Paying for College
Financial Aid 101
Understanding College Loans
College loans are a necessity for most students. But not all loans are created equal. Interest rates, interest schedules (when interest begins to accrue on your loan), origination fees, grace periods (how long before you have to begin repayment), and payment plans vary between government loans, as well as private loans. The more you understand about loan fees and repayment requirements, the better positioned you will be to borrow smart–not pay any more than is necessary to attain your degree or certificate.
Want to know what your loan repayment might be? Try this repayment calculator for an estimate.
- Fixed vs. variable interest
Fixed interest loans charge a guaranteed rate (not to go up or down) for a period of time (typically the life of the loan, but it’s always good to ask). Variable interest loans charge a flexible rate, usually tied to a set range or the federal prime interest rate for lending.
- When interest begins accruing
This can be more important than the type of interest you pay. Some loans do not accrue interest until you enter into your repayment period. Others (typically PLUS and private loans) begin charging interest as soon as the day the loan funds are sent to you. Be sure to know, as the amount can add up quickly.
- Grace period for repayment
Federal loans provide a six-month grace period once you leave college or drop below half-time enrollment before you have to begin repayment. Private loans typically require you to begin repayment in monthly installments immediately.
- Lump sum or smaller disbursements
Federal student loans have small disbursements, typically at the beginning of each academic period. Some private loans may disburse the entire loan amount at once. While it may seem better to get the full loan up front, consider your money management, as well as when interest begins to accrue on the loan.
The more you borrow and the longer you take to repay, the more money you spend to pay off the loan. For example, a $2,000 undergraduate subsidized Federal student loan (4.66% interest), with a $50 monthly payment would cost you an extra $182. A $40,000 undergraduate subsidized Federal Student loan (4.66% interest), with a $418 monthly payment would cost you an extra $10,117. Visit the Department of Education’s Repayment Estimator to compare your options.
If you take out loans to pay for your degree or certificate, borrow federal student loans first. Here are six reasons why.
- Generally lower interest rates than most private loans.
Interest rates are fixed, but vary from year to year and depend on the loan type and the disbursement.
- Flexible repayment plans.
In addition to the standard repayment plan (10 years or $50 month), you can take advantage of plans based on debt and income. Plans vary in length from 10 to 30 years, depending on the amount you borrow and your ability to pay.
- Generous benefits.
Benefits include temporary repayment postponement in certain conditions, including deferment and forbearance.
- Grace period.
You don’t have to make loan payments during your six-month grace period; the grace period starts when you graduate or drop below half-time enrollment.
- No collateral requirement.
You don’t have to provide anything up front to qualify for a federal student loan. For undergraduate students, no credit check is required either.
- Loan forgiveness.
If you work in certain public service or teaching jobs, some loans may be forgiven under certain conditions.