When should you seek financial aid for a private college?
College financial aid for students attending college and graduate school can come from a variety of sources, including scholarships, grants, federal loans, and private loans. It can become a complicated maze that is not always easy to navigate.
Most college planners urge students to take advantage of federal funds before turning to other sources, because financial loans tend to be less expensive in the long run. Unfortunately, because college tuition is so high today, and is expected to continue to rise, federal loans often only pay for a portion of college costs.
And while there is money available for scholarships and grants, few students attend college on a full scholarship. The smart thing to do when planning to pay for college if you don’t have a large college fund at your disposal (most people don’t) is to apply for federal loans. Here’s why: Federal student loans often have an interest rate that’s much lower than private financial institutions, and they also offer better and longer repayment terms.
Students usually don’t have to start repaying the loan until after graduation, and can sometimes even defer an original loan payment if the student returns to school for additional training.
These federal loans do not pay everything. The most a four-year student can borrow is $10,500 per year, which for some colleges is just a bite out of a much larger cake. For graduate programs, loans can go up to $20,500. What a particular student receives depends on several factors, including the university of her choice and what year the student is in.
Students can choose from three federal loan programs:
—Stafford loans are available to students in two ways: to low-income students, who don’t have to provide credit references, and to other students, who do.
—Plus loans are low-interest loans parents take out to help pay the difference between actual college costs and the student loan amount. Still, even with this loan, tuition costs often exceed what the loans cover.
—Consolidation loans allow parents and students to consolidate multiple loans into a single loan with one monthly payment.
When students apply for a federal student loan, they complete a Free Application for Federal Student Aid (FAFSA), which automatically includes their information for other programs, including scholarships, grants, or work programs provided by the federal and local governments.
With financial loans covering less and less of a percentage of college tuition, private financial loans are becoming more popular. Unfortunately, as with any private loan, only those with the best credit scores will receive the best rates. Private loans can be expensive, and most college planners urge parents to exhaust other financing methods first.
The best private loans have competitive rates with low federal interest rates, around LIBOR +/- 2.0. Watch for lenders that offer a low rate while the student is in school, then raise the rate when payments are due.
As with anything, shop around, do your research, and maybe paying for college isn’t a nightmare.