It is important (and generally required) to complete your FAFSA to access student loans. It’s also imperative to be well-informed, so you know your options and the implications of borrowing money. To help, we’re going to review tips for borrowing responsibly, we’ll define some important student loan terms, and finally, we’ll discuss some of the available student loan options.
Taking out loans now will affect your financial circumstances – possibly your financial stability – well into the future. It could positively affect your future with increased earnings from your education and credentials. Or, it might negatively impact your future self if you do not secure a job at your expected earning level. Because of the risks, we urge you to borrow responsibly!
Borrow only what you need: Remember, loans must be repaid. Don't take out more than necessary to cover your educational expenses. If loans are covering your living expenses, you’ll want to remember your early Junior Achievement lessons about needs vs. wants.
Understand the terms: Read and understand all loan documents before signing. Be aware of interest rates, repayment plans, and potential consequences of non-payment.
Explore grants and scholarships: These forms of aid don't require repayment, so exhaust these options before turning to loans.
Complete the FAFSA yearly: This will help you identify financing options and support you in negotiating your tuition.
If you're taking out student loans for the first time, you will encounter a lot of new terms. Understanding these terms will help you make informed decisions, avoid pitfalls, and find financing options that meet your needs. If you have questions, don’t hesitate to seek guidance from a financial advisor at your bank or investment firm
Interest Rate: This is the cost of borrowing money. It is communicated with a percentage. A lower interest rate means you'll pay less over the life of the loan. Federal loans generally have fixed interest rates (the rate does not change), while private loan rates can be fixed or variable (it fluctuates, generally with economic conditions).
Repayment Plans: Federal loans offer various repayment plans, including Standard (consistent monthly payment that may fluctuate if the interest rate is variable), Graduated (gradually increases with time), Income-Driven (adjusts based on your income), and Extended plans (extends the term of the loan to lower the monthly payment). Each has its own terms and monthly payment calculations.
Grace Period: The time after graduation before you must start repaying your loans. Federal loans usually offer a grace period, during which interest may or may not accrue.
Deferment and Forbearance: These allow you to temporarily stop or reduce your loan payments if you experience financial hardship. Interest may still accrue, especially with private loans. Check your terms and understand the implications before taking advantage of these options. Your payments will be lower or suspended temporarily, but your loan may grow larger until you (re)start regular payments.
Loan Forgiveness and Discharge: Certain careers, including healthcare and public service, or special circumstances such as total and permanent disability, may qualify you for loan forgiveness or discharge. If approved, this relieves you of some or all loan obligations.
Following is a list of common student loan options. You must complete your FAFSA in order to access any federal or state student loans
Federal Student Loans: These loans, offered by the U.S. Department of Education, are often most favorable due to the lower interest rate and flexible repayment plans. There are two main types:
Private Student Loans: Banks, credit unions, and online lenders issue these loans based on creditworthiness instead of financial need. Interest rates vary and repayment terms may be less flexible than federal loans.
State and Institutional Loans: Some states and colleges offer their own loan programs with varying terms and eligibility criteria. Research your state's options and check with your college's financial aid office.
As you navigate paying for college, don’t hesitate to contact your school’s financial aid office with questions. Paying for college can be complex, but understanding your financing options is key. From self-payment and work-study programs to scholarships and grants, there are many ways to fund your education without loans. Responsible borrowing and understanding the basics of lending are crucial if you opt for loans. By navigating your options wisely, you can attain your educational goals while safeguarding your financial future. The choices you make today will resonate well into your future.
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