How to Pay for College-Part 3

Going to college has a ton of benefits — it’s fun, educational and can lead to a roughly $30,000 annual earnings premium for people who graduate with bachelor’s degrees, government data shows. But it is also undeniably expensive and you may be wondering how to pay for college.

Young girl with brown shoulder length hair in light blue long sleeved shirt holding a notebook to her chest with her right hand and a several bills of paper currency in her left hand gazing to the upper right against a black background.  A chalk outline of a graduation cap is drawn above her head

Experts say it’s never too early to start thinking about college — where you want to attend, what you want to study and, of course, how you’re going to pay for it.

These questions often bear down on people in their junior or senior years of high school, but experts say you can alleviate some of the dread by thinking about these questions sooner rather than later.

No matter where you and your family are in your higher education journey, it’s smart to make a financial plan that combines your savings and current income with student loans and “free money” from grants and scholarships.

Don’t know where to start? Our guide covers 14 strategies to help you pay for college. We will break these down in to three parts. Part 1 of this article can be found here covering reducing costs through tuition and room and board and part 2 is here covering finding options outside of loans such as scholarships and grants.

Student loans

After running the calculations, you may still find yourself short of reaching your desired college’s net price. And in that case, you might need to consider taking on student loan debt. Experts recommend talking with your family and determining the maximum amount you feel comfortable borrowing.

Taking out loans to pay for college is extremely common and is not a de facto bad thing. Yes, you should strive to graduate with as little student debt as possible, but approximately 45 million Americans have student loans. Many of those borrowers wouldn’t have had another way to pay for college without them.

Student loans can broadly be separated into two different categories: federal and private. Federal loans, made by the government, tend to have lower interest rates and more flexibility for borrowers. Private loans, made by banks or other private lenders, tend to be more expensive.

12. Federal student loans

Because federal student loans are open to nearly all students and they come with better protections, experts universally agree you should take these first. Federal loans are often referred to as “Direct” loans, as they come directly from the Department of Education in three different forms for undergraduate programs:

  • Direct unsubsidized loans
  • Direct subsidized loans
  • And Direct PLUS loans for parents

Students can take out both subsidized and unsubsidized loans. We’ll get into PLUS loans below.

One big difference between direct subsidized and unsubsidized loans — sometimes called Stafford loans — is who pays the interest that accrues while you’re in college.

For subsidized loans, which go to undergrads with financial need, the Education Department covers your interest until six months after you graduate. For unsubsidized loans, which aren’t based on need, you are responsible, meaning interest starts accruing as soon as you receive the funds.

The FAFSA will tell you which federal student loans you’re eligible for.


13. Private student loans

After you’ve exhausted all of the options above, you may want to move on to private student loans. This will require some shopping around.

When taking out private student loans, be careful, and do your research. In addition to having higher interest rates and fewer repayment options, private loans often involve credit checks and application fees.

Additionally, private student loans aren’t eligible to receive the same benefits as federal loans — including the ongoing payment pause and any future federal student loan forgiveness.

14. Parent PLUS loans

As their name suggests, Parent PLUS loans are geared toward the parent(s) of a student, and they’re becoming a fast-growing portion of federal student debt.

To get a PLUS loan, the borrower must meet the general federal student aid eligibility requirements mentioned above and be a biological or adoptive parent of the student. Grandparents, unless they have adopted the student, aren’t eligible.

Unfortunately, PLUS loans don’t have the same repayment benefits as other federal student loans. As soon as the loan is disbursed, the parent is expected to start making payments (unless they request a deferment).

The debt can also be risky for parents approaching retirement, so be sure to weigh the pros and cons of taking on this type of loan carefully.

Bottom line: How to pay for college

Remember, there are plenty of ways to pay for college. We cover 14 strategies above — including grants, scholarships, jobs and loans as well as several ways to reduce the cost of college to make it more affordable in the first place — but these methods might not all be applicable to your situation. The most important part is to carve out some time to make a financial plan that works for you and your family.

Originally published by Julia Glum

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