Understand Borrowing Money for College

Borrow money if you have to — it will pay off in the end.


Why would someone borrow money to go to college?

Because college is an investment — workers with a college education almost always make more money than those who don't. In fact, recent studies determined that a person that earns a bachelor's degree will earn over a million dollars more over the course of his or her working life than a person who only attains a high school diploma.

Unlike gift aid such as grants and scholarships, loans aren't free money. So remember, whatever you borrow to attend college, you must pay back.

Why not just use a credit card or get a loan on your own without involving a school?

Because some loans are a better deal than others — the interest rates on federal education loans are usually low and paying them back is easier because you're given more time. And unlike other loans, you don't have to have money to borrow money — no collateral required.

Should you borrow money for college?

The answer is: "If you need it." Remember these things before borrowing money to pay for college:

  • Find out whether you can get any gift aid (scholarships and grants you don't have to pay back) first.
  • Borrow only the amount you absolutely need to cover your expenses. (Borrowing extra for that really nice stereo might seem like a good idea now, but when you have to pay it back and your stereo is four years old, you won't see it quite the same way.)
  • Think about how you'll pay back your loans before you borrow anything. (Borrowing $40,000 to prepare for a $20,000-a-year job probably isn't a good idea.)

How do I get a loan?

To apply for loans or other forms of financial aid, you will first need to fill out the Free Application for Federal Student Aid (FAFSA). The information that you and your parents provide on this form serves as the basis for determining your eligibility for federal student aid, and for state and institutional aid programs.

The financial aid administrator at the college or career school you attend will determine your eligibility. You should contact the financial aid office to get more information about the individual requirements of each loan program.

Remember! —

You have to pay back all the education loans you borrow, whether you finish school or not and whether it's easy for you to get a job or not after graduation. Failure to repay your student loans can hurt your credit rating and cause lots of other financial problems.

Types of loans:

  • Federal loan programs — The federal government sponsors several student loan programs, all of which have their own borrower requirements.

    To learn more, visit AIE's "Federal Loan Programs" page.

  • Alternatives to federal student loans — Students who have exhausted all of their scholarship and grant options, and do not qualify for federal student loans, can obtain private student loans to help finance their college education.

    To learn more, visit AIE's "Understand Private Loans" page.

Still have questions?

To obtain more information on loan programs, or to apply for financial aid through any of these programs, contact the financial aid office at the school you attend.

You can also ask the experts at (800) 845-6267. You can also find more information about federal student aid on the Department of Education's website.


Here are other documents located on AIE.org that you may be interested in: