Understanding Student Loans

Paying for college is a significant source of stress for many. Grants, scholarships, and student loans are new concepts for most people when they are applying to colleges, but this does not have to be the case. Obtaining an early education on these subjects can help make a difference in how a student approaches the application process and how much support they end up receiving. Four Consumer Financial Protection Bureau (CFPB) articles are referenced below, highlighting the difference between grants, scholarships, and student loans, the recommended steps for creating a financial path to graduation, repaying student debt, and drawing awareness to Public Service Loan Forgiveness (PSLF).

When it comes to receiving money, grants and scholarships are more advantageous than loans because you do not have to repay them. The CFPB offers a brief comparison between grants, scholarships, federal student loans, and private student loans, highlighting the following information:

  • Grants are often need-based
  • Scholarships are usually merit-based
  • Federal student loans allow you to enroll in a repayment plan based on your income, and loan forgiveness may be available after working 10 or more years in public service
  • Private student loans are less flexible than federal student loans, but offer a way to pay for costs that are not covered by grants, scholarships, and federal student loans

With this in mind, it is important to apply for as many grants and scholarships as you possibly can. This will certainly take a lot of time and effort, but it will be worth it when it comes time to repay your student loans.

It is helpful to break the college application process down into steps to better understand what is involved. The CFPB offers a tool for this process, which can help you with the following:

  • Understanding your financial aid offer
  • Creating a plan to cover the remaining costs
  • Estimating how much you will owe and whether you can afford the debt
  • Comparing offers from different schools
  • Deciding what to do next

To begin this process, you will need your financial aid offer(s); a realistic idea of how much money you and/or your family can pay for college, contact information for one or more individuals in the financial aid office, and a private loan offer, if applicable.

Before you graduate college and must begin repaying your student loans, you should learn about the different repayment options associated with federal and private loans. Are your loans federal or private, or a mixture of both? Here is a helpful guide:

  • Federal loans typically have names like Direct Loan, Stafford, PLUS, or Perkins
  • Private loans usually have names like “alternative” or “institutional” loans

Once you determine which types of loans you have, you can navigate to the CFPB website and utilize the tool they offer for recommended repayment options based on several unique scenarios.

One option that is often overlooked as individuals prepare to repay student loans is Public Service Loan Forgiveness (PSLF). According to the CFPB, PSLF is available to many employees, including roles in government, states, municipalities, school districts, public hospitals, non-profits, and more. This program forgives the remaining balance on federal Direct Loans when the following qualifications are met:

  • 120 qualifying monthly payments have been made under a qualifying repayment plan
  • You work full-time for a qualifying public service employer

This option certainly does not work for everyone, but it is ideal for those considering a career in one of the previously mentioned fields.

As you navigate the student loan process and think about how to pay for college, do not be afraid to seek out answers. There are countless individuals ready and willing to offer advice to those who ask for it – many of which who do not expect anything in return.

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