If your scholarships, grants, income and savings won’t cover the cost of college, consider taking out a loan. Repaying the loan will cost you more money, but in exchange, you’ll get a college education.
A college education can increase your career opportunities and your future salary. This means that taking out a college loan — as long as you borrow wisely — can be an excellent investment in your future.
How Loans Work
When you take out a college loan, you borrow money and have to repay it. You also have to pay interest — a charge for borrowing the money. Different types of loans have different interest rates. The lower the interest rate, the less money you pay.
Who Provides Loans
There are three main sources of student loans:
- The federal government lends almost half of the money college students borrow each year.
- State agencies offer college loans. (Some of these have very specific requirements.)
- Private organizations like banks, other financial institutions, foundations and colleges may offer loans to students.
Learn more about the types of college loans available.
How to Get Started
To get the best loans, follow these steps in order:
- Complete the FAFSA. It can qualify you for federal loans, which usually have the best terms.
- Contact your college’s financial aid office to ask about loans through your college.
- Check with the U.S. Department of Education to find out about state loans.
Why You Shouldn’t Borrow More Than You Need
No matter how good the terms of a loan are, it’s always cheaper to not borrow money in the first place. For that reason, only borrow what you really need. Remember that you don't have to borrow the entire loan amount you are offered in a financial aid award letter. Anything you borrow now will have to be repaid, plus interest.
Where to Learn More
Check out College Loans: Your Strategy for more information on how and where to borrow.
This article is intended for informational purposes and is not intended as tax or financial advice.