that you took and the terms of the loan. Federal student loans can be repaid via a number of repayment plans, which are intended to make repaying your loans less of a burden by spreading the repayment out over 10 - 25 years.

If you are having difficulty making your monthly student loan payments, contact your lender immediately. Even private lenders will help you come up with solutions to repaying your debt without going broke.

Why Do Student Loans Get Such Bad Press?

The federal student loan program started back in 1965, and has undergone a number of changes over the last five decades. It wasn’t always under scrutiny and criticism, as it has been recently. The bad press about federal student loans stems from the rising cost of college and the difficulty for college graduates to find well-paying jobs. Many students, graduates, parents, and politicians think that the government is irresponsible for giving loans to students that have few means of repaying their debts.

Knowledge is Power

Whether you agree with the bad press or not, if you want to attend college soon and can’t come up with enough money, you may need to consider applying for a student loan. Reading, researching, and asking questions will help you to understand your options and go into a student loan with your eyes wide open. The more you know before you agree to a student loan, the better off you will be in the long run.


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