You’ve done all the hard work, earned the grades, and have been accepted to your dream school. But there’s one big thing you need to think about before planning out your future dorm room: how to pay for college.
It can be overwhelming trying to navigate the world of financial aid, loans, and scholarships, so understanding your options is key to making the best decision for your future. But it can be hard to know where to begin. Here’s a step-by-step guide for everything you need to know about funding your education.
5 steps for learning how to pay for college
Knowing the first step in the process of paying for your undergraduate degree can be the trickiest, but we make it easy — just follow these steps.
Step 1: Understand your financial situation
Before you can start applying for different types of financial aid and loans, you have to know exactly how much your college will cost and what you and your family can afford. Contact your school to find out total tuition costs in addition to any living expenses (room and board, for example) you will incur. Then have a serious talk with your parents about who is responsible for paying for what and which responsibilities each of you will take on.
Step 2: Know the different types of financial aid
Once you’ve determined how much money you’re on the hook for, it’s important to know all the financial aid that is available to you. This falls into two main categories: merit-based aid and need-based aid. Here are the differences:
1. Merit-based aid
You can receive money through your high school, college, local organizations, and national programs, typically in the form of scholarships or grants. With this type of aid, you are awarded a dollar amount based on some personal, athletic, or academic achievement. The money is given to you to use for college and doesn’t need to be repaid.
2. Need-based aid
Your finances (and your family’s) will be taken into consideration to receive money to pay for college. Depending on your level of need, you could receive federal grants or loans from the government. Like merit-based aid, grants do not have to be paid back, but loans will, of course, need repayment with interest. You might also get a work-study opportunity where you will get a part-time job to help pay for your college expenses.
Step 3: Apply for financial aid
No matter your financial situation, it’s a good idea to apply for financial aid because it will keep costs down for both you and your parents. There are two places to start:
1. Fill out the Free Application for Federal Student Aid (FAFSA)
The FAFSA is the form the government uses to determine how much you and your family can afford for college. To do this, you will need to get an FSA ID through www.fsaid.ed.gov and then provide your personal demographic information, driver’s license number, and Social Security number, as well as copies of your prior year’s tax returns. If you are a dependent, you will need this information from your parents as well.
Different schools and states will have different deadlines for when you need to submit this form, but it’s best to get it in as soon as possible to get as much money as possible. The FAFSA is available every year starting Oct. 1 for the following school year and stays open until June 30.
Based on this information, the government will send you a financial aid package that could include a combo of grants, work-study options, and federal loans. Even if you don’t think you or your parents will qualify, it’s still good to fill out the FAFSA to know all of your options. There could be good money left on the table.
2. Apply for scholarships
You don’t have to be the top of your class or the best athlete in school to get a scholarship. There are plenty of scholarships available based on your volunteer work, ethnicity, personal interests, and more. There are even scholarships available to “average” students.
And don’t think that just because the award is only a couple hundred bucks it’s not worth applying. A bunch of little ones combined can make a huge difference in covering college costs. Julia Isabel Martinez landed over $50,000 worth of scholarships by applying for a ton of them.
Search on a website such as StudentScholarshipSearch.com where you can input a variety of categories, contact local organizations, and see what your college offers to get as much free money as possible.
Step 4: Learn the types of federal loans
Once you’ve applied for all of the free money through scholarships and grants, you might consider taking out a federal loan. Since you’ve already filled out the FAFSA, this process will already have been started.
While you will have to wait to hear back from your various scholarship applications, the government will offer you a financial aid package in the meantime. Part of that package could include the option to borrow some federal loans. It’s important to know the differences and the terms of each. Here are the two major types:
1. Subsidized loans
With these loans, the government will pay the interest while you’re still in school at least half-time for the first six months after you graduate, and if you enter a period of deferment. This is great because it means interest won’t accrue while you’re in school and you’ll have less to pay back over time. Your school will determine how much you can borrow, and you will need to demonstrate financial need.
Currently, there is only one type of subsidized loan available through the Direct Loan Program.
2. Unsubsidized loans
Like subsidized loans, your school determines how much you can borrow, and you can wait until you graduate to start making payments. The difference is that you’re responsible for paying the interest during all loan periods. So if you choose to wait to make payments, the interest will accrue, and you’ll end up paying more total.
You don’t have to show a financial need to receive this type of loan and can borrow the cost of attendance minus any other aid you get.
There are two unsubsidized loans available: Direct Unsubsidized and Direct PLUS. The first is available to you, and the second is available to your parents if you’re claiming yourself as a dependent. A credit check will be required for your parents to take out the loan.
For both types of loans, all interest rates are fixed, and you have a variety of repayment options.
Step 5: Consider private student loans
If you’ve exhausted all of your options — scholarships, grants, work-study, and federal loans — and you’re still having trouble figuring out how to pay for college, consider applying for private student loans.
These loans are different from federal loans in that they are issued by private banks and financial institutions. Since there is no government regulation, your eligibility, the interest rates, and terms will be determined by the lender.
Financial need is not taken into consideration. Instead, to determine if you are eligible to borrow a private loan, the lender will look at things such as your credit score, income, debt-to-income ratio, and employment history. As a high school student, it’s unlikely that you will have these records, so you might need your parent to cosign.
If your parent cosigns, you’re still considered the primary borrower, but your parent will be responsible for making payments if you can’t.
There are major pros and cons to private loans. You can usually borrow more and don’t need to be eligible for financial aid, but interest rates are varied (sometimes they are less than federal loans sometimes they are not), and you don’t have as many repayment options compared to federal loans.
Now you know how to pay for college
This step-by-step guide should set you up to start the process of financing your college education. It’s always best to go after the free money first before considering taking out student loans. But with so many options available, you should have no problem figuring out a combination that works for you.
Just make sure you never borrow more than you can realistically pay back and understand all the terms of any money you get from the government or private student loan lender.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.82% – 12.82%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|3.88% – 12.88%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.04% – 12.01%9||Undergraduate, Graduate, and Parents||Visit Citizens|