If you’re about to go to college and have been offered a variety of student loans, you’ll want to evaluate your loan options with a shrewd eye. Some loans are far better than others, although all loans need to be repaid at the end of the designated term. Read on to learn about financial aid and loan options.
Understanding Financial Aid in General
It’s easy to be fooled by the generous financial aid package a school gives you—until you find out that some of that aid is not free and can ensnare you financially. That’s why it’s important to understand what each form of financial aid actually is. In general, the following is true:
Loans are exactly what they sound like. They have to be paid back, plus you need to pay the interest that accrues on the money you borrow.
Grants and scholarships are free money that you will not need to pay back. However, some grants and scholarships come with other strings attached (such as service to a company or government organization.)
Sometimes loan forgiveness is offered if you participate in a specific program or pursue a particular career path that is supported by the government.
As you evaluate your loan options, you’ll want to pay attention to what kind of loan you are being offered and what kind of rates and interest accrual that loan offers.
Federal Subsidized Student Loans – The Best Kind of Student Loan
Subsidized student loans are supported by the government and are by far the best loan option available. Why? Because you will not have interest accruing on the loan while you are in school. The government actually covers that interest while you are in school, which means you only owe what you took out.
Subsidized student loans also offer the lowest interest rates, which will save you money over all.
Federal Unsubsidized Student Loans – Not Quite as Good
Unsubsidized loans begin accruing interest the second they are activated, which means your debt increases while you are in college. That means it will matter how long you take to complete college, since the interest is causing your debt to increase while you study.
Unsubsidized loans also offer higher interest rates, meaning your debt will increase even more. As if the pressure of studying weren’t enough already!
Federal PLUS Loans – The Worst Loan Option
PLUS loans (Parent Loan for Undergraduate Students) offer the highest interest rates, charge an upfront fee of 4% that your parents must pay upon origination of the loan and will accrue interest while you are in school. Your parents will have to take out the loan (not the student), which means your parents will be on the hook for a large sum of money.
Some, but not all, states offer student loans. Interest rates and terms vary from state to state, so you’ll have to investigate your local options and compare them to Federal options.
You may also qualify for a variety of loans from local banks, but these rates are usually quite high for college students.
Evaluating Your Loan Options
In most cases, it’s best to only take on subsidized Federal student loans like the Stafford loan. Try using a free online calculator to determine if a particular loan option is truly right for you, and do your best to take on as little student loan debt as is possible.