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The majority of college students now graduate with student loan debt. But, keeping your borrowing to a minimum and setting a budget makes repayment easier when it comes time for repayment. Learn more about understanding your expenses and financial resources each semester to effectively determine your budget needs.

Understanding Education Costs

First, you need to understand what your direct education costs are going to be each semester. These are costs by your school that include tuition, fees, books, supplies, and room and board. Students living off campus also need to identify extra monthly expenses, such as rent, utilities, groceries, transportation, etc.

Sources of Income

Once you’ve identified your expenses, take note of what resources you have to pay those costs.

Financial Aid

To find out if you’re eligible for federal and some state financial aid programs, you need to fill out the Free Application for Federal Student Aid (FAFSA). Remember—you need to complete the FAFSA every year starting in October for the following school year.

If you receive financial aid, the school applies the funds to your direct school costs, such as tuition and fees. If there are any financial aid funds left over, you receive that amount to use for other expenses. These funds are intended to cover the costs you incur during that entire semester—so don’t rush out and spend it all at once!

Additional Income

Check in on any other sources of income available to you. If you work while going to school, use that income as a resource for expenses. Perhaps you also have financial support from parents or other family members. Once you’ve identified all sources of income, you may realize that your expenses are greater than the income or resources you have to pay those expenses. At this point, it’s a good idea to see if there are ways to cut your expenses.

Student Loans

For some students, student loans help pay some of the expenses not covered by other income sources. Successfully identifying your expenses and available resources gives you a good idea of what you need to borrow. If you do need to take out a student loan, only borrow what you need and nothing more.

Student loans can be a great resource when used responsibly. Remember to use your federal student loans first before exploring private loan options.

College is difficult enough when you’re trying to get through classes and exams. Put yourself in a better position to focus on your studies by setting a budget so you don’t need to worry about your finances. Remember to continually revisit your budget and develop a solid plan for understanding your expenses each semester.

Congratulations! You’re graduating soon and will be searching for your first job out of college. It’s an exciting time in your life. However, if you’re like the majority of college students, you’re also graduating with student loan debt. Now is a good time to make sure you’ve got a plan to manage your student loans after you graduate.

Here are some easy steps you can take to set yourself up to successfully manage your student loans.

First, Identify All of Your Student Loans

The best place to start is at the National Student Loan Data System (NSLDS). You can find information here about all of your federal loans. This will give you all the details you need to understand how much you’ve borrowed on your federal loans. You can also find out who to contact for questions about your federal student loans.

If you used private loans from a bank or other financial entity, check with your lender to make sure you have the correct loan information.

Next, Get an Idea of What Your Monthly Payments Will Look Like

At StudentLoans.gov you can access a repayment estimator for your federal loans that will give you an idea of what your monthly payment would look like under the different repayment plans available. Depending on your individual circumstances, it’s likely there is a plan that will work for you. If you have relatively low debt and a good salary, you may want to pay off your loans ASAP. The standard 10-year repayment term allows you the quickest and lowest cost method to pay off your loans.

If you have a higher debt load or lower income, there are options that base your student loan payment on your income. Income-driven repayment plans are often helpful since they give you a more affordable monthly payment based on your income. You can learn more about these options as well as how to apply them to your student loans at StudentLoans.gov.

For private loans, visit your lender’s website to access repayment calculators. Or, simply contact your private loan provider for additional information on what monthly repayment amount you can expect.

Know When Your First Payment is Due

With federal loans, you have the ability to postpone payments while you’re enrolled in school at least a half-time. This is also true of some private loans. That means you’ve probably not made any payments on your loans, or perhaps you’ve made some small payments to offset accruing interest. You are also given a grace period on your loans. The grace period is typically six months from your last day of school. The last day is usually considered when you graduate or have dropped below half-time enrollment. At the end of that grace period is when your first payment will be due. Make sure you know when that due date is. That will give you plenty of time to prepare and budget for that new payment.

Know Your Options if you Have Difficulty Making Payments and Need Assistance

There are a number of options for borrowers who encounter situations that make it difficult to manage their student loans. Your student loan servicer will work with you to find a solution, but you have to contact your servicer to get assistance. For example, if your income has changed dramatically you might want to change to an income driven repayment plan or adjust the plan you’re on based on your change in income. Additionally, if you return to school, to pursue a graduate degree for example, you can postpone (or defer) your student loans while you’re back in school. Don’t make the mistake of simply ignoring your student loan payments and damaging your credit score.

As you look forward to graduation and starting a new chapter in your life, just remember to do a little planning and research how to best manage your student loans and find the best repayment plan for your situation. And remember, your student loan servicer is there to help you if you have any questions.

At some point, most of us say, I wish I knew then what I know now. That same sentiment holds true for some college students regarding the financial aid process. After learning about the financial aid process, some students look back and wish they made different decisions.  Being better informed from the start changes how students approach their financial aid and funding options.

