It is a fact of life that a college education costs money. How much exactly depends on which college you attend and what financial aid you qualify for, but no matter what and where you study, college is an expensive endeavor. If your parents have savings that can be used to pay your tuition, that’s great – if not, you might need to look into getting a student loan.
Student Loans: The Basics
Like any other loan, a student loan is a set amount of money that you borrow to pay for things like tuition, accommodation, and other things you need to complete your studies such as books, a computer, and stationery.
The first thing to do is to fill out the application for Federal Student Aid. All students are required to fill this out at the start of every year of their studies. The form determines your eligibility for financial aid; if you are, your school will offer financial assistance in the form of grants, work-study programs or loans.
Student loans can be hugely helpful, and a loan is often necessary for students who have no other way of funding their education. Taking one out should be thought of as an investment in your future, but you should still exercise caution: taking on more debt than you can realistically afford to repay could have serious repercussions for your future finances. Don't just blindly take out the first loan you see; your research and know what you're getting into. It might feel like free money, but it isn’t.
Let’s dig a little deeper.
Types of Student Loan
The two main types of student loans are federal loans and private loans.
Federal loans are offered by the federal government and are generally ‘cheaper’ as they have fixed interest rates – the rate of interest remains the same for the entire life of the loan, regardless of any other circumstances. You also won’t start paying this loan off until after you graduate, so you won’t need to worry about repayments while you’re studying.
If you do find repaying a student loan difficult you may want to look at consolidation or refinancing options. Check out Elfi for tons of useful information.
Students who are studying either full-time or half-time courses are eligible for federal loans, but if your course is part-time and less than half the time commitment of a full-time course, you will need to look elsewhere for funding. These courses may enable you to spend more time in employment during your studies which may help, or you may want to look into a private loan.
Private loans are provided by private lenders, such as banks. We recommend that you only go down this route if you have exhausted all other options, as private loans are generally more expensive to pay back. This is because their interest rate is not fixed and may go up over the life of the loan – meaning you pay more.
As they are offered by banks, private student loans require the main thing that you need to take out a loan for a home, car, or any other purpose: a solid credit record. If you do not have a credit record, as many young people don’t, you might need a parent or other older person to co-sign the loan for you.
People who take out a private loan also need to prepare for the possibility that they will need to start making repayments almost immediately, even while they’re still studying. If you are studying part-time and able to take on a job this might be possible, but it is a major factor to consider. Private loans also cannot be consolidated, so you do need to make sure you can afford the repayments before signing on the line.