Student Loans 101

Filling out the FAFSA

Have you filed your FAFSA yet? If not, here are some helpful tips to get you started.


Myth: If my parents make too much money, I can’t get any financial aid

Fact: You won’t qualify for nice things like Pell grants, but you can still qualify for federal loans. Depending on which year you’re in, you can get a nice chunk of tuition covered with a Stafford loan. I was able to get a subsidized loan, meaning the government pays the interest while in school. Unsubsidized you must pay, but the interest rate is incredibly low.

Myth: I only need to fill out the FAFSA once.

Fact: You need to submit the FAFSA every year that you need financial aid. Once you’ve filled it out the first time, though, you only have to submit a renewal each year.

Myth: I don’t have to worry about paying loan interest while in school.

Fact: Depends on your loan. If you get a loan with no accruing interest until after you graduate, then you don’t have to. But most loans do accrue interest. If you have a Parent PLUS loan, pay that interest right away. Better yet, don’t get another one of these loans unless you really, really must. The interest rate is incredibly high and if you let it build up while you’re in school, you’ll be amazed at the amount owed by graduation.

Myth: I don’t have to file scholarships and grants on my taxes.

Fact: Sometimes you do. It depends on what kind of scholarship. Always ask your financial aid office.

What are Student Loans

Student loans are loans from private lenders or the government that you can use for college. They are different from other loans, especially because you can defer payments until after graduation. If you aren’t careful, you can end up owing a lot more than you borrowed.

I was able to get a subsidized Stafford loan through Wells Fargo (the government pays the interest while I’m in school) for $3500, but all the rest is in a Parent PLUS loan, which has a high interest rate and although payments are differed, it accrues interest now. If you can get Stafford loans, even if it’s unsubsidized, I’d take advantage, even if you need another loan as well.

Private Student Loans vs. Financial Aid

The first place to learn about private student loans versus federal student loans is the Federal Student Aid website.

The biggest reason people choose private loans is because the amount you can borrow is up to $40,000 for one year, which is a lot more than financial aid offices award students. There are other loan companies, such as Sallie Mae, Think Financial, or Chase.

If you’re going to go this route, I suggest thoroughly researching the company and the rates. Be sure to read the fine print and make sure you’re getting a fixed rate. Some companies, such as Sallie Mae, have allegations against them. Also, private loans usually require good credit to be approved so it helps to have a parent or older family member that’s willing to help. But if they’re going to put their name on it, sometimes it’s better to take out a second mortgage or do a home equity loan with a better rate.

Once you get your student loan reimbursement, you can decide what to do with it. The Federal Student Aid website has a good guide for what to do once you receive financial aid.

Repaying student loans

If you have federal loans, your options are simple. The interest rate is lower, so it’s usually best to just pay them as scheduled. Private loan terms usually vary from provider to provider, while government-backed loans are stuck with the federal terms given, no matter who your lender is.

One option is consolidation, which is not the best option unless you seriously can’t afford the monthly payments. Consolidation leads to a higher interest rate because you’re extending the life of the loan and there are more complications with private loans. Depending on your financial plan, consolidation can be a good or a bad option.

There are also options for loan forgiveness if you are going to be joining the Peace Corps, the military, or teaching certain subjects.

Also, you can’t simply just declare bankruptcy anymore and be done with your loans. Certain federal loans will go away, but not private loans. The government decided on this a few years ago because too many students were coming out of college and declaring bankruptcy right off the bat. There are certain circumstances surrounding the issue, which are covered in more detail here.

The FinAid website also has a useful Loan Calculator.