With the cost of college tuition on the rise, is it even possible to afford a degree from a four-year university?
Recent figures confirm that even public college tuition has risen another 4.8% from 2011 to 2012. Over the decade prior to 2012, tuition for private nonprofit four-year colleges increased by 60%, while tuition at public four-year colleges increased by 104%, more than doubling. This resulted in an average cost of $22,261 to attend an in-state public college for the 2012-13 school year.
Says LendEDU VP of Content Dave Rathmanner, "Before students and families decide how they are going to pay for college, it is crucial to figure out how much it is likely to cost over the 4 years - not only in tuition - but also room and board, food, transportation expenses, and everything else. Once they have a good estimate of how much it will cost them, the next step is to figure out how to cover those costs."
When It's Time to Consider a Student Loan
If you don't have $22,000 sitting in your college account, a student loan, scholarships, or financial aid may be your only option. While scholarships are the preferred source of funding for college tuition since they offer free money that you don't have to pay back, it may be difficult to obtain sufficient scholarships and grants to cover college fees for one year, let alone four.
Advises Rathmanner, "The first place students should look is at scholarships and grants - as these are free money that doesn't need to be repaid. Next, students and their families should consider whatever savings they may have designated for college (such as a 529 Plan) and what type of income will be available to put towards college expenses from year-to-year. Only after these things should students and families consider student loans - federal and private - and in that order. In that order because federal student loans typically have lower interest rates, more forgiving repayment terms, and better benefits as compared to private loans."
As a student, you have two loan options available to you:
- Federal student loans - Funded by the government.
- Private student loans - Funded by a nonfederal source, like a credit union, school, or bank.
Many schools simplify the student loan process by including loans within a financial aid package. However, it's always important to dig deeper to determine whom you are borrowing from, what terms are on the loan, and when you will have to begin making payments after graduation.
How to Take Out a Student Loan
If you're ready to start funding your college career, consider these helpful steps to find the right student loan for you:
- Compare lenders. Start by assessing the financial aid packages provided by your college or university. Make sure to read all the fine print in detail before making a final decision. Since a loan is such a serious commitment, it is important to seek out a student loan with a low interest rate, options for deferred payment, and a grace period for repayment after graduation.
Keep in mind that if you are considering a student loan from a private source, it is possible that payments will be required while you are still in school; on the other hand, federal student loans don't require repayment until after you graduate, leave school, or drop to a half-time status.
- Check your eligibility criteria. After you've narrowed down your scope to one lender, you need to know that you're eligible for a student loan before you apply. In order to apply for a federal loan, you must be enrolled as a half-time student in a recognized college program and be a U.S. citizen.
Private student loan eligibility requirements may vary. Many private institutions will require a good credit history or a cosigner, as well as proof of U.S. citizenship. Most private lenders will also mandate you to be enrolled as a half-time student in a four-year college program before your application is approved.
- Consider a cosigner. If you are attending college as a freshman, it may be difficult to prove your established credit history to get approved for a student loan. Most lenders recommend that freshman and sophomore college students take out student loans with a cosigner for this very reason.
Who should cosign on your student loan? It may help to start by asking your parents. If your parents aren't an option, other relatives and trusted family friends may feel comfortable cosigning for you. However, eligible cosigners must have a solid credit rating, often above 680, to take out a loan from a private lender.
- Don't give up. In the event that you are turned down from both federal and private lenders—which is a possibility—all hope isn't lost. You can still seek out a student loan package by looking for organizations that don't evaluate credit ratings in their loan criteria.
These smaller institutions are often run by private donors who support public education. Other options include peer-to-peer lending websites, funded by groups or individual lenders offering student loans with lender-determined interest rates. While unconventional, these lending clubs are picking up steam; students can start a pledge drive on a site like GreenNote to rally friends and family to invest in their college education.
The tips listed above can put you on the right track to find a competitive, affordable student loan to fund your college career. But taking out a student loan isn't a matter to be taken lightly¬—too many student loans could affect your debt-to-income ratio and negatively impact your ability to buy a house in the future.
Find out quickly at what rate you can refinance your student loan.