For many, going to college is either a dream or expectation in the US. College is seen as the gateway to a better and brighter future and the source of many incredible opportunities. However, it has become very expensive in many cases to attend college, prohibitively so for many. This is why so many students choose to take out student loans. Student loans are a great option for many, but they can also be a huge commitment, financially speaking. This is why it is important to consider all the options that may be available to you before you commit to taking out a student loan and subsequently repaying it. This article covers some different kinds of student loans that are available and also some potential alternatives to the conventional approach of attending college by taking out a hefty student loan.
What Exactly is a Student Loan?
Student loans are loans that can be taken out in order to fund your tuition, in most cases. The money is used to pay for such expenses, and then it needs to be paid back over time. Often, these loans need to be paid back with interest. You may be offered a student loan as part of financial aid from your college or place of higher education. These loans can be intended to cover the full cost of tuition or may be partial loans, which may be offered to you in tandem with a scholarship or other form of financial aid.
Should I Take Out a Student Loan?
Whether or not a student loan is the right choice for you depends a lot on your circumstances. Very broadly speaking, it is best not to owe money at all, if you can avoid it. In this sense, it is also best to owe smaller amounts of money, rather than large amounts, if possible. With that being said, a student loan is the only way that many can afford to go to college, and it is increasingly becoming harder and harder to find a conventional job and subsequently a middle-class life without college employment.
However, there are alternatives to attending a college with hefty tuition fees. Community college is often a good option, depending on the area that you live in. Some community colleges are truly world-class, and they offer terrific opportunities and quality of education. They are often also more flexible in terms of the types of degrees that they offer, and they may be more vocational in many instances. For example, it may not be needed for you to go to college and get a bachelor’s and/or master’s degree, when you may be able to get into the field you want to work in with an associate degree instead.
You should also consider your academic performance if you have decided to apply for college. If your test scores are good enough and you have an impressive CV or extracurriculars, then you may be eligible for some type of scholarship. It is often a good idea to do your research into this before you take out a student loan, as many prospective students are often eligible for a scholarship at a particular college without realizing. Many colleges inform students that they are eligible for some type of financial support either upon application or acceptance. Many of the most prestigious universities in the US are also able to offer very generous financial aid to students who come from less privileged backgrounds.
Another option that may be worth considering is actually studying overseas. This is an especially promising idea if you speak a second language, like German or French. In many European countries, it is possible to attend a world-class university where tuition is a fraction of the cost of that in the USA, or there may not be any tuition fees at all. Some of these degrees are even taught in English, and student visas generally allow you to work part-time during the academic year and full-time during study breaks. If you feel comfortable about moving away from home for an extended period of time and possibly studying in another language, then this can be a fantastic option to consider.
On the other hand, taking out a student loan might be the best way for you to complete the degree that you need or desire. For example, it might be in a niche field, or you may be eligible for admission but not for financial aid. If this is the case, then a student loan can be the help you need to get your dream job or to be able to study something you are truly passionate about. If you are not entirely sure about what the best option is for you vocationally, many colleges and schools offer careers counseling services, which can be very helpful in figuring out which decision is going to be the right one for you and whether or not going to college is something that you need to do.
How Do Federal Student Loans Work?
The kind of student loan you should take out depends a lot on you and your circumstances. There are different types of student loans, as well as different providers of the loans. For example, it is possible to get a student loan from a private company, but the federal government also offers student loans. If you can demonstrate somehow that you are from a disadvantaged background, then you may be eligible for a subsidized loan from the federal government. These types of loans do not accrue interest because the federal government pays it instead. If you are offered a subsidized loan, it is generally capped so that it only covers your financial disadvantage or need.
The federal government also offers unsubsidized loans. These can be taken out by any student in the US, and the student who takes out an unsubsidized loan is directly responsible for any of the interest that may accrue during their period of tuition. The amount that you can receive as part of your unsubsidized loan is generally decided based on any other aid you receive, as well as how much your tuition costs and other factors like financial need.
There are some advantages and disadvantages to federal loans. They are often not quite as generous in terms of the amount of money that can be received. However, the interest rate usually stays the same across the life of the loan, meaning that you do not need to worry about inflation or other factors. The interest is usually also able to be deducted from your taxes, which can be a relief, financially speaking. They usually tend to be more flexible than private loans as well, in terms of repayment, so they can be less of a stressor.
How Do Private Student Loans Work?
Private student loans are offered by private organizations. These are often banks or schools themselves. Financial need is generally not taken into consideration with private loans, and the amount that you can borrow is instead determined by the lending organization or party. One major difference with private loans is that they sometimes require you to start paying off your loan while you are still studying, which can be a pretty stressful situation to be in as a student. The interest also may not be tax-deductible, which is another potential financial stressor compared to federal loans.
The amount of money that you are able to borrow depends on several factors. The most important one is the lending institution itself, but there are also loans capped at $20,500 that all students can borrow, per year, from institutions that offer them. These are not subsidized in any way, so they need to be completely repaid by the student. Oftentimes, private loans or aid are offered by the school that the student applies to once they have been accepted. The school calculates how much they estimate the student needs based on their financial background and tuition fees and subsequently makes an offer of aid on this basis.
However, this number is not always accurate, and it is not necessarily best to simply accept the offer of aid without considering first whether or not it is needed. For example, schools often try to estimate the cost of living for the student and factor this into the loan that they offer to the student. People’s lifestyles and living costs obviously vary greatly from person to person, so it may not actually be entirely needed in many cases. As such, it is wise to consider this when you are weighing up an offer of financial aid or support from a school that you have applied to.
It is also vital that you do not accept a loan without looking into the terms and conditions. Some loans expect that you start paying your loan back while you are still studying, for example. If you do not want this pressure on you while you are at college, then this is not the best option. It is also recommended generally that you try not to take out a loan that adds up to more than a year’s salary at an entry-level role in the field you intend to go into after college. This can help you avoid excessive financial strain or pressure after graduation. Many students take out loans that are larger than they may need while they are studying and then struggle for a long time to pay them back.
How Do I Pay My Student Loans Back?
Eventually, you need to start paying your student loans back to the lending institution. When exactly this is depends on the terms and conditions of the loan. Most lenders have repayment plans, so you should have some flexibility in terms of how you pay your loan back. If you don’t want to start paying back your loan immediately upon graduation, then you can often apply for deferment. If you do so, it is important to keep in mind that, if your loan is private or unsubsidized, it can likely continue to accrue interest during this period. If your loan is federal, then you don’t have to start paying it back until at least six months after graduation, though you can start paying it back earlier if you choose.