Going to college is a significant investment, both mentally and financially. To ensure a stable financial future coming out of college, you must understand your different loan options. This will allow you to pick and choose which ones will best meet your individual needs and your budgets.
Subsidized Student Loans
Subsidized student loans are some of the most sought-after. With this type of student loan, you don’t have to pay any interest on the student loan until six months after you graduate or stop taking classes. While you’re in school and six months after school, taxpayers will pay for the interest on your student loans. Subsidized loans are based on financial need, which FAFSA determines, and there is a maximum loan amount set per school year.
Unsubsidized student loans are your next best option for funding your college experience. Like subsidized student loans, you’re not responsible for paying interest on the loan while in school and six months after you graduate or stop taking classes. The main difference between the subsidized and unsubsidized loans is that the interest that accumulates on your loan while in school is added to your overall loan amount to be paid back.
Parent PLUS Loan
A Parent Plus loan is another student loan funding option at similar rates to subsidized and unsubsidized loans. A parent, not the student, guarantees this federal student loan. This means that the parent is the one who is financially responsible for paying back the loan. Parent Plus loans can help provide funding for your total cost of attendance minus any other financial aid you’re getting.
Parents even can defer the interest on Parent Plus loans until six months after you graduate or stop taking classes. It’s important to know that there’s a big difference between deferment and forbearance. With deferment, interest doesn’t accumulate on loan during the deferment period. Conversely, with student loan forbearance, it does. According to Ascent, “Student loan forbearance is an arrangement students can make with their student loan company that gives them the chance to pause payments on their student loans for a certain period.”
Private Student Loans
Another option to pay for your tuition is to take out a private student loan. The government does not back this, and interest rates can be higher than federal loans. Private student loans are very similar to a personal loan that you may take out. The money goes towards paying your tuition, and you have to pay on that every month until the loan is paid off. In addition, you can get private student loans from banks, credit unions, the state, or even your school.
When it comes to funding your further education, you have many different options. It’s typically best to start with the federal loans with lower interest rates and more protections like the deferment and forbearance options. However, it’s crucial to realize that most students end up with a mix of different student loans by the time they graduate.