What are student loans and should I take them?

Many families do not receive enough grants and scholarships to cover the full cost of college. Loans are a way to get money for college and pay it back later. When you take a loan, you are borrowing money from a bank, government, lending company, or even the college itself. A loan must be paid back, and usually with interest added. The federal government offers low-interest loans to students. It’s important to understand the different types of loans your college may include in your financial award.

Borrowing money for student loans may seem scary, but loans can be a good option for paying for college if you borrow responsibly and understand your options. Here are some things to keep in mind as you consider whether or not a loan is the right approach for paying for your college experience:

  1. Learn about federal loans first.
    The primary provider of student loans is the federal government. Depending on the type of federal loan, the amount of the loan and interest rates vary. Direct subsidized loans do not accrue interest when you’re in school (at least half-time) and during deferment periods. Federal loans typically have better interest rates than private loans, so we recommend exhausting all federal loan options before considering a private loan. Interest rates on federal loans can vary based on when you start college. Learn about current interest rates here. A parent loan is one that designates the parent or guardian as the primary person responsible for making the payments. Additionally, a parent loan will not affect the student’s credit score – negatively or positively, but the interest rate is typically higher than the rate for student loans.
    Learn more about federal loan options here.
  2. If needed, research private loan options.
    If you aren’t able to cover the costs of going to college with the federal loan you receive, you may need to look into private loans. Private loans typically have higher interest rates, which means they will cost you more. These loans come from a lender like a bank, credit union, state agency, or school. Be sure to understand the terms of your loan and find a trustworthy point of contact that you can communicate with as you have questions.
  3. Set a plan for paying it back.
    After you graduate or leave college, you will need to start paying back your loans. You will be given a minimum payment based on the amount you owe, the length of your repayment plan, and your interest rate. You’ll work directly with your loan servicer or lender to setup your repayment monthly installments. As your minimum payment will be a fixed cost, create a budget around your loan payment with other monthly costs like rent, groceries, utilities, transit, etc. Keeping track of your finances is especially important when you have student debt because there may be consequences on your credit score if you miss a payment and go into default. If you’re having trouble making a payment, you should contact your loan servicer to discuss the possibility of lowering your monthly payment. You can also get ahead by paying extra each month which can reduce the interest you pay over time.
  4. Talk to a trusted adult before deciding.
    Before making any decision about whether or not to take out a loan, talk to your parents, the financial aid office at your prospective college, or school counselor to get more information and advice on your unique situation.

With all that said, you may be thinking: what else can I do to go to college but not take on so much debt? Thankfully, there are ways you can minimize or eliminate the student loans you take out. See below for a list of ways to help cut down on college costs:

  • Submit the FAFSA:
    The FAFSA, or the Free Application for Federal Student Aid, determines how much Federal financial aid you qualify for and in many cases how much financial aid you may receive directly from a college. It also includes eligibility for federal need-based grants including the Federal Pell Grant, Federal Supplemental Educational Opportunity Grants, Federal Work-Study, Federal student loans, and more. Even if you think you won’t qualify for anything, there is no harm in submitting the application for consideration. The FAFSA opens on October 1 each year and you should complete it as soon as possible, starting the fall before your freshman year of college.
  • Qualify for Merit Scholarships:
    Merit Scholarships are scholarships given to students by colleges and universities based on talents, academic accomplishments, or other factors. A college may offer you a full or partial tuition scholarship depending on the school’s policies and your application details. These scholarships are typically not based on the information you provide on the FAFSA or financial need. Remember you may be competing for scholarships with other students with similar backgrounds, characteristics, and abilities. It’s important to review the college’s application requirements and meet their deadlines.
  • Apply for Private Scholarships:
    There are thousands of scholarships available to students of all backgrounds and interests. Private companies and organizations offer scholarships to students with varying qualifications. Some private scholarships are need-based, while others are based on academic achievements or subject interests. Check out scholarships that match your interests and background with Scholarship Search.
  • Look at the Net Price not Sticker Price:
    The tuition price of colleges typically posted online (“sticker price”) isn’t necessarily the amount you’d pay, so don’t get discouraged! Look for colleges on College Search to see if any interest you and then use a Net Price Calculator to better understand what that college might cost you after financial aid.Based on data from 2006-2021, the average net tuition and fee price paid by first-time full-time in-state students enrolled in public four-year institutions is an estimated $2,640 and $14,990 for private nonprofit four-year institutions.
  • Apply for ROTC Scholarships:
    If you apply and receive an ROTC scholarship, the military will cover your college expenses in exchange for your military service after graduating college. High school students interested in the ROTC are encouraged to join the Junior ROTC to get an idea of what the college experience may be like. Learn more about the ROTC.
  • Earn College Credit in High School:
    Another way to cut down on college costs is to obtain college credits by doing well on AP Exams (or taking other college level classes in high school). Most colleges will give you college credit if you score a 3 or above on the AP Exam. Submit these scores to your chosen college to avoid taking some introductory courses, which can potentially help you graduate early. Explore AP courses.
  • Get a Part-Time Job:
    It may seem like the cost of college is too large to pay off with money you earn from a part-time job, however, every penny counts. Look at your town website to find jobs that you can do while in high school. Consider things like waitressing, working at day care or day camp, food delivery, and more. Some colleges also offer Work-Study programs, which are a form of financial aid which allow students to work part-time to help them pay education expenses.
  • Attend Community College:
    Community college is a two-year program that leads to an associate degree. It’s less expensive than attending a four-year college. Some students choose to enroll at a community college before transferring to a four-year college as a way of saving money. Community college can set you up for financial success and great career opportunities. See community colleges.
  • Live at Home:
    Attend a college near your house to save money on room and board. Many colleges also offer online courses, so you can also live at home while attending a university online.
  • Earn Money with BigFuture!
    Eligible students can earn money for scholarships by completing key steps on your path to college like submitting the FAFSA and searching for scholarships. See how you can earn a $500 and $40,000 BigFuture scholarship this month!