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College student studying in the library

There’s no doubt that college can be expensive. In fact, the cost to go to college has been steadily rising about 8 times faster than growth in wages. As a result, student debt is now the largest non-housing debt in America, more than either credit card debt or auto loans.

But college graduates also earn significantly more than high school graduates. The median weekly income for someone with a bachelor’s degree is currently $1,198 compared to $730 for someone with a high school diploma. By borrowing or finding money to pay for college, you’re essentially betting that your future income will offset any debt you’ll incur to get it.

But deciding to seek out student aid to finance a higher education is only the first step. Once you’ve made that decision, you need to focus on the type of aid because rates, terms, and fees can all differ depending on the financial aid and the source you select. Choosing the right type of student aid could save you a substantial amount of money over the long run and make your degree pay off faster. Here are four types of aid to consider.


Federal Loans

The U.S. government wants a skilled, educated workforce to help drive a healthy economy, so it offers loans with a whole host of benefits. Congress sets the interest rates every year, you can tie payments to your income, and, in some public service fields, you may even be able to have your loans forgiven.

For most federal student loans, you generally don’t need a co-signer or a credit history. You are not required to start paying back these loans until after you’ve graduated and, in times of economic hardship, you may even be able to defer payment. Learn more about federal student aid here.


Private Loans

Private loans are offered by private lenders, and some cover expenses or situations traditional student loans don’t, such as loans for non-U.S. citizens. They may offer lower interest rates (especially if your credit is strong) or additional benefits like deferred payments. If you don’t qualify for federal student loans, private loans may be your only option.

It’s not uncommon for students to take out what they’re able to in federal loans and then cover any gap with private loans. Just know that, unlike with federal student loans, private lenders will check your credit history and may require a co-signer before granting you a loan.

The guidelines for defaulting are also stricter than with federal loans. A private loan is in default after 120 days of non-payment—as opposed to 270 days for a federal loan—and private lenders can add collection charges, seek payment from co-signers as soon as the loan is late, and garnish up to 25% of your wages—as opposed to up to 15% for federal loans—depending on the state in which you reside.


Refinanced Loans

Good behavior is often rewarded, and that includes good payment behavior on your loans. Once you have a history of responsibly paying off student loans, it may be possible to refinance to a loan with a better interest rate. This is especially true if the prevailing interest rates have sunk over the past few years, as federal loans carry a fixed interest rate that’s set when you first take out the loan. While you will lose federal loan benefits, it may be worth doing if you’re getting a better interest rate in return. Generally, you need a credit score at or above 660 to qualify for refinancing.


Grants & Scholarships

This type of aid isn’t a loan. Unlike loans, grants and scholarships don’t have to be repaid. Federal Pell Grants and other need-based grants or scholarships are available to low-income students, and if you’ve done well in school, merit-based scholarships are available regardless of your financial situation. Many schools also offer athletic scholarships for student-athletes who excel in sports.

Don’t think you qualify for any scholarships or grants? Think again. You may be amazed by just how much “free” money is out there for students. See for yourself with an internet search of “college scholarships and grants” and exploring some of the results. Just know that applying for grants and scholarships can be very competitive, so be prepared to bring your A-game in preparing essays or videos or any other materials requested in the application process.


For many people, college tuition would be out of reach without student aid. Whether federal or private, loans, grants, and scholarships can help you to earn a college degree and hopefully earn more income over the course of your working career. By applying early and considering all of the options, you’ll increase your odds of making the right choices to finance your education as economically as possible.


About the author:

Sean P. Egen

After realizing he couldn’t pay back his outrageous film school student loans with rejection notices from Hollywood studios, Sean focused his screenwriting skills on scripting corporate videos. Videos led to marketing communications, which led to articles and, before he knew it, Sean was making a living as a writer. He continues to do so today by leveraging his expertise in credit, financial planning, wealth-building, and living your best life for Credit One Bank.

This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.