Rachel Hanson, Contributing Writer
There are many different funding options that are used nowadays to fund a college education. Many students use a combination of scholarships, grants and loans in order to come up with the full cost of their education and if you’re just starting out with the funding process, all the different types of funding available can make decisions unnecessarily complicated. If you are looking to fund your college tuition fees as well as take care of some school-related expenses and don’t know where to begin, this information can help you sort out all of the different types of financial aid available to university students and their parents.
The important thing to remember when considering taking out loans is that loans are the one type of education-related financial aid that have to be paid back. Whereas scholarships and grants do not have to be paid back, loans will, sooner or later, have to be paid back by the student or the family of the student. Of course, pursuing scholarships and grants should be one’s first recourse to funding higher education. Many students will not get enough in scholarships and grants to cover the entire cost of their college education. If this is your case, consider taking out loans in order to fill the gap between what’s offered in scholarships and grants and what the total tuition bill is.
All loans are not created equal. Carefully research the different loan options before signing any loan paperwork; it could be that there’s a better type of college loan available than the one that you’re considering taking out.
An important distinction in this evaluative process is whether loans are subsidized or unsubsidized; what that distinction boils down to is whether or not interest will be accruing during your four (or more!) years of study. A loan that does not accrue interest is preferable because if you have a loan that does accrue interest while you’re studying, the amount that you have to pay back when you graduate will be significantly higher than the amount that you borrowed and used towards paying for your education.
Subsidized and unsubsidized federal loans are different based on the interest that accrues during your years of study. Subsidized loans have a big advantage for students over unsubsidized loans. The good news on subsidized loans is that the government pays the interest that accrues while you are in college; whereas for unsubsidized loans, it is the student who is responsible for paying the interest on the loan. Students have the option to pay the interest month to month as it accrues (which will make your end payment smaller than letting it accrue and being added to the capital of the loan); however, very few students choose to do this. The end result is that for every $10,000 borrowed, you end up paying back between $12,000 and $13,000. If you have subsidized loans, it’s the government that pays that extra two to three thousand dollars on every ten thousand; if you borrow $10,000, that’s what you pay back with subsidized loans.
Subsidized loans do have some drawbacks though. Subsidized loans are need-based, so your family will have to provide more information to prove that you have a need to receive subsidized federal loans. If your family does not fit the need-based profile, you’ll have to turn to unsubsidized loans instead.
There are also other types of loans available in addition to federal loans. Private loans also exist and are usually in bigger amounts---but, like any loan, will need to be paid back. Another option is for parents to take out loans to pay for their children’s education. All in all, many loan options exist, more than enough to fund education across America.