How to Get a Student Loan to Pay for College (Part 2)
Find how to pay for college using 5 non-federal aid options. Plus, get tips for managing student loan debt.
Laura Adams, MBA
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How to Get a Student Loan to Pay for College (Part 2)
Getting a college education can be difficult, especially when you don’t have enough income or savings to pay for it. This is the second episode in a 2-part series about how to get financial aid for you or your college-bound children.
In Part 1, I discussed the main types of student financial aid that come from the federal government. In this episode we’ll cover 5 non-federal aid options, plus tips for managing student loan debt.
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5 Types of Non-Federal Student Financial Aid
The types of federal student aid that I covered in Part 1 of this series include grants, work-study programs, and loans. But there are even more ways students can get financial help to pay for college.
There are 5 main sources of non-federal student financial aid: state government aid, school aid, scholarships, private loans, and peer-to-peer loans.
Many states have programs that allow you to attend a university in another state, without having to pay expensive, out-of-state tuition.
1. State government financial aid is available from just about every state’s education department. Most states have at least one grant or scholarship for residents—and many states have a long list of student aid programs.
Eligibility is typically limited to residents who attend a school in their home state; however, that’s not always the case. Many states have programs that allow you to attend a university in another state, without having to pay expensive, out-of-state tuition. These are called tuition exchange or reciprocity programs and they can save you a bundle!
To find out what’s available in your state and how to apply, visit the National Association of Student Financial Aid and Administration’s website at nasfaa.org. They have an interactive map where you can click on your state and learn more.
However, most schools have their own non-federal aid programs offered on a first come, first served basis. Some are based on financial need, but others may depend on your field of study or academic achievement.
2. School financial aid may be available from the colleges, universities, or vocational schools that you’re interested in attending. You might recall from Part 1 of this series that schools use the information from your FAFSA application to determine your eligibility for federal grants, work-study programs, or loans.
The administrators in the financial aid office of your school should become your new best friends. Financial aid officers have a lot of experience and it’s their job to help you succeed using appropriate financial resources.
Ask aid administrators questions like:
- What types of financial aid am I eligible for?
- How much financial aid could I receive?
- What are the aid application deadlines?
- When should I expect to receive aid?
Once you’ve applied, if you don’t receive a financial aid package that you believe is right for your circumstances, let your school know. You may be able to appeal the decision by requesting that the financial aid officer review your situation more closely.
See also: A Parent’s Dilemma: Save for College or Retirement?
3. Scholarships are types of financial aid that typically do not have to be paid back. Hundreds of thousands of them are awarded to students with special qualifications each year.
But don’t assume that you have to be a straight-A student to qualify. In addition to academic achievement, scholarships can be based on factors, such as:
- financial need
- community service
- athletic ability
- artistic talent
- field of study
- where you live
- having a disability
- your ethnicity
Scholarships come from a variety of sources, such as states, local governments, community organizations, private employers, high schools, and industry associations. Some may use the FAFSA, but most will require you to complete their own forms to determine eligibility.
Use a site like fastweb.com that compares your background with a database of potential scholarship awards.
4. Private loans are available from a variety of lending institutions to foot the bill for college expenses. However, in Part 1 of this series I mentioned that getting loans for college should be your last resort.
If you must take an education loan, my best advice is to always borrow from the federal government first. That’s because federal loans offer more advantages than private loans, such as low, fixed interest rates, not having to make payments until after graduation, and flexible repayment options.
Additionally, approval and the interest rate you’re offered for a private loan will depend on your credit. If you’re too young to have a good credit history, you’ll have to convince a co-signer who does have good credit to apply with you.
See also: 7 Essential Rules to Build Credit Fast
5. Peer-to-peer (P2P) loans are made using online lending platforms that bring lenders and borrowers together. Sites like prosper.com and lendingclub.com match up investors who want to earn interest with appropriate-risk borrowers.
Most P2P sites do consider borrowers’ credit histories when assigning the interest rate on a loan. For instance, it you have good credit, you could qualify for an unsecured loan that charges as little as 6.73% annual interest right now.
How to Manage Student Loan Debt
Taking on loans for education is a big commitment because it’s a debt you’ll owe even if you (or your children) don’t complete school or can’t find a job.
So be sure you consider getting student loans only after you’ve researched all the free sources of aid, including grants, scholarships, and work-study programs covered in this series.
Make sure you understand your loan’s repayment terms and options, especially if you experience a financial hardship. Always communicate with your lender about any challenges you face that could affect your ability to make payments on time.
If you’re not sure who services your federal student loan or grant, use the National Student Loan Data System database at nslds.ed.gov or contact your school for more information.
Bonus Quick and Dirty Tip: Take advantage of tax breaks for education debt, which can reduce the net cost.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.