If you’re getting ready to apply for college and know nothing about financial aid, or are simply searching for better ways to pay for college, you’re not alone. Over 44 million Americans are currently carrying around 1.28 trillion dollars in student loan debt. As tuition and living costs have risen, more students are forced to get creative to afford their schooling. We’ve broken down ways to pay for college into three easy steps, so that you can minimize your student loan debt and simply worry about acing your next test.
It can feel overwhelming, but luckily there are a ton of resources out there to help students afford these costs. All you have to do is follow these steps!
Many parents and students forget to utilize some of the best resources they have to cut down on the cost of a college education – scholarships and grant money. These forms of financial aid are special and should be your top priority. Why? Because they are FREE! Once you’re awarded a scholarship or a grant, there is never any obligation to pay back that money.
Scholarships are merit-based financial aid. Merit-based means that they are awarded based on a student’s specific skill, ability, or other defining factor. Some examples of this criteria could be:
The funds may be distributed to you one time or spread out over the course of your education. Most scholarships will require an application process so that the issuer can determine if the student meets the criteria. Some also require essays to help the decision-makers get to know the applicants and narrow down who will be awarded the aid.
All types of businesses and organizations can award scholarships, from the local to the national level. You may find a scholarship offered at any of these places:
There are billions of dollars of free financial aid from thousands of sources, just waiting for the right person to apply. However, it can be difficult for students to wade through the vast amounts of scholarships to find one that they meet the specific criteria for. Don’t be overwhelmed, there are plenty of resources available to help you narrow down the search.
USA Today put together a list of their top ten favorite online resources for scholarships. Some of their favorites included:
Congrats! You’ve been awarded the scholarship, what happens next? It all depends on the scholarship. Make sure to ask the issuer if they will be sending the money directly to you in a check, or if they send the funds straight to your chosen school. If they send the funds to the school, it will be applied directly to your tuition fee.
If the funds are not sent straight to the school, you’ll still need to notify the financial aid office of your scholarship award. The combination of financial aid and scholarships cannot equal more than the cost of tuition, so the financial aid office will calculate if any of your other loans can be decreased.
Here are a few tips to follow to ensure your best chance at being awarded free money like scholarships.
While both types of money are gifted to you, scholarships are based on merit and grants are based on financial need. Keep in mind that while grants are considered gifts, you will be required to repay them if you disqualify yourself from the need-based requirements, either by withdrawing from school, changing your enrollment status, or by receiving outside financial aid that covers the cost of your education.
The most popular form of grant money comes from the U.S. Department of Education. They offer four types of grants for students.
The first step is to fill out the Free Application for Federal Student Aid, also known as the FASFA. This will determine if you meet the need-based requirements of any of the federal grants. You will then work with your college’s financial aid office to determine if you’ve received any grant money and how it fits in with the rest of your financial aid, scholarships, and loans.
The following information was pulled directly from the U.S. Department of Education and was current as of March of 2017. Also double-check the specific interest rates before agreeing to any loan, as they are subject to change.
These loans are set aside for those with exceptional financial need. Unlike the other types of loans on this list, the school is the lender – not the government. Not all schools participate in this program, so be sure to check with your own college’s financial aid office.
Who qualifies: Undergraduate, graduate, and professional degree-seeking students
Interest rate: 5%
These loans are special because the government is responsible for paying the interest on the loan while you’re in school. This significantly lowers the financial burden of repayment, at the student will only be responsible for paying back the interest and principal amount after graduation.
Who qualifies: Undergraduate students
Interest rate: 3.76%, but the you will not have to pay interest on a subsidized loan while in school
These are similar to the subsidized Stafford loan, except you will be responsible for the interest payments while in school. This is the most widely available federal loan program and does not have stringent financial need eligibility requirements. Keep in mind that while you will not be responsible for repayment until after graduation, interest will still accrue on the loan. We recommend paying down the interest through regular payments while still in school.
Who qualifies: Undergraduate, graduate, and professional degree-seeking students
Interest rate: 3.76% for undergraduates and 5.31% for graduate and professional degree-seeking students
This loan is not under the student’s name, but under their parents. Parents can utilize these funds to help pay for their dependent child’s education, but the parent will be responsible for repayment. The financial need requirements are not strict, but the borrower will need to have a decent credit score.
Who qualifies: Parents of dependent children in undergraduate programs or adults seeking graduate and/or professional degrees
Interest rate: 6.31%
Once you’ve found out which schools have accepted you, you should expect to receive a financial aid award letter during the Spring before you attend school. Each school will send their own award letter, which will include federal, state, and institution-specific aid. This letter will breakdown which programs you’ve qualified for, and how much money you can receive.
Before you receive the money, you must sign a promissory note. This note acts as a contract between you and the government. It goes over the specific loan terms and you agree to be held responsible for repayment of the loans. The funds will be disbursed directly to your chosen school, so you do not have to worry about keeping track of making tuition payments with those funds.
