Paying for college can be a real challenge. The price of attending a college or university can be daunting for some people, especially since tuition rates are steadily rising.
If you happen to be faced with a hefty price tag that you’re not sure you can afford, don’t give up hope. College is a possibility for every person willing to seek out financial aid and other options that can help to pay for college. Fortunately, when there are still costs that you can’t cover, you can apply for a student loan.
Student loans come in many different forms and understanding your options can prove difficult. With a little time and patience, you can come to an understanding of student loan options and make the choice that’s the best fit for you and your future.
Subsidized Loans vs. Unsubsidized Loans
Once you start looking into and applying for loans, you will likely hear two terms tossed around a lot: subsidized and unsubsidized. In general, subsidized loans are the better options, though unsubsidized loans are still a good alternative, providing you handle them responsibly.
Subsidized loans are given to students who demonstrate a verifiable financial need, which is usually determined based on the results of the Free Application for Federal Student Aid (FASFA). Your financial institution will decide how much money you are allowed to borrow, and the United States Department of Education will take care of the interest while you are in school and generally for a short time after graduation. If you are unable to find employment, wish to continue your education, or are otherwise unable to pay back your loans upon graduation, you may apply for a deferment period which allows you to put off paying your loans.
Unsubsidized loans, on the other hand, can be taken out by any student, and he or she does not have to prove financially needy. As with subsidized loans, the college or university decides the amount that can be borrowed, which is usually based on attendance costs and the number of credit hours you are taking. You must pay the interest while you are in school or, alternately, you may choose to defer your payments until you have finished your education. Unlike with subsidized loans, interest will accrue during any times of non-payment for whatever reason.
Many students use a combination of both subsidized and unsubsidized loans. The subsidized loans generally provide for the largest part of their educational funding with unsubsidized loans taking care of the rest. However, those students who do not have provable financial need may have to rely entirely on unsubsidized loans or, alternately, on a combination of unsubsidized loans and various other forms of financial aid, such as scholarships.
Understanding Interest Rates and Payback Options
While interest rates will vary from one specific type of loan to the next, most students can expect an average 3.4% interest rate on subsidized loans and an average 6.8% interest rate on unsubsidized loans.
Unsubsidized loans are available to both graduate students and undergraduate students, at approximately the same rate, while subsidized loans are generally not available to graduate students.
You can talk to your college counselor or your lender about better understanding payback options. Generally, you can work out a payback agreement that works for you and your specific situation with your lender.
Periods of deferment or lower payments often result in increased interest. There can also be serious penalties assessed for defaulting on student loans, including garnishment of wages for federal loans. It is important to go through loan counseling before borrowing to make sure you understand the ramifications and responsibilities of taking out a student loan.
This article was composed by Roy McClure, a freelance writer with an interest in educational matters. His advice is to check your credit report frequently to ensure no unusual activity has occurred and your interest rates are valid.