Going to college is expensive. Finding the funds to pay for it can be extremely stressful. You not only have to pay for tuition, but also living expenses, groceries, transportation, books and supplies, which can add thousands to your education bills. And sometimes student loans are not enough to cover it all. But there are many different types of credit and loans for students that can help you finance your education and reduce your stress levels.
If you’ve been worrying, “how can I pay for college?”, find out about different types of loans for students and learn what options you have.
Types of loans and credit
Depending on your needs, you may need a loan or a credit line. Loans are for when you need a lump sum, in cash, such as when you need to pay your tuition bill or finance a move. Credit lines are for more routine purchases, like buying books. And unlike a loan, you can keep using your line of credit as long as you make the payments.
Below are five common types of loans and credit lines for students.
1. Federal student loans
When you complete you Free Application For Federal Student Aid (FAFSA) and a school accepts you, the university may offer you a range of financial aid options. Some of the most common and popular are federal student loans.
The government funds federal loans. If you need to take out student loans, it makes sense to start with federal loans, as they typically have lower interest rates than other forms of debt. You also do not have to make payments while you’re in school, so you have time to focus on your education before worrying about your loan bill.
And federal student loans have benefits that private student loans do not. With a federal loan, you can sign up for income-driven repayment (IDR) plans after you graduate. With an IDR, your payments are capped at a percentage of your income, giving you more wiggle room in your budget.
Federal loans can also be deferred or even entered into forbearance; you can stop making payments if you’re unemployed or are experiencing a hardship. In some cases, you may be eligible to have part of your loans discharged after years of making payments.
2. Private student loans
Unlike federal loans, which are managed by the government, private banks and financial institutions distribute private loans for students. Private loans can be an important tool to pay for school. If you’ve exhausted federal aid, private loans can fill the gap and help you pay your necessary bills.
But private loans tend to be more expensive than federal loans. As a rule, they have higher interest rates. And many lenders require that you start making payments right away, even while you’re still in school.
Many private lenders do not offer repayment plans, forbearance, or deferment, and your loans cannot be discharged or forgiven.
3. Personal loans
While federal and private loans can pay for your educational expenses, there are times when you may need money outside of school costs. Whether it’s an unexpected car repair or a medical bill, emergencies can pop up that are expensive.
Rather than using a high-interest credit card or borrowing cash, another option is a personal loan. Depending on your credit history, you can get much lower interest rates with a personal loan; some are as low as 5.25%.
And with a personal loan, you can choose a repayment term that works for you. You can stretch your payments over three to five years to make them more manageable.
But you shouldn’t enter a personal loan without knowing the drawbacks. While personal loans do tend to have more advantageous interest rates than credit cards, it’s still a form of debt. They cannot be discharged or forgiven. And if you miss a payment, you can damage your credit score.
4. Student credit cards
A credit card can help build your credit history and come in handy for emergencies. And they can be a convenient option for paying for routine purchases like gas or groceries. But getting a credit card as a student can be difficult.
If you’re still in school and do not have a large enough income on your own, you may be able to get a card if you have a co-signer. Or, someone with good credit can add you as an authorized user to their account.
Credit cards tend to have high interest rates – the average is 15.07% – but you have the potential to earn rewards. And if you pay off the balance in full every month, you’ll never pay a cent of interest.
5. Secured credit cards
If you cannot find a company that will approve you for a regular credit card, you may be eligible for a secured card. A secured card is like a credit card with training wheels. With a credit card, you have access to a credit line without putting out money yourself. With a secured credit card, you make a deposit to the credit card company.
Your deposit is your credit line. If you put $500 towards your account, that’s how much you have to spend. If you spend the whole $500, you cannot use the card any more until you make a payment.
With a secured credit card, you get the convenience of a credit card, without the risk of racking up debt. It’s your own money, so you can only spend what you deposit.
You still need to manage your spending
It’s easy to rack up debt while you’re in school. And the many credit lines and loans for students available can balloon your balance, leaving you in a tough position once you graduate. Learning to manage your spending while in school can save you a lot of trouble later on.
Borrow only what you need
When a lender is willing to give you a big loan, it can be tempting to take the full amount, just in case. But taking more than you need can cost you even more over time, thanks to the effects of interest.
Estimate how much you really need to pay for school and borrow the bare minimum. Taking out only what you need will save you money over time and will keep you from making big payments after school.
Books, supplies, groceries and other expenses can add up quickly. Stay ahead of your spending by creating a budget and setting limits for yourself. Creating a budget will help keep you focused and will help limit frivolous spending.
Pay your bills on time
Set reminders for yourself for when your bills are due, including loan and credit card payments. Paying all of your bills on time – and paying off your credit cards in full – will help minimize your debt and boost your credit score.
Credit and loans for students
If you’re a student, there are many forms of credit lines and loans to help you pay for school and living expenses. But choose carefully and limit your debt to ensure you have a secure financial future after graduation.
For more information about managing your expenses, check out this article on how to create a basic college budget.
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