Ways to Pay for School & How They Affect Your Credit
Grants, scholarships, credit cards, and traditional loans all make up the student loan pyramid. It’s important to clearly understand the differences in each of these areas and ascertain which plans might be best for your situation.
It’s best to start with the FAFSA in order to determine your personal financial situation, as well as dependency circumstances. Once you know what type of aid the government is willing to offer you, you can decide which funding is actually worth accepting. Finally, let’s factor in how long you plan on being in school and how to comfortably pay back your loans once you’re finished.
Completing Your FAFSA
In order to determine how much assistance you’ll receive from the government versus what you’re expected to pay on your own you’ll need to complete the Free Application for Federal Student Aid (FAFSA) as soon as you begin to consider attending school.
Depending on your age and living situation, you may be required to report anyone who can claim you as a dependant. For example, if you are thinking about attending college for the first time as a recent high school graduate, and are financially dependent on your parents, you will need to claim them on your application. This means that not only your income, but also your parent’s will be reflected in your financial needs.
The government takes a broad look at your entire household’s earnings and determines how much financial aid is necessary for you to be able to attend school. In their eyes, they’re filling the gap of funding which you can’t fulfill yourself. This could mean that you will receive the full amount of funding needed to cover your tuition costs, or in other cases, a much smaller amount. This is why it is so incredibly important for first time students to look for scholarships and grants that they might qualify for whenever possible.
Grants & Scholarships
These are forms of aid that are gifted to the student and are not required to be paid back. Grants are commonly offered through your FAFSA given your current financial situation. They consist of money that the government gives those who have not yet completed their first degree. They are calculated using the student’s income, family contributions, and enrollment status. If the student is enrolled full-time versus part-time, that may make a difference in grant eligibility. Each of these facets help determine whether or not the student will receive government aid. Every student’s situation is unique, and the FAFSA will take that into consideration.
On the other hand, scholarships require a different approach.
Many scholarships are provided based on race, demographic, and circumstance. Thousands upon thousands of organizations across the globe offer scholarships in a plethora of different forms. Each one is awarded based on unique criteria, depending on the applicant’s values and chosen degree path.
If you’re thinking about going to school, especially for the first time, consider doing some research about your degree program and the types of scholarships that might be available. Allow yourself enough time to finish any required work for the scholarship applications far in advance. Many programs require that work is completed a year or more before it is awarded. So, there is no better time to get started!
Accepting Financial Aid
After you have completed your FAFSA, and applicable scholarship applications, you should have a clear idea of how much aid will be awarded to you for the semester or school year in which you applied. Again, every student’s situation is different. As such, you may find that your total awarded loans equal more than your cost of tuition — particularly if you have applied for scholarships and grants. It’s always best to take advantage of your grants and scholarships before any student loans.
Now, before you accept your financial aid, remember that all student loans will have to be paid back after you’re finished with school. Although it can be tempting to accept the full amount of your student loans, it may not be in your best interest to accept the loans in their entirety. You may also qualify for multiple different types of loans, but you are not required to accept any of them if you don’t feel it’s necessary. You have the power over how much or how little funding you accept through federal aid.
It’s also important to be cognizant of the fact that not all loans are created equal. It’s imperative that you understand all conditions of your loans before you accept them. Some loans accrue interest while you are in school and others won’t until you have graduated. Some loans may apply to your parents if they are helping you with schooling and others may simply consolidate all your loans into one, which could make paying them back easier to keep track of.
Student Credit Cards
Unfortunately, due to dependency status and living situations, not every student fits into the same financial aid bracket. However, student credit cards are a wonderful way to build credit and pay for your schooling at the same time. If you find that you don’t quite qualify for enough student aid to cover all of your classes, or you need some additional funding for housing or meal plans, student credit cards could be one way to cover those expenses.
In order to qualify for a student credit card, you will need to have all your personal information (such as a Social Security Number) handy for purposes of a credit check. Student credit cards are great for young people who have little to no credit. As long as you can keep up with the payments, they are a wonderful way to build up a foundation of credit that will help you make many large decisions down the line, such as buying a car or home.
You may qualify for a few types of credit cards. The two standard types of credit cards offered are very different. As such, make sure you understand all the terms and conditions of your application before you accept any credit cards offered to you. Some cards act as a “prepaid card” and will require you to load the card with funds before you spend them. The difference between this and a prepaid card is that a credit card will positively affect your credit as you use it. A traditional credit card will allow you a certain spending limit, then you must pay it back according to monthly payments. Any missed payments will affect your credit negatively over time.
Paying Back Your Loans
There is no rulebook for how student loans should be paid back. Many students choose to begin paying on their loans while they are in school by working part-time or full-time. Others enroll in work study programs which allow them to work on campus and pay for schooling at the same time. Each program is different and may award students with unique benefits. Work study is also a great idea for students who want to get their foot in the door, so to speak, early on in their college career. Work study programs often allow students to work in the same field that they are studying, which can build infinitely beneficial connections that may carry on through the student’s career.
If you are ineligible for work study or prefer to go full time, you may choose to accept your student loans and pay them back after college. Once you have finished your degree, you will usually have a grace period in order to stabilize your financial situation and begin making payments of your loans. Just make sure that you communicate your situation clearly to your loan provider. If for any reason you are unable to make the payments, don’t skip them–just talk to your provider and usually the organization will have a few plans available to suit your needs. No matter if the monthly payment is too large or you can’t make payments at all, it is always better to check with your provider to see what options are available. If you fail to make payments on time your credit will be negatively impacted. What’s more, if you have an outstanding payment balance, it could stop you from being able to make big purchases like a car or home.
Navigating through the complexities of financial aid can be daunting. Namely, it can seem difficult for those who have little to no credit or are suffering from a low credit score. However, there are so many excellent options available for anyone looking to receive their education. Scholarships, grants, student credit cards, and loans can all be awarded to anyone of any age. Don’t let yourself be intimidated by the thought of going to school. Individuals from all walks of life complete their schooling each and every day — and you can too!
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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.
This post was updated June 27, 2017. It was originally published April 17, 2017.