One of the top reasons to choose federal loans over private loans is the vast amount of repayment plans and deferment options. We’ve put together this table to help you figure out what basic repayment options are available to you as a borrower of federal funds. Visit the U.S. Department of Education to get even further details about unique repayment options that may be applicable to your situation.
| Type | Elligible Loans | Repayment Details | Eligible Borrowers |
| Standard | All direct federal loans | You’ll pay a fixed amount each month for 10 years. This is the plan that all borrowers will default to unless they select otherwise. | All borrowers |
| Graduated | All direct federal loans | Payments will start smaller and then increase incrementally over a 10 year payoff period. The increases are meant to coincide with potential salary increases as you grow your career. | All borrowers |
| Extended | All direct federal loans | Payments can be made on a fixed or graduated scale, but the payment period will be extended to 25 years instead of the standard 10 years to lower the monthly payments. | Requires you to carry a minimum amount of federal loan debt to qualify |
| Income-based (IBR) | All direct federal loans | Your payments will be calculated annually based upon 10-15% of your discretionary income. All debt that remains after 20-25 years will be forgiven, but you will be responsible to pay income tax on that forgiven debt. | Borrowers who are burdened by a high debt to income ratio |
Besides the many repayment options available to federal student loan borrowers, there are also an abundance of options for delaying payments or even forgiving the debt altogether. Let’s breakdown the difference between deferring your loans and forgiving your loans.
Deferment is when you delay making payments on your loans. The most commonly used deferment is used while you are still a student. While you will continue to be charged interest on unsubsidized loans, you can delay making payments on the principal until six months after graduation. Remember that deferring payments is only a temporary solution. If you think you may not be able to make payments after a grace period, look for other options.
If you’re suffering from an unexpected hardship and can no longer afford your monthly student loan payments, talk directly with your lender about forbearance. It’s another form of delaying payments, but is set up directly with your lender rather than through a designated program. You could get a forbearance up to a year for:
We recommend only utilizing a forbearance in the case of emergencies, as you will still accrue interest while the loan is sitting unpaid.
Traditional forgiveness programs
You may have the option for the government to forgive your loan if you fulfill specific tasks. The most utilized forgiveness program is the public service loan forgiveness program. If you work for a federally recognized non-profit or a government organization, you could have your debt forgiven after 10 years or 120 payments. Possible qualifying employers include:
There are plenty of other forgiveness programs listed on the U.S. Department of Education’s website, so be sure to see if you may qualify! Check out programs that are unique to the state you live in here.
Repayment assistance programs
Some of the repayment plans we covered above offer debt forgiveness after a specified period of on-time payments. Two additional programs that will give you money towards repayment are Americorps and Volunteers in Service to America (VISTA). If you work/volunteer for these organizations for a set period of time, they will contribute funds towards paying off your federal student loans.
Cancellation and discharges
The most important thing to understand about cancelling or discharging a student loan completely is that the ability to do so is extremely rare, even in cases of bankruptcy. A few reasons you could qualify for a federal student loan being discharged without being fully paid are:
It is more than likely that none of these circumstances will ever apply to you, so focus on selecting a repayment plan that you can afford and working towards eligible forgiveness programs.
Many financial institutions, even your local credit union, now offer private lending solutions for students. If you are looking for a student loan from a lender other than the government, make sure to check if they offer the following benefits:
Interest rates will no doubt be higher than a federal loan, but lenders should still be competitive with other financial institution’s rates. It’s important to get a private student loan from a bank or credit union that you trust, and will work with you as a student to make the process simple.
If you want to apply for a private student loan, they more than likely will ask for a qualified co-signer. This is because most high school graduates do not have a high enough credit score or long enough credit history to qualify on their own. Make sure you’ve found a responsible co-signer before finishing your application.
As a parent, there are some additional lending options available to you if you’re a homeowner. A popular way to make tuition payments is by leveraging the equity in your home, either with a home equity loan or a home equity line of credit (HELOC).
These loans work by calculating how much equity you’ve earned on your property, and then letting you borrow up to 80% of that amount with your home as collateral. Home equity loans will give you one, lump sum payment that you pay back over a set period of time with a fixed interest rate. HELOCs give you a specific credit limit that you can repeatedly draw from and pay back over a period of time, with the option to renew the line of credit. Both lending solutions are fairly safe and offer competitive interest rates. But be careful – if you default on either loan, the lender has the option to foreclose upon your home!
If you’re opposed to taking out loans to afford college, one solution may be to continue working while in school. This could allow you to pay your tuition as you go, and not be saddled with student loan debt upon graduating. However, it can be difficult to maintain a work/study balance. You may have to extend the length of schooling by studying part-time so you can maintain a steady work schedule. Or you may fall behind in your studies due to your long working hours.
If you do choose to go this route, make sure you find a job that offers flexible hours and can accommodate your college schedule – as that should be your first priority.
If you still have questions, check out our dedicated website for all items relating to student loans, powered by the credit union partner, Student Choice. Enroll in free webinars, search a vast collection of informational articles, and even apply for a private student loan to fill the gap in your financial aid. Check it out here.