Paying for College With Loans

by Samuel on December 24, 2012

There are three types of financial assistance programs that a student can opt for if he cannot meet the expenses of college out of his family contribution. These are financial grants, loans and work-pay. Loans are probably the third best option in case you’re unable to find a grant for which you can be eligible. If you find that you’re ineligible for grants and there are no work-pay options available as well, loans are the last recourse. However unlike grants, where you don’t have to repay the amount of money that is paid to your college and for your college expenses, loans have to be repaid back and with interest. As such think carefully when opting for loans.

There are two major types of loans available to students. Federal loans and private loans. Federal loans are funded by the Federal Government and through the Department of Education. They are usually with fixed interest rates and offer flexible repayment options. Many offer income linked repayment options as well. Private loans are funded by private organizations, colleges, banks and credit unions. They are generally with flexible interest rates and some may even ask you to start a repayment even when you’re still in college. Regardless of their availability, Federal loans are a better option in most of the cases.

However, even in the case of Federal loans, there are many options and programs. Start by looking for Direct subsidized loans. These loans are suitable for students where they don’t have the financial means to pay for the interest. In this case the Federal Government via the Department of Education (www.fafsa.ed.gov) pays the interest under specific conditions. These loans are available to undergraduate students and the amount that you can borrow cannot be more than your Financial Need. This is usually determined by the college you have applied to.

Direct Unsubsidized loans are on the other hand available to both undergraduate and graduate students and usually it is not required for the student to show any financial need in order to be eligible for these loans. However the school will still assess your overall cost of attendance and thus the eligible amount of loan. The main difference between a Direct Subsidized loan and a Direct Unsubsidized loan is that the interest payment has to be borne by you at all times in the later case. In the case of non-payment of interest, the same gets added back to the principal amount and increases your overall loan liability.

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