Making the decision to pursue a degree is an investment, no matter how many other ways you look at it. The idea that the time, energy and money needed to attend college is capital well spent is illustrated in how it can propel one’s future forward- having opportunities one wouldn’t have otherwise had, a good probability of higher-starting salaries and earning potential, and growing with people you may end up having connections with for the rest of your life.
Depending on your course of study, you may not have a lot of discretion over how much time and energy is required to graduate, but how you go about making the financial part of this investment is certainly something you have control over.
Putting aside any assistance that doesn’t need to be paid back (i.e scholarships and grants), when you do need to borrow money, some loans are more favorable than others
By every metric, loans directly from the federal government come with substantially better terms and conditions:
- Interest rates on these tend to be lower than private options and have a fixed rate
- Many of them have no origination fees or credit checks
- Repayment and deferment options are very flexible
Basically, these loans are what should be considered first before seeking assistance from a private source. They will cost less over the life of the loan, and should you ever run into financial problems down the road, they will be able to provide additional accommodations.
Your eligibility for them is primarily based on financial need, and is determined by your FAFSA (Free Application for Federal Student Aid) submission. The more need that can be demonstrated, the more favorable loans they will offer.
With Federal Direct Subsidized Loans, no payments are due until six months after graduation, and the government pays the expense of your interest until your graduation. These are reserved for those with the most need.
The Federal Direct Unsubsidized Loans have the same grace period after graduation, but interest still accrues during the time you attend school. Unsubsidized loans do not require financial need to be demonstrated, but you must still submit your FAFSA to be eligible.
The last government-sponsored choice is the PLUS Loan. Commonly used to fill in any remaining gap between the Direct loans that are offered and the expenses that still remain, they are not as desirable as the first two.
While some of the same payment flexibility remains in the cases of financial problems, they require credit checks, have origination fees and higher interest rates, and payments must resume upon graduation with no grace period afterward. Also for undergraduate students, only their parents may borrow them.
Mostly provided by banks and credit unions, private loans should only be considered after all others have been ruled out.
Private loans often come with higher interest rates and origination fees, after an approved credit check. They sometimes require the borrower to make payments during one’s college attendance, although this is not always the case. It is also important to note that private loans do not have the same payment flexibility and deferment options that the federal loans do, so if payment issues arise, the lender may not be as patient and forgiving.
Regardless of how you go about financing your education, making an informed decision is something you will absolutely thank yourself for down the road. Knowing what you sign your name on will save you plenty of trouble, and leave you with realistic expectations on what to expect when it comes time to repay the funds you borrowed.