Here are five things students wish they knew about the financial aid process while planning for college.

1. It’s Never Too Early to Start Planning and Saving for College

College-bound students and their families often wait to think about the admissions process and financial aid options. Many times, they wait until the student’s junior or senior year of high school. However, students should research schools and possible career options early. Getting started in high school or junior high gives them an idea of which schools are the best fit. Heather, a junior in college, said she drastically underestimated all the costs associated with her education. She didn’t know she needed to rely on student loans as much as she did. Even if you expect a scholarship, keep in mind the total costs you and your family may incur. These costs can have an impact on your long-term planning and financing.

2. Know Your Deadlines and Don’t Miss Them

Braxton is in his freshman year and says he missed out on some state grant money because he waited too long to complete his FAFSA (Free Application for Federal Student Aid). He said if he’d been more aware of his state deadline, he would have applied sooner and likely received money from his state grant program. He also said there were some scholarships that had very early deadlines that he missed. It takes some organization and research to be sure you know all the relevant deadlines for various scholarship and grant programs.

3. You Don’t Have to Figure It All Out on Your Own

The financial aid process can often be confusing to first-time students. Rather than trying to do it all on your own, you can find help. Your high school counselors are great resources. If you have a college or university nearby, they may offer free FAFSA workshops or presentations. They can also help you understand the financial aid process better. If you speak with your high school counselor or someone from a financial aid office, don’t be afraid to ask questions so you’ll be certain you know what you need to do. Although you’ll be doing your first FAFSA as early as October of your senior year, it’s never too early to begin learning everything you need to know. Federal Student Aid at the U.S. Department of Education has a FAFSA4caster that you can use to understand your options for paying for college.

4. You Don’t Have to Accept the Full Loan Amount on Your Award Letter

Once your financial aid application is finalized, your financial aid office sends you an award letter. Your award letter may show different types of financial aid, such as scholarships, grants, and student loans. Colleges usually provide award packages to cover your entire cost of attendance (COA). Your COA includes tuition, books, supplies, housing, etc. However, only borrow what you need, even if you were offered a higher amount. You don’t need to accept the full amount awarded.

Another college student said she assumed she should take the amount offered. At first, she thought the extra money could be a cushion if needed. She admitted she spent frivolously on things she really didn’t need. She forgot her loan was unsubsidized. That means interest accrued on her loan while she was in school. Student loans are a great resource to help pay for school as long as you understand the terms and conditions and only borrow what you need.

5. Don’t Assume You Won’t Qualify for Financial Aid and Skip Completing the FAFSA

Some students and families believe that their income may be too high to qualify for any type of financial aid and simply do not complete the FAFSA. Although you may not qualify for grants, you still need to complete the FAFSA to determine your eligibility for student loans and college work study. Some programs (such as unsubsidized student loans) are not need-based and do not have an income limitation. Also, the FAFSA is free to complete, and you could qualify for some other types of aid. One thing families forget is that if they happen to have a higher income, they may also have multiple children attending college, which is a big factor in determining financial aid eligibility. Factors such as your family income, household size, and the number in your family attending college all help determine your financial aid eligibility.

By planning ahead and thinking about the cost of college early, many of these common scenarios can be avoided. By starting your planning early, you can avoid the “I wish I knew then what I know now” feeling down the road.

You’re in college and on your own, but you may still experience the occasional financial pitfall. Below are money mistakes many students make, and some tips on how to avoid them.

Financial Pitfall #1: Spending all your living expense money early in the semester.

You’ve probably set aside spending money for personal expenses if you live off campus. Or, you may have financial aid funds to use for room, board, or other educational expenses. That money needs to last through the entire semester, but many students spend it within the first few months. How can you avoid spending your money too early? Use a budgeting app like Mint to help you keep track of your available money and expenses.

Financial Pitfall #2: Not taking advantage of part-time employment opportunities.

Most schools offer part-time employment options for students through Federal Work-Study, and by posting on- and off-campus jobs. You might worry that a job will conflict with academic work, but studies show that students who work between 15 and 20 hours while in school are generally more confident and successful. Having a job helps bring in money regularly throughout the semester and can help build your resume. Your college financial aid office awards Federal Work-Study and generally posts related job opportunities. Work-Study is based on financial need and requires a Free Application for Federal Student Aid (FAFSA) . Other part-time jobs may be posted by the Career Office, Student Affairs, or other places on campus. Check your school website for more information.

Financial Pitfall #3: Accumulating credit card debt.

You’ve probably already received credit card offers in the mail. You may also notice giveaways and travel rewards that make the offers sound appealing. Be careful – as a new credit card holder, your interest rates will be high, and credit card offers tend to have many fees attached. Be sure to read the fine print and note that the initial low interest rate offered may expire in just a few months. You can quickly accumulate credit card balances that can swell out of control, especially if you’re only making minimum payments. Here’s an overview of credit card pros and cons, along with additional information about other matters to consider.

