3 Best Ways to Borrow Money for College
There are a number of options as to how you can pay for college. Before you look to borrow money, make sure you have fully investigated all the “free money” options at your disposal, including scholarships, grants, and paid internships. Carefully and thoroughly research these options online, and if you need additional assistance, consult your school’s financial aid office.
Regardless of your level of success in attaining grants and scholarships, you’re likely still going to wind up a short of having enough money to pay for your tuition and living expenses. At this point, you’ll want to investigate borrowing. Each of the following options comes with different benefits, so be sure to look into each before making your final decision.
While they may not be in a position to do so, it never hurts to ask your parents for a little cash loan to help get you through college. I was able to borrow a substantial amount of money from my parents, and they gave me a rock-bottom interest rate.
Obviously, the loan process will be much less formal and confusing with your parents than if you borrow from a financial institution or the government. Also, your repayment options will likely be much more convenient!
2. Federal Loans
The government offers an array of borrowing options to help defray the cost of college. The interest rates and repayment terms differ greatly, so be sure to check out each option in detail:
- Stafford. There are two types of Stafford loans: subsidized and unsubsidized. In the first case, interest does not start accruing until you finish school. With an unsubsidized loan, interest starts accruing from day one. The borrowing limits are complex, and are based on your student status and which year of school you are attending. The actual amount you receive is need-based. Regarding subsidized loans, the interest rate for undergrads is currently at 3.4%, and 6.8% for graduates. The interest rate for all unsubsidized loans is 6.8%. You are usually allowed a six-month grace period after you graduate to begin repayment.
- PLUS. The government also offers a PLUS loan for graduate and professional degree students. This option is also available for parents who are borrowing for their child’s education. The student or parent will need good credit to qualify for the loan, which comes with a fixed interest rate of 7.9%. The maximum amount you can borrow is the total cost of attending school minus any other financial aid. Repayment is generally expected to begin 60 days after the final disbursement, but you may defer it as long as you are enrolled at least half-time.
- Perkins. This option has a low interest rate of 5%, and the loan is made directly through your university. You can borrow up to $5,500 per year if you’re an undergraduate, and up to $8,000 if you’re a graduate student. There are caps to the total amount you can borrow, and how much you receive is based on when you apply, as well as your need. You typically have a nine-month grace period after graduation to begin the repayment process.
3. Private Loans
For most students, there are more benefits to getting money from the federal government than borrowing privately. However, depending on your situation, you may need to borrow from a financial institution. However, these loans work much differently than federal loans.
- Variable Interest Rate. Almost all private loans come with variable interest rates. This could significantly increase the total amount of what you must pay back over the life of the loan.
- Mandatory Credit Check. The financial institution will conduct a credit check, and therefore you may need a co-signor for the loan.
- Strict Repayment Plans. Most federal loans have generous guidelines for repayment, especially if you can’t find a job after graduation. This is not true in most cases with private loans.
- Increased Risk. You can typically be several months late on a federal loan repayment before it affects your credit. With private loans, they may consider you to be in default after only a few missed payments. A bad credit score can make it more difficult to obtain employment, and will surely increase your interest rates and insurance premiums going forward.
Once you’ve obtained financing, you’ll want to come up with a plan for how to save as much money as you can while attending school. With a little research, you can find lots of great ways to save on housing, textbooks, and entertainment during your college years.
Maintaining a frugal lifestyle for the few years you spend in school will make your financial life after gradation much easier to manage. The last thing you want is an excessive student loan balance hanging over your head years after you graduate.
Which loan option do you think is best to pay for college?