According to CNN, 58 percent of Tennessee college students graduating in 2012 took out some type of student loan. Taking out a student loan might seem a little scary, but before you sign on for a loan, here are three things you should know that will help you make the right decision when it comes to funding your education.
Loan vs. Grant vs. Scholarship
Grants are federal or private funds awarded based on need or merit, but do not have to be repaid. Scholarships also can be federal or private and do not have to be repaid, but can be awarded for nearly anything. Common scholarships are ones awarded for academic merit, business sponsors or as a part of a high school activity.
Loans, on the other hand, are borrowed money that must be repaid. The loan amount, interest rates and repayment plans are determined based on a number of factors such as financial need, credit score or if a federal or private institution issues the loan.
Federal vs. Private
Federal loans are loans you borrow from the government, while private loans are borrowed from a private institution such as a bank or credit union.
If you take out a federal loan, you won’t be required to start making payments until you graduate, leave school or drop below a certain number of credit hours. Interest rates for federal student loans are fixed and often lower than private loans. If you demonstrate financial need, you likely will qualify for a subsidized loan, which means the government will pay your interest while you are in school.
Private loans often require you to make payments while you are still in school, and can have variable interest rates. You also may need a cosigner and an established credit record.
Before you visit your financial aid office or accept any kind of loan – public or private – here are some terms to know that will help you understand your options and make the best decision about what kind of aid is right for you:
Financial Aid Package: This is the total amount of financial aid you are offered. It includes federal and nonfederal loans, grants and scholarships.
Interest Rates: This is money paid to the lender in exchange for borrowing money. So in addition to repaying your loan amount, you will have to pay interest as well.
Enrollment Status: This is simply if you are classified as a full time or part time student. Your status as a full or part time student is determined based on the number of credit hours you are taking each term.
Federal Subsidized Loan: This means the interest on your loan will be paid for by the government as long as you are in school.
FAFSA: The Free Application for Federal Student Aid. You’ll be required to fill this out before your college can calculate your financial aid package, your financial need and to be considered eligible for any federal assistance.
We encourage students to seek financial assistance with the help of our financial aid office. For more information about financial aid offered at South College, contact us today.