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Scholarships and Student Loans
A combination of scholarships and student loans is how most families pay for college. What is the smartest way to use them?
[Full disclosure: I was compensated for this post.]
Don’t get me wrong, it can be done, but many families need to use a combination of methods to help their students pay for college.
Today I have a guest post from Kathryn Flynn of SavingforCollege.com, who explores and explains the different ways to make college a reality for students.
Welcome, Kathryn!
Combining Scholarships and Student Loans to Pay for College
When it comes to paying for college, families usually tap three main sources – savings, scholarships and grants, and student loans. Here’s how you can make the best use of each.
College Savings
Ideally, parents should start saving for college when their children are very young. With a tax-advantaged investment account, such as a 529 plan, small monthly contributions can add up and make a big difference over time. But not every family is able to save for college, and few can save enough to cover the entire cost. That’s where scholarships and student loans come in.
Scholarships and Grants
Scholarships and grants are free money for college. And despite what you may have heard, you don’t have to be a straight-A student or a star athlete to win a scholarship. In fact, there are hundreds of unique awards available for all types of students – you just have to find them. There are many free scholarship search tools available for high school students, and younger students can find opportunities, too.
Grants are another type of gift aid that is often confused with scholarships. The biggest difference between grants and scholarships is that grants are typically based on financial need and scholarships are awarded based on merit or talent. Grants are awarded by federal and state governments. Students can apply for college grants by completing the Free Application for Federal Student Aid (FAFSA).
Student Loans
After combining your savings, scholarships, and grants, you can cover any remaining college costs with student loans. First, decide how much you want to borrow. You want to be able to comfortably afford your payments and pay off the balance within 10 years. That usually means keeping your total student loan balance less than the amount of your expected starting salary.
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You might not know exactly what type of job you’ll have after college, but you should be able to estimate. For example, if you’re studying elementary education, you’ll likely earn less than someone who is studying engineering. If you find out that you can’t afford to borrow enough to attend your first school choice, consider starting out at a community college or attending a less expensive school. Student loans are available through the government and through private lenders. Once you know how much you need to borrow, start with federal student loans.
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Federal loans have lower interest rates and offer more flexible repayment plans than private student loans. If you are a dependent student, you can borrow up to $5,500 in federal student loans for your first year of college (up to $9,500 for independent), depending on your school. This includes subsidized and unsubsidized loans. Your FAFSA application will generate a federal student loan offer, which will tell you how much you are eligible to borrow.
Unfortunately, many students still come up short after they’ve exhausted their federal loans. If you need to supplement, you can borrow a student loan from a private lender. There are many options available, so it’s important to do your research to ensure you get the best interest rate. Free websites like Savingforcollege.com can help you compare private lenders and calculate future payments so that you can stick to your budget. Limits on private student loans are much higher than federal limits so it’s important to pay attention to how much you borrow. A college degree is an investment in your future. All of the hard work you put into your scholarship and loan applications will pay off one day with dividends. The key is to borrow smart and minimize the amount of debt you’ll end up with after graduation.
Monica Matthews is the author of How to Win College Scholarships. She helped her own son win over $100,000 in college scholarships and now shares her expertise with other parents and their students. She truly has “been there, done that” in regard to helping parents and students navigate the scholarship process.
Her method of helping students in finding college scholarships, writing unique and compelling scholarship essays, creating amazing scholarship application packets, and more have taught desperate parents to help their own students win thousands of scholarship dollars. She teaches them how to apply S.M.A.R.T. with outstanding results.
Monica’s scholarship tips have been featured on many prominent websites, and she has been dubbed the “Go-To” expert on college scholarships.
That’s how it works for me now. Savings and scholarships are not enough, and I, like most, look to loans. It causes a lot of stress for me, but I’m hopeful that I’ll pay off this loan by the end of my studies.
Keep applying for scholarships, Amanda, and good luck! 🙂