If you’re thinking about going to college, it is important to explore your options for financial assistance before enrolling in class. There are a number of loan and grant possibilities to explore. While it may seem intimidating to borrow so much money, your future depends on a good education. Just remember that completing a degree will substantially increase your income and hopefully have you doing something you love.

Private loans from companies like Sallie Mae and Great Lakes are available, or you can borrow from The United States Department of Education directly. The latter is recommended in most cases since interest rates are normally a little higher from private lenders. The only exception to this is the PLUS Direct Loan for graduates and undergraduates that has an interest rate of 7%.

Variable vs. Fixed Interest Loans

Another good reason to avoid private lenders if possible is the different interest rates observed when comparing private and federal loans. Private lenders offer variable interests rates and federal loans are usually fixed rates. Variable interests rates tend to look like a better deal in the beginning since they almost always start off very low. They do gradually increase over the life of the loan, however. A variable rate may be appealing for someone looking to pay off their loan in full right after graduation.

FAFSA

Before you can get loans through the Department of Education, you must fill out your FAFSA or Free Application for Federal Student Aid. Students that receive aid from the Department of Education need to fill out the FAFSA every year between the months of October and March.

Pell Grant

For undergraduates below a certain income, the Pell Grant will automatically pay if the FAFSA qualifies them for it. This money will automatically apply to tuition first. You do not need to pay a grant back or worry about interest in this case. The most you can get from a Pell Grant each year is $5,920. In order to receive the full amount you must meet certain criteria.

  • You must attend full time, 12+ credit hours a semester.
  • You must attend for the full year, not just a semester.
  • You must be working towards a degree.
  • You must demonstrate financial need.
  • The cost of your attendance must be enough to warrant the maximum help offered.

FFEL Loan

The FFEL Program known as the Federal Family Education Loan is technically the only guaranteed federal loan. Not all colleges participate in the program, so contact a financial aid worker to find out if the school of your choice carries it. This is one of the only federal loan that allows borrowers to chose their lender. The FFEL and Direct Loan Programs both offer the Stafford loan, the PLUS loan, and the Consolidation loan. The interest rate for this loan is substantially high at 8.5%.

Direct Loan Program

“Stafford Loans” are from The William D. Ford Federal Direct Loan Program, through the Department of Education. The types of Direct Stafford Loans available are as follows:

Subsidized and Unsubsidized

A federally subsidized loan means that the government pays all of your interest while you are completing your degree or while your loans are in a state of deferment. Subsidized Direct Loans are only available to undergraduate students who can demonstrate financial need and who are currently in school at least half time and working toward a bachelor’s degree. Subsidized loans are not available to graduate students. The interest rate on this loan is currently 4.45% of the total principal.

Unsubsidized Loans are loans in which the borrower is held fully accountable for all accruing interest while in college, during grace periods, and deferments. There is no requirement to demonstrate financial need to get this loan, and all undergraduates, graduates, and professional students have access to it. For graduates, the interest rate for this loan is very high, so be cautious. Undergraduates receiving this loan are currently paying 4.45%, while graduate students experience a dramatic hike to 6%.

Direct PLUS Loans

PLUS loans are for all students: undergraduate, graduate, professional students and parents of dependent undergraduates. Those taking out PLUS loans will notice a slight increase in their loan fee in the amount of .01%. They will also experience an interest rate hike from 6.3% in 2016 to 7% in 2017. PLUS loans are unsubsidized, meaning the borrower will also be responsible for all accrued interest during enrollment and deferent periods.

Direct Consolidation Loans

These loans are meant to lower your interest payments and reduce confusion and stress. Basically, by taking out this loan, you are combining all of your preexisting, eligible federal loans. After consolidation, you will only have one interest rate, one loan provider, and one bill. This is recommended for anyone completing school to make the transition into the work force easier. The interest rate is capped at 8.25%, which is high comparatively. Taking out a Direct Consolidation Loan can also be used to get a student out of default status. To consolidate while in default status, you must include at least one loan that is in good standing. If all of your loans are currently delinquent, you cannot use this method to get out of default. Your other options are payment in full or a process called loan rehabilitation.

The Federal Perkins Loan Program

The Perkins Loan is university based and uses university funds. It is reserved for students that can demonstrate considerable need. Talk to a financial aid worker to see if your university carries it.