Two key funding options are available to students who want to finance college: scholarships and loans. Borrowers are usually responsible for repaying student loans with interest. Scholarships are not refundable.
Scholarships can help you save money.
This is a detailed overview of the differences between scholarships and student loans.
How scholarship work
A type of “gift aid”, scholarships are usually merit-based, and not need-based grants. Each scholarship application is different, but you can get started by filling out the FAFSA (Free Application for Federal Student Aid). This is required to apply for federal, state and institutional scholarships. You may be required to submit additional documents such as a letter of recommendation, essay, or resume for certain scholarships.
The Labor Department’s Scholarships search tool allows you to sort through over 8,000 scholarships grants fellowships and other awards. While some scholarships are for top athletes and students, others are for parents or home-schoolers. Think about what makes you unique when applying.
Meet with a college counselor to learn more and reach out to local organizations.
Don’t delay. You might not be able to apply for scholarships until one year after you start your first semester at college. Keep track of the deadlines for scholarships you intend to apply for during your senior year of highschool.
What student loans do
The Education Department is the main source of federal student loans. These loans offer strong borrower protections such as the possibility to change to an income-driven repayment program to lower your monthly payments, based on earnings or household size.
Private student loans are also available. Private loans may offer a lower interest rate than federal loans. However, private loans don’t provide the same protection for borrowers. Private student loans are not eligible for federal student loan forgiveness programs. They are still an option for education costs that remain after the maximum amount borrowed from the federal government.
What could the monthly student loan payments look like?
After six months of graduation, federal student loans must be repaid. Congress sets interest rates each year for federal loans. You’ll be locked in at that rate the first time you take out a loan. This interest rate will not change over the term of your loan.
Private student loans have different interest rates. While some lenders offer the same rate to everyone, others have different rates for each borrower. The lowest interest rates in these cases are only available to people with excellent credit scores or those who have a cosigner with excellent credit.
How to Apply for Student Loans
How to apply for federal student loans
First, fill out the FAFSA to apply for federal student loans. This single application will evaluate your eligibility for federal loans and register you for any need-based financial assistance, such as grants, work-study programs, and scholarships.
How to apply for private student loans
Private student loans are subject to an underwriting process similar to that of a car loan. These loans are available from banks, credit unions and online companies, as well as state-based agencies. Private loans are different from federal loans. They consider the credit score and financial situation of the potential borrower. This means that most students will require a cosigner like a parent.