Four Tools To Help You Pay for College (Part Two)

This is part two in a post about ways to pay for college. Previous post touched on savings, scholarships and work study opportunities as ways to pay for college.

Education Loans

Another way to help pay for college is an education loan. The federal government offers both student and parent loans, the Federal Direct Loan for students and the Direct PLUS Loan for parents. The origination fee on these loans tend to be very reasonable. The loans are backed by the U.S. government, are generally low-cost, fixed-rate loans with discharge and loan forgiveness options.

Direct Subsidized Loans for students are available if you have financial need and are in school at least half-time. The U.S. Department of Education will pay the interest on your loan while you are in school. Direct Unsubsidized Loans are available for students who do not have financial need, and the student is responsible for either paying the interest while in school or accumulating interest and adding it to the principal amount of the loan to pay once he or she leaves school.

Your parents may choose to help you by getting a federal parent loan, which they would be responsible for paying back. These loans often require parents to make monthly payments during and after the time the student is enrolled.

Parents, professional students or graduate students may also decide to apply for the Federal Direct PLUS Loan. This will require a credit check. If the loan applicant has an adverse credit history, an endorser with good credit may be required. More detail on all federal education loans is available at http://studentaid.ed.gov.

Private loans for college, sometimes referred to as alternative loans, are consumer loans made by either not-for-profit and for-profit lenders, not the federal government. Private loan interest rates can vary depending on the borrower’s credit history and by lender. Be sure to compare interest rates on private loans, since they can differ widely. Get the answers to several questions, including whether the rate is fixed or adjustable, if there’s an application fee, if there are borrower benefits to help reduce the cost, whether the lender will keep your loan or sell it, and what repayment options are available. Be a smart borrower!

All loans, federal or otherwise, of course, must be repaid with interest. While it may be easy to get an education loan, you should borrow only what you really need – because, even if you may not have to repay student loans while in college, repayment will be required after you graduate or withdraw from school. If you over-borrow, you may live very comfortably during your college years, but less so when it’s time to start paying those loans off.

Be realistic about your income after leaving college. Look at jobs you’re considering and the current starting salaries. How much of that starting salary will be needed for monthly payment on your student loans, your housing, food, car, etc.? Limiting your borrowing during college will make it easier to handle payments when you’re on your own.

College is Possible

With the many options to help pay for college, college can be affordable. For any questions about saving or paying for college or completing your FAFSA, there’s more detail available in the Pay section at cfnc.org or you can call our College Foundation of North Carolina (CFNC) call center toll-free at 866-866-CFNC(2362) Monday through Thursday from 8 am to 8 pm or Friday 8 am to 5 pm (ET). We’ll be glad to help.

Return to Part One.