How To Pick the Right Student Loan

Planning Your Future Knowing Your Payment Options

College isn’t getting any cheaper.

And worse, with so much competition for scholarships, funding is far from a sure thing (no matter how qualified you are). Even college-bound students who do receive funding typically discover it’s not enough to cover the cost of a degree.

debt vs savings

But don’t let this sway your decision whether you attend college. Between different federal and student loans, you have options. While student loans will put you in debt, if you make the right choices for you, you can make the most of the money and minimize what you’ll have to pay back.

Less is better

Most students will have to take out loans to help pay for college. But don’t forget that it’s not free money. Whatever you borrow, you’ll need to pay back (plus interest, depending on when you pay it back and what type of loan you take out). So step one is figuring out how much you’ll need and borrowing only that amount.

The less you borrow, the less difficult it will be to pay it all back. You may also be able to pay it off more quickly, minimizing or foregoing interest on your loan.

How much do I need

Great question. To find the answer, do the following:

  • Look up the tuition for every credit you’re taking.
  • Find all the materials you’ll need for each class and do some research on how much everything will cost (the average annual cost of books and supplies ranges from a little over $1,200 to almost $1,500).
  • Calculate all those other expenses (think: utilities not covered in your rent, sorority/fraternity dues, travel costs for visiting home, etc.).

The costs will add up fast, but there are ways to keep them in check. You don’t have to buy books new or from the college bookstore, for example. You can buy or rent books through sites like Amazon and Chegg, or compare prices at many stores through Bigwords. You can also check out books from the school library (though remember that other students will have the same idea).

Resist temptations

When you receive your loan, it may be tempting to use it for other expenses. Remember that this money is for school-related expenses only. If you use it for other expenses (spring break abroad, for example), you may not be able to afford the class texts we talked about—or even worse, the class itself. Take care of your school needs first so you know how much you have to spend on everything else.

Differences in student loans

Not all student loans are created equal. Beware of private student loans that give you the full amount at once. Private loans are unsubsidized, which means you’ll have interest—often at a variable rate that increases over time—tacked on throughout the life of the loan. A subsidized federal loan, on the other hand, pays your interest (at a fixed rate) while you’re in school and for a grace period afterward.

Federal loans provide an unsubsidized option as well. Let’s break down the difference, shall we?

Direct subsidized vs. direct unsubsidized federal loans

Direct subsidized loans and direct unsubsidized loans are offered through FAFSA (Free Application for Federal Student Aid).

To receive a direct subsidized loan, you must be an undergraduate and show proof of financial need. You’ll only receive a reward for the needed amount. These are preferable because the US Department of Education pays the interest:

  • While you’re enrolled in school half-time or more.
  • For six months after you graduate (grace period).
  • During your allowed period of deferment (postponement of payments).

For direct unsubsidized loans, you can be an undergraduate or a graduate student, and you don’t need proof of financial need. Like direct subsidized loans, you’re allowed a grace period and deferment, but you must pay interest, which begins accruing as soon as the loan is taken out. So while you can put off paying down your loan, you’ll end up paying more back in the long run.

Go apply

Not sure if a federal loan is right for you? Why not fill out a FAFSA application and find out? It’s free to apply, and you may be awarded more than you expected. Be ready to provide your:

  • College of choice.
  • Driver’s license number (if applicable).
  • Social Security number (or alien registration number if you’re a noncitizen).

And for you or anyone helping you pay for college, you’ll need:

  • Current checking and savings account statements.
  • Recent tax returns.
  • Current records for any investments and untaxed income.

I know, this seems like … a lot. But if you get everything together beforehand, the application should take you less than an hour to complete. (Did I mention it’s free to apply?)

Once completed, your application is sent to your college of choice, which determines your financial aid amount then sends you an email. At this point, you can accept all of the reward, accept some of it, or decline it altogether. Up to you.

You have options

Paying for college can seem daunting (to say the least), but there are choices out there. “Education is an investment in your future,” as I’m sure a relative has told you—likely one of the biggest you’ll make, in fact. And like any investment, you want to do your research before plunking down money (that includes finding ways to save on expenses while living the college life). A little work now can save you big later on.

Plus, it’s good practice for all the research you’ll be doing once fall term begins.

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