With the cost of college rising every year, students and their parents are searching for more ways to pay tuition and other college-related expenses.
Some of the best sources of college funding are scholarships and grants, which usually do not have to be repaid. Students can begin applying for scholarships while they are still in high school and can continue to do so throughout their college careers.
There are millions of dollars worth of scholarship aid available every year, and many scholarships can be attained by students even if they do not have the highest grades and test scores. Using an online scholarship search service is a good way to locate and submit applications.
FAFSA, Grants, and Federal Loans
FAFSA and Grants
Grants are given to students who demonstrate a financial need, based on information provided on the Free Application for Federal Student Aid (FAFSA). Criteria for federal and state aid change from year to year, so students should aim to fill out the FAFSA form every year, even if they think they may not qualify. It is free to file and can be completed online.
Federal Student Loans
Even if they do not qualify for scholarships or grant aid, many college students are eligible to take out student loans through various federal programs. It's important to try and maximize the use of these loans before considering other lending sources, as many federal loan programs are subsidized, meaning the government pays the interest on the loan as long as the student is enrolled at an accredited school. Repayment on those loans usually does not begin until six months after the student stops taking classes on at least a part-time basis.
Even federal loans that are not subsidized can be a better alternative to private loans. With unsubsidized loans, payment is also deferred until after graduation or until the student drops below part-time enrollment at a recognized institution. Repayment plans for both subsidized and unsubsidized loans are usually easier to meet, and these loans can generally be consolidated upon entering repayment.
Drawbacks of Private Loans and Home Equity Loans
If free money and federal loans cannot fully meet a student's financial needs, there are also private student loans available, but these loans have a few drawbacks.
Here are some important things to know about private student loans:
- Generally made through a bank or loan company, private loans usually require a co-signer. This means that parents—or whoever co-signs—will be liable for the loans if the loan defaults at any point.
- Interest on private loans is usually higher than on federal loans, and sometimes repayment must begin right away, even if the borrower is still in school.
Another college financing alternative to consider is a home equity loan. With this loan, the parents borrow against the equity they have in their home to pay for their child's college expenses. However, these loans do come with certain drawbacks.
Here are some of them:
- Interest rates are usually lower than on private student loans, but there are risks to borrowing this way.
- Repayment will begin right away, and if you are unable to pay the loan, you risk losing your home.
- If major repairs are needed on the home, you may not have the equity for additional borrowing.
While a college education is expensive, there are various means to pay for it. Be sure to consider all the free money first, and then take a look at your options if additional funding is needed. Simply be sure that you will be able to handle repayment.
Originally posted on iGrad.com. Used with permission.
