Decoding Types of Financial Aid
Deciphering the lingo of financial aid may seem like learning a whole new language. But it's not as complicated as you might think.
Written by: Sarah Miller, Credit Union Student Choice
There are many ways to pay for college, and it can be confusing to sort out which option or combination of options is best for you and your family. Once you've completed your FAFSA and received your award letter from each college, you can start to decide how you'll pay for your education.
Check out this video from iGrad to get a brief overview, then read on to learn more about the pros and cons of each option.
Scholarships and Grants
Both of these types of financial aid equal FREE money for college. Scholarships can be given by your college, or by outside organizations such as community groups. You may have to apply for those separately, but free money for college is always worth it! Scholarships can be based on many factors, including your high school grades, extracurricular activities, athletics, or community involvement, to name a few.
Grants are need-based, meaning they are based on your income and ability to pay for college. Neither of these types of funding have to be paid back – hence the “free” description.
Federal Student Loans
The next type of aid to consider is a federal student loan. Federal Direct loans are often the least expensive and most borrower-friendly, so they should be considered before applying for alternative funding. There are a few different types of Direct loans, so be sure to research carefully and compare your options. As always, filling out and submitting the FAFSA as soon as possible is the best way to increase your chances at receiving funding. More information about Federal Direct student loans can be found at https://studentaid.ed.gov/ and http://www.direct.ed.gov/student.html.
Other Loan Options
If you are in need of additional money for college after factoring in all of the scholarships, grants, and federal loans available to you, the next step is to look for a private student loan. These loans are secured through a financial institution like your credit union. It’s important to compare loan details to make sure you’re getting the best deal on your student loan. Some important things to look into include:
Membership – Some lenders require membership for a student to be eligible for certain benefits. Make sure to check out membership eligibility before applying.
Credit Scores – Expect to have your credit score checked when applying for a private student loan. Some students may not have enough credit history to qualify for a loan and may need a co-borrower. Even if you do qualify alone, having a co-borrower may help you get a better rate.
Interest rates, fees and repayment – Interest rates and fees vary greatly between lenders. Always compare rates and fees on your loan. Look for a loan with zero origination or prepayment fees, low interest rates and flexible repayment options. Also make sure to compare the index (Prime versus LIBOR) when comparing loans and interest rates so you’re comparing apples to apples. The index is an important part of the interest rate calculation.
Choosing your lender – When it comes to choosing your lender, consider your credit union! Since credit unions are here for one reason only – to serve their members – they offer more competitive student loan options and can help save you money. Student loans are a long-term relationship and it is important to choose a lender carefully.
College is an expensive endeavor, but you shouldn’t have to stress about how to pay your tuition bill. Your financial institution has plenty of solutions to help, whether it’s with a Student Choice loan or other products to help you on your way to a secure financial future.
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