Financing College: Use Free Money First

With the cost of college rising every year, students and their parents are searching for more ways to pay tuition and other college-related expenses.

The best sources of college funding are scholarships and grants, which usually do not have to be repaid. Students should begin applying for scholarships while they are in still in high school but should continue to do so throughout their college career.

There are millions of dollars of scholarship aid available every year, and many scholarships are can be attained by students even if they do not have the highest grades and test scores. Using an online scholarship search service is a good way to locate and submit applications.

FAFSA, Grants and Federal Loans

file-a-fafsa-online-240-160FAFSA and Grants

Grants are given to students who demonstrate a financial need, based upon information provided on the Free Application for Federal Student Aid (FAFSA). The FAFSA form should be completed every year, even if students think they may not qualify. It is free to file and can be completed online. Criteria for federal and state grant aid change from year to year, so a student should never fail to attempt to qualify for this assistance.

Federal Student Loans

Even if they do not qualify for scholarship or grant aid, many college students are eligible to take out student loans through various federal programs and should maximize the use of these loans before considering other lending sources. Many of the federal loan programs are subsidized, meaning the government pays the interest on the loan as long as the student is enrolled at an accredited school. Repayment on those loans usually does not begin until six months after the student stops taking classes on at least a part-time basis.

Even federal loans that are not subsidized are a better alternative than private loans. The interest on non-subsidized loans is capitalized during the student’s college career, with payment also deferred until after graduation, or until the student drops below part-time enrollment at a recognized institution. Repayment plans for both subsidized and non-subsidized loans are usually easier to meet, and these loans can generally be consolidated upon entering repayment.

Private Loans and Home Equity Loans: Drawbacks

loan-agreementIf free money and federal loans are not sufficient to meet a student’s financial needs, there are also private student loans available, but these loans have a number of drawbacks.

Here are some important things to know about private student loans and their drawbacks:

  • Generally made through a bank or loan company, private loans usually require a co-signer. This means that parents—or whomever co-signs–will be liable for the loans if the loan defaults at any point.
  • Interest on private loans is usually higher than on federal loans, and sometimes repayment must begin right away, even if the borrower is still in school.
  • Private loans are typically not eligible for consolidation with federal loans.

home-equity-240-160Another college financing alternative to consider is a home equity loan. With this loan, the parents borrow against the equity they have in their home to pay for their child’s college expenses. So what could be its drawbacks?

Here are some key drawbacks of home equity loans:

  • Interest rates are usually lower than on private student loans, but there are risks to borrowing this way.
  • Repayment will begin right away, and if you are unable to pay the loan, you risk losing your home.
  • Also, if major repairs are needed on the home, you may not have the equity for additional borrowing.

While a college education is expensive, there are a number of means available for paying for it. All free and all federal money should be exhausted first, but if it they are needed, private loans and home equity loans can be considered. Simply be sure that you will be able to handle repayment.

How are you planning to pay for school? Share with us below!


Brentt Taylor writes for MortgageLoan.com , a site that has been providing news and articles about the finance and housing market to the consumers and readers since 1995. Most of his articles provide tips on how the housing market can affect or can help consumers in their daily finances.


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