Loans for college — what’s out there and how to get them

According to Pew Research Center, one in four U.S. adults under 40 have student loan debt. Student loans are very common, and they can be (and often are) a very good thing — offering you the financial flexibility necessary to attend the school that suits you best. The idea is, you’ll borrow the money now before you’ve started your career, then you’ll be able to pay it back once you’re successful in your field, building credit in the process.

However, if mismanaged, student loan debt can cause a bevy of financial problems that can prove difficult to escape. To help you make the best decision for your situation, we’ve rounded up information on each type of loan, the loan application process, and best practices for paying off debt.

Types of loans

There are two categories of student loans: federal and private. Federal student loans consist of direct loans made by the Department of Education and are serviced by contracted companies such as Aidvantage, EdFinancial, Nelnet, and MOHELA. These direct federal loans are split up into four camps:

• Subsidized loans: For undergraduate students with demonstrated financial need. The government pays interest on the loan while the borrower is in school, during the grace period after leaving school, and during any deferment periods.
• Unsubsidized loans: Available to undergraduate, graduate, and professional students regardless of financial need. The borrower is responsible for paying all interest on the loan, including that which accrues while they’re in school.
• Direct PLUS loans: A type of unsubsidized federal loan that offers unlimited borrowing, but requires a credit check. Different loans are available for graduate or professional students (Grad PLUS) and parents of dependent undergraduate students (Parent PLUS).
• Direct consolidation loans: Allow borrowers to combine multiple types of federal student loans into one loan with a single fixed interest rate.

Private student loans, meanwhile, are given out by private lenders like banks and credit unions and exist to cover remaining costs after federal aid is exhausted. These are ideally to be used only when federal loans are not enough to cover the cost of your education, and can also be given to undergraduate students, graduate students, and parents of dependent students. Private student loans are credit-based, so a creditworthy co-signer may be necessary to secure them.

How do I get started?

Before looking any further, you’ll want to submit your FAFSA application for the upcoming school year. Once that is submitted, your school will determine your eligibility for each type of federal loan. After you choose which loan(s) you’d like to receive, you’ll have to complete entrance counseling to ensure you understand the obligations associated with your loan(s). If there is still leftover tuition to be covered, then you may need to explore private loans.

How can I make sure I manage my loans properly?

To avoid falling into more debt than necessary, it’s important to know about every applicable resource at your disposal. These resources include:

• Income-Driven Repayment (IDR) plans: These plans calculate monthly payment amounts based on income and family size. Eligible borrowers will have their loans forgiven if they have been in repayment for 20 years (240 months) or 25 years (300 months). Borrowers must recertify their income every year to stay on an IDR plan. Plans include the Saving on a Valuable Education (SAVE) Plan, the Pay As You Earn (PAYE) Plan, the Income-Based Repayment (IBR) Plan, and the Income-Contingent Repayment (ICR) Plan. See more IDR resources below:
  • Income-Driven Repayment Plans | Federal Student Aid
  • Apply for or Manage Your Income-Driven Repayment Plan | Federal Student Aid
  • Your Guide to Student Loan Repayment Plans (youtube.com)
• Loan simulator: Can help you calculate student loan payments and choose a loan repayment option that best meets your needs and goals. Click here to see a video on how to use Loan Simulator.
• Fresh Start: Temporary one-time program that offers every federal student loan borrower a path out of default. To take advantage of Fresh Start, click here.

Final thoughts

As with any type of loan, you’ll want to make sure you’re paying your college loans off at a rate that can realistically be worked into your budget. For tips on budgeting while juggling student loans, click here. Need help with college planning? Check out this article to discover all the different ways to fund your education.