By: Paige Randall
The college acceptance letters have arrived and with them come a slap in the face for many high school students: a barrage of financial responsibilities.
During the transition from high school to college, money is often a deciding factor in many choices that students will make. Students also must deal with federal and private student loans, applications for financial aid, and repaying the loans later in life. By using many resources and websites, college and high school students can overcome any problems when paying for college.
Nowadays, college prices are significantly higher than they were just two decades ago. According to Collegeboard.org, both the average private and public college tuition have doubled since the 1990’s. However, tuition for public colleges is still lower than private college.
Rising tuition costs have led to many high school students worrying about the tuition of their top schools. When applying to colleges, tuition is often one of the first factors in choosing where to attend. Some students may want the prestige of a big name college, but may not be able to pay the tuition rate without incurring major debt.
Although the choice is for students, it’s a good idea to not rack up too much debt according to Brianna McGurran, journalist for the online finance website NerdWallet. “It’s best to limit the amount of student loan debt you take on to less than your expected first-year salary after graduation.”
Many students are not able to afford to pay for all their tuition on their own, even with jobs and bank accounts to help them out. Some students may get lucky and have a scholarship or a family who helps pay, but a lot of students turn to student loans.
According to The Institute for College Access and Success, 69 percent of 2014 U.S. college graduates had student loan debt. The first step in combating student loan debt is understanding how a student loan works and how to get one.
What is a Student Loan?
When students apply for financial aid through their college, they may be offered loans as part of that aid. A loan is money that is borrowed and then later paid back along with an amount of money called interest.
The U.S. Department of Education offers two different types of loans to students: Direct Loans, which have four smaller categories and a program where the school lends the money instead of the government.
Direct Loans are provided by The U.S Department of Education and are provided to undergraduates, graduates, and professional students. The type of direct loans a student receives will depend on their financial status and where they are in their education.
The Federal Perkins Loan Program is a program where the school lends the money to the students. Not all colleges give out these loans but those that do award them give them to students who express exceptional financial need.
Undergraduate students can get up to $5,500 a year through the Perkins Loan Program and anywhere from $5,500 to $12,500 a year with a Direct Subsidized or Unsubsidized loan.
How is a Student Loan Obtained?
Fill out the Free Application for Federal Student Aid, or FAFSA found on the U.S Department for Education’s website, or through the guidance offices at some high schools. It establishes certain requirements for financial aid.
The FAFSA is available for completion between January 1st and June 30th of the year when applying for federal aid. For college, state, or other financial aid, the deadlines for filling out the FAFSA are listed on their websites and not the federal government’s website.
After completing the FAFSA, each college sends out letters listing what financial aid their students are eligible for. The letters include both state funding and federal funding and gives the students advice on how many loans they should take out to cover the cost of college.
Students can then choose what aid they will take and start applying. The application for various financial aid varies depending on the source; however, the U.S Department of Education provides information on how to access the federal loans.
How is the Loan Paid Off?
There are many different loan repayment plans that are offered to students. If a student has a private loan, the school or company that provided the loan will offer its own payment plans. The federal government also has its own plans, with each having a set period of time to pay the loan off.
Students can choose from a wide range of plans. If no choice is made, then the Standard Loan Repayment Plan is automatically selected. This standard plan helps the student pay off their loan in ten years. The U.S Department of Education offers an online estimator that compares each plan side by side. Most plans offer month by month payments.
Student loans can go into default if the loan bill is not paid on time each month. This default can happen after nine months for federal loans and even sooner for privately funded loans. When this default occurs, the government can fix the unpaid balance by taking money out of tax returns and paychecks.
More resources for student loans can be found on College Abacus, a website that calculates college costs depending on the school. The Institute for College Access and Success also releases reports relating to student debt and paying for higher education.
