Transitioning to your life as a college student is overwhelming and exciting. There is opportunity to make new friends, explore your passions, and take your first steps toward your future career. What may not be so exciting is the prospect of taking your first student loan. If student loans are part of your college financing plan, you certainly are not alone. 37% of Ohio State undergraduate students will take a federal student loan at some point in their education.
How do I take a student loan?
The first step is to apply for federal financial aid through with the Free Application for Federal Student Aid also known as the FAFSA. The FAFSA considers the income, size, and assets of your family in order to determine eligibility for financial aid. This may take the form of grants, work-study funding, or student loans. Most students will receive at least some federal student loans, which you can accept through your buckeyelink page.
What are the kinds of student loans?
The most common student loans are those from the federal direct student loan program. All loans offered through this program have a 2.75% interest rate during the 2020/2021 academic year. A first year student can borrow up to $5500. Those with financial need (as determined by the FAFSA) may qualify for up to $3500 of those loans to be subsidized, meaning no interest is charged until after the student graduates and begins repayment.
Another option is the parent plus loan. This is a loan to the parent of a college student and carries a much higher interest rate of 7.08%. Keep in mind that it is the parent’s responsibility to pay back this loan.
The last option is accepting a private student loan from a bank, credit union, or other financial institution. The interest rates and terms will vary based on the student’s credit worthiness and in most situations will be less favorable than federal student loans. The inclusion of a cosigner could result in terms that are more favorable. Keep in mind that every private loan is different and likely will not have the same benefits of federal student loans. Many private loans require at least paying the interest during the time the student is in college.
How do I pay back my student loans?
After college you will hear from your loan servicer, the company that manages your student loan, and agree to a repayment plan. The standard plan is 10 years of equal payments, though there many options to pay less or more based on your income and goals. The more a borrower pays monthly the less they will pay in interest overall and the faster they will get out of debt. Students can also pay the interest on their student loans as it is added to avoid the effects of compound interest in which interest earns interest and dramatically increase the amount the amount a borrower repays.
Resources
Student Financial Aid: https://sfa.osu.edu/
Scarlet and Gray Financial Coaching: https://swc.osu.edu/services/financial-education/financial-coaching/
Private Student Loans at Ohio State: https://sfa.osu.edu/incoming-freshmen/about-aid/types-of-aid/private-loans