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.
Federal student loans can help you cover costs, but due to annual borrowing limits, they sometimes fall short. Fortunately, there are other types of loans and credit that can help you finance your education.
If you’ve been worrying, “how can I pay for college?”, read on for all your loan and credit financing options.
Types of loans and credit to help you pay for school
Depending on your needs, you may need a loan or credit line. Loans are best if you need a big lump sum of cash. For instance, you might need to cover tuition or pay for a cross-country move.
Credit lines, on the other hand, are more useful for routine purchases. Rather than spending your line of credit all at once, as you would with a loan, you can use it gradually over time (as long as you’re keeping up with payments!).
Whether you’re looking for a loan or a line of credit, these are the five most useful options for students.
1. Federal student loans
When you complete the Free Application For Federal Student Aid (FAFSA) and a school accepts you, the university might offer you a range of financial aid options. Some of the most common and popular are federal student loans, which are funded by the government.
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.
Federal student loans also 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 a useful tool for paying for school. If you’ve exhausted federal aid, private loans can fill the gap and help you pay your necessary bills.
That said, private loans for students tend to be more expensive than federal loans. As a rule, they have higher interest rates. And some lenders require that you start making payments right away, even while you’re still in school.
Plus, you’ll be hard-pressed to get a private student loan on your own if you don’t have strong credit. Most students apply with a creditworthy cosigner, like a parent, in order to qualify.
Before choosing a lender, make sure to shop around for the best private student loan rates. Many lenders let you apply for a quick rate quote, so you can see loan offers without any impact on your credit score. Once you’ve got some initial offers, use our student loan comparison calculator to find the one that will cost you the least over the long run.
Besides comparing the long-term costs of borrowing, make sure to learn about the repayment options available to you, which will be different than the ones for federal student loans. For instance, many private lenders do not offer income-driven repayment, forbearance, or deferment.
Learn about the terms and conditions so you understand exactly what repayment will look like on a private student loan.
3. Personal loans
While federal and private loans for students can pay for your educational expenses, there are times when you may need money for non-school-related costs. Whether it’s an unexpected car repair or a medical bill, emergencies can pop up that are expensive.
Apart from 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 than you would on a credit card; some are as low as 3.99%.
Plus, you can choose a repayment term that works for you. You can typically stretch your payments over three to five years to make them more manageable.
But you shouldn’t take out a personal loan without knowing the drawbacks. While personal loans tend to have more advantageous interest rates than credit cards, they are 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. It can also 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 16.15% as of Nov. 2017 – 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 an unsecured 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, minus any fees. For example, if you put $500 towards your account, that’s how much you have to spend unless there are any fees associated with the offer. 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.
By following these three tips, you’ll be able to keep your debt from growing past the point of no return.
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 owing 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 your bills on time — and paying off your credit cards in full — will help minimize your debt and boost your credit score.
Explore your options for 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.
Rebecca Safier contributed to the reporting for this article.
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|* 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.
1 Important Disclosures for College Ave.
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.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2019, the one-month LIBOR rate is 1.70%. Variable interest rates range from 2.80% – 11.06% (2.80% – 10.91% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
Please Note: International Students are not eligible for the multi-year approval feature.
|2.84% – 10.97%1||Undergraduate, Graduate, and Parents|
|2.87% – 10.75%*,2||Undergraduate and Graduate|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|2.80% – 11.06%5||Undergraduate and Graduate|