1. What Are Student Loans Intended for?
Funds gained through federal loans have to be used for expenses related to your education at the school in question. College tuition/fees, room & board, textbooks, and transportation all fall under education expenses. Probably, however, you’ll end up with additional expenses at college non-school meals, transportation for non-school purposes, etc.
These are not the intended use for federal loans, and it might be helpful for you to create a personal budget for managing loan money responsibly.
2. Federal Student Loans and Private Loans – What’s the Difference?
Federal loans are funded through the government. These are regulated fairly strictly. To qualify for federal loans, you’ll have to fill out a FAFSA. On the other hand, private loans are—unsurprisingly—not subsidized by the government. If you opt for private loans, you ought to check with the schools you want to attend.
Not all schools work with the same private loaners, so you want to make sure your loan business and school are compatible.
Some schools can’t easily provide this info – if that’s the case, you can check with the lenders instead as they will know for sure whom they do business with. Once you’re sure that your school and lender are compatible, you’ll apply through the lender.
For most federal student loans, your credit history (and that of your parents) is not factored into is not factored into your aid package. However, most private lenders will ask about your credit history, and it can definitely influence the amount they’re willing to loan you.
Remember to investigate all of your options before making any big financial decisions.
It will almost always help to meet with a financial advisor as you figure out your ideal options for getting school aid. For many students, this will actually include a combination of federal and private loans.
3. How Much Will It Cost to Go to College?
College costs vary quite a bit depending on the school. A public, two-year school costs somewhere around $12,000 per year to attend, but a private four-year institution will set you back about $45,000. Pretty big difference!
If you’ve chosen a school, you can calculate tuition costs, subtracting from that the combined value of grants, scholarships, and any money you can pay immediately.
Smart students establish a budget for themselves during college.
You’ll want to factor into this budget things like the cost of your textbooks, general school supplies, food outside your school’s meal plan (the plan is normally covered in tuition), lab fees, testing fees, and parking fees (if you plan to drive to campus).
4. This Sounds Expensive… Is College Worth It?
Is college worth all that money? This is a perfectly fair question. College represents a serious choice that will impact your finances for years to come. Any post-high school education is an investment in your future, although its value will be defined by the effort you put into it.
If you skip class and get poor grades, you’re not doing yourself any favors.
Look for courses that will challenge you within reason, and apply yourself. Ideally, the course material will strike a balance between enjoyability and practicality.
Some courses can teach incredibly valuable transferable skills that you’ll bring to your future career. Others may be less useful. Not to mention the school’s own course prescriptions that need to be met—general education requirements for instance.
Only you can decide how much all of this is worth.
Additionally, it is the case that many, many jobs want to simply check off that you have a B.A./B.S. before considering you as an applicant. So unless you are a self-motivated entrepreneur or web dev, college is almost always the way to go.
If that isn’t enough, consider this: Studies show college graduates earn significantly more over their lifetime compared to those who didn’t attend.
5. What if I Want to Repay My Student Loans Early?
If you want to repay your loans early to get it out of the way ASAP, your lender will certainly not say no. There is no such thing as a prepayment penalty, so if this is what you want to do, then go for it.
Most students end up with about 10 to 25 years during which to pay back their loans. A minimum payment is calculated based on:
- How much you owe
- The length of the loan
You can almost always select from different repayment plans (like an income-based repayment plan). If you don’t select a plan, you get signed up for the Standard Repayment Plan, which plays out over a ten-year period. Note that you can change your repayment plan anytime you like should the need arise.
6. What’s a Student Loan “Grace Period”?
Not all payment plans are the same – most are outfitted with a six-month grace period. That means you need to start paying back your loans six months after graduation. This also applies when you take few enough classes to drop below “half-time” enrollment (as opposed to full-time) or simply drop out of college.
A grace period gives you a chance to find employment before your lender begins asking for scheduled payments. Ask your lender about the grace period on your loans as you make a decision about which loans to accept. Awareness of your grace period will be an important factor in future financial planning.
7. Am I Able to Refinance My Loans?
Yes – if you need to refinance your loans, you can do that.
You may be able to get a lower interest rate or lower monthly payments. This is particularly helpful right out of college when your finances are still tight. Additionally, you can refinance for a shorter term, which might let you pay off the loans faster.
If you’re deciding between options, be clear about the reasons behind the refinance. What monthly payments can you afford? This will help you select a refinancing program in line with your ultimate goals.