How to Get a Student Loan to Pay for College (Part 1)
Money Girl explains the variety of student financial aid (including loans) available for students and parents to pay for college.
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An anonymous Money Girl Podcast listener asks:
"I plan to go to college and then to a 2-year graduate program. What are the different types of student loans and aid that I can apply for? Plus, what tips do you have to make education debts easier to bear?"
The high cost of college can make you think that winning the lottery is the only way to pay for a good education. Fortunately, just about every student can qualify for some type of financial aid or loan.
In this two-part series you’ll learn about the variety of ways students or parents can get the funds they need to pay for college. In part one, I'll cover federal aid and then in part two, you'll learn about many other options. Plus, I’ll give you tips for managing student loans once you sign on the dotted line.
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What Are the Different Types of Federal Student Financial Aid?
When someone asks me how to get help paying for school, my first recommendation is to always tap out your federal options.
Why? The fed is the largest source of financial aid. Every year, the U.S. Department of Education awards approximately $150 billion to 15 million students who need help paying for college. You can use the money to pay for a variety of expenses such as tuition, room and board, books, a computer, and even child care.
Some types of federal aid must be repaid because they're doled out as loans. But other aid is free or allows you to work for it while you're in school.
Here's a brief description of the 3 main types of federal student financial aid:
1. Federal grants are one of the best types of financial aid to receive because they typically don’t have to be paid back, unless you withdraw from school.
The most popular is the Federal Pell Grant, which is generally awarded to undergraduates seeking a bachelor or associate degree. The award amount you receive depends on your demonstrated financial need and the cost of your school. For the 2014-2015 academic year, the maximum Pell Grant award is $5,730.
2. Federal work-study programs provide part-time employment for undergraduate and graduate students with financial need. The jobs are generally in community service or related to your course of study, when possible. For instance, you may work on campus for your school, or off campus for a nonprofit organization.
Work-Study programs are a great way to get hands-on experience, learn more about your field of study, and earn income. They’re awarded on a first-come, first-served basis, so be sure to apply for them as early as possible. I’ll tell you how to apply for all types of federal student aid in just a moment.
3. Federal loans are funds sourced from the government to help pay for education expenses, and must be repaid with interest.
Getting loans for college should be your last resort, if you don’t qualify for other types of aid, such as grants and work-study.
Getting loans for college should be your last resort if you don't qualify for other types of aid, such as grants and work-study. Student loans can really hurt your financial future if you borrow too much and have trouble making payments.
A rough guideline is to never take out more in student loans than your expected annual starting salary. For instance, if you’re a computer engineer living in an area where the average starting salary is $50,000, don’t even think about borrowing more than a total of $50,000 to pay for school.
You may even qualify for a combination of these 3 types of aid, in addition to other types that I'll cover in part two of this series.
What Are the Different Types of Federal Student Loans?
There are 2 main types of federal student loans: the Direct Loan Program and the Perkins Loan Program.