It’s never too early to start preparing for college. In fact, if you’re in your junior or senior year of high school, then you’ve probably already begun preparing for college by doing things like taking the SAT, working hard to keep up your GPA, and sending in applications to the colleges of your choice.
These are all important things to do when it comes to getting ready for college, but while you’re still in high school, determining how you’ll pay for college needs to be a priority as well. Now that college costs so much, it’s more important than ever to have a plan for how you’re going to pay for things like tuition, rent, and other living expenses, all while keeping up a satisfying social life. For 70 percent of college students, that means taking out some student loans.
If you’re still in high school and you’re looking to get a jumpstart on student loans, here’s everything that you need to know.
Will I Need a Student Loan?
Whether or not you will need students loans depends on your personal financial situation and family contribution going into college. However, there are a few major factors that will determine your ability to pay for college and whether or not you’ll need student loans:
- Are you dependent or independent? When you apply for student loans from the Department of Education, you will be asked how much money your family is going to contribute to your education. Your status as a dependent or independent student will be determined based on how you fill out for FAFSA. Factors like age, marital status, service in the armed forces, and the status of your legal guardians affect whether or not you qualify as an independent student. Independent students automatically qualify for an expected family contribution (EFC) of zero. Typically, the lower your EFC is, the more federal aid you can expect to receive.
- Are you a scholarship recipient? Scholarships are a great way to pay for college. Unlike loans, you will not have to pay a scholarship back unless you fail to meet some requirements of the scholarship after it has been disbursed to you. Apply for scholarships wherever you can. It costs you nothing to apply and the right scholarship can go a long way towards paying for your college education.
- Do you have a college savings account? If your family has the means and has been planning for your college for a long time, you may have a 529 college savings plan. A 529 plan is a savings account that will give your parents certain tax deductions as long as the funds are used to pay for your college education and related expenses such as textbooks or the cost of room and board. 529 plans and other college savings accounts can save you from taking out student loans in some cases.
What Types of Student Loans Are There?
When you’re first looking at the student loan options available, you may find yourself a little confused. Most high school students don’t have a lot of experience with finances in general, and there’s a lot of technical jargon associated with student loans that you have probably never heard before. In general, though, there are three kinds of student loans that you need to be aware of. Knowing how student loans work will help you get the student loans that are right for you.
Subsidized loans are student loans provided by the federal government — specifically, the Department of Education. Student loans from the government are meant to equalize opportunity of education across income levels. Subsidized loans help to make a college education more accessible because the government will pay interest on them while you’re still in school.
Loans of any kind will usually accrue interest. When you pay the loan back, you’re paying back the original balance plus the interest that accrued. Student loan interest works a lot like this: the government sets an interest rate, interest accrues at that rate, and the interest that accrues on your loans is added to the total that you’re expected to pay back. However, with subsidized loans, the government will take care of any all interest that accrues on your loan while you are in school as long as you’re enrolled at least half time at an accredited institution.
Basically, with subsidized loans, you don’t have to worry about interest on your student loans until after you’ve graduated.
Unlike subsidized loans, the federal government will not help you with interest on your unsubsidized loans. You won’t have to make any payments on that interest until after you graduate, but it will be steadily accruing while you’re in school.
Unsubsidized loans are typically available in greater amounts than subsidized loans, but they can cost you more in the long run. When it comes to federal student loans, take out your subsidized loans first. Having a college budget for yourself will help you understand how much you will need to take out in student loans each year.
Private Student Loans
We’ve talked about federal student loans, but there are also student loans offered by private lenders. These lenders can be banks, credit unions, or other companies that lend to college students and their families.
Private student loans have some differences compared to federal student loans. Unlike federal loans, some private student loans start repayment while you are still in school. Private student loans are usually based on creditworthiness whereas federal student loans are based on need.
Private student loans may be a good alternative when you have a high credit score, if you have borrowed the maximum federal student loan amount, or if you need to take out a loan mid-semester.
How to Apply for Student Loans?
The first step towards applying for federal student loans is to fill out your FAFSA. The FAFSA is an online form that gathers all the relevant financial information about you and your family. The Department of Education then uses this information to determine your eligibility for financial aid. Regardless of whether you plan on taking out student loans to pay for college, you should still complete your FAFSA before your school’s deadline. Doing so can make you eligible for grants and scholarships that will help you pay for school.
As part of the application process, you will likely also be asked to complete student loan entrance counseling. Entrance counseling is meant to prepare you for the commitment of taking on debt in order to pay for your education. It will familiarize you with the ins and outs of student loans and prepare you to eventually take on the responsibility of repaying your student loans.
Private student loans don’t go through FAFSA. If you want to apply for a private student loan, you should contact a lender who provides student loans. It’s a good idea to weigh your options for the best interest rate, repayment terms, and loan amount.
Now more than ever, it’s critical to begin preparing for college while you’re still in high school. Start exploring how to pay for college now and learn about student loans before you need them.