Financial Pitfall #4: Taking out student loans without understanding them.

Student loans are so common that students often see them as just another type of financial aid. There is an important difference; student loans must be paid back. While student loans can be a useful way to pay for your education, keep your borrowing to a minimum. Know what your monthly loan payment will be when you get out of school. Understand what you can realistically afford to borrow. It is also important to know the types of loans, the terms of those loans, and the options available. To get a general idea of what your monthly loan payment may be when you finish school, Federal Student Aid provides an easy-to-use repayment calculator.

The earlier you can learn the basics about managing your finances, the better off you’ll be in the long run. These simple steps should help you build the foundation you need for a successful financial future.

You may have heard about private student loans. Some information about private loans is like a Bigfoot sighting. There are a lot of stories, but they often aren’t based on facts. In this article, we’ll look at each private loan myth and give you the facts.

Private Loan Myth #1: Private Student Loans Only Offer Variable Interest Rates

One of the most common myths about private student loans is that they’re only available with riskier variable interest rates. In reality, most private loan providers offer borrowers a choice between a fixed interest rate and a variable interest rate. Depending on your individual circumstances, one may be more appealing than the other. Read more about choosing a variable or fixed interest rate to see what important factors should be considered when choosing your type of interest rate. Additionally, highly qualified borrowers can likely find private student loans with low interest rate options.

Private Loan Myth #2: Private Student Loans Have High Origination or Application Fees

The reality is that most private loan providers currently charge NO upfront fees, also known as origination or application fees. There is no fee to make extra payments or to pay off loans early. Although most loan providers offer loans with no upfront fees, research your options. Be sure to verify any fees or charges associated with loan products.

Private Loan Myth #3: Private Student Loans Require Immediate Repayment While You are Still in School

As a borrower, you have various repayment options offered by different private loan providers. Most lenders have an option to delay or postpone payments while enrolled at least half-time. They also offer a six-month grace period following your graduation or last date of at least half-time enrollment. This gives you the option to not make payments while enrolled in school as long as you are enrolled on at least a half-time basis. This can give you some added flexibility while you are focused on your studies. However, if you can make payments in school, even if only the accruing interest, you can save money and keep your loan costs lower. You can find additional ways to save money on your student loans here.

Private Loan Myth #4: Private Student Loans Have No Deferment or Forbearance Options if You Have Difficulty Making Payments

Most lenders offer options to postpone payments if you encounter some type of financial hardship. (You may want to check to be sure.) Most private loan lenders provide a hardship forbearance to temporarily postpone payments if you find it difficult to make payments.

Many private loan lenders also offer deferments. Deferments can postpone payments for certain circumstances. These circumstances include returning to school, having an internship or residency, or during other approved events. Again, check with your private loan lenders to see what options are specifically available.

Private Loan Myth #5: Federal Student Loans are Always Cheaper than Private Student Loans

As a general rule, explore your federal student loan options first before taking out any private loans. Federal student loans will typically provide you a greater degree of flexibility with repayment options and various forgiveness provisions. You can read a good overview of federal and private student loans here.

However, many private student loans can have interest rates as low as or even lower than federal student loans. Federal student loans also have a nominal origination fee charged to borrowers. As discussed earlier, most private loans do not have any origination or application fees. Several lenders now offer private loans designed specifically for parents for their students’ educational expenses. Parents find these loan options often have lower interest rates compared to federal Parent PLUS loans.

We hope you have a better understanding of private student loans and are better equipped to make informed decisions regarding your education financing options. Research your options to find what works best for your individual circumstances and don’t believe every myth you hear. But, if you happen to see Bigfoot in the cafeteria on campus, snap a pic. You just might be able to sell it and pay off your student loans!

If you have received your financial aid award and still need money for college, private loans may be worth considering. Banks, credit unions, and other lending organizations offer private loans.

First Steps for Private Loans

You take out private loans in your own name. They often require you to apply with a qualified cosigner who has an established credit history. Even if you don’t need a cosigner, using one may still help you obtain a better interest rate. Lenders provide the best rates to borrowers and cosigners with the strongest credit qualifications.

As a general rule, private loans should be the last financial aid option. Always file the Free Application for Federal Student Aid (FAFSA) first, and accept any grants, scholarships, work-study and federal loans offered by your school before taking out a private loan. Federal loans offer more repayment options, income-based programs, and in some cases, loan forgiveness alternatives.

If you decide a private loan is right for you, consider these things when selecting a program.

1. Check to see if your college has a recommended lender list.

Some schools investigate private loan programs and providers on behalf of their students. They provide lists of those they think would best meet their students’ needs. If your school has a list, you can begin there. Your school generally posts school lender lists on their financial aid website. In many cases, the website links you to a third party where your school provided a list of programs. In either case, loan programs are usually listed by feature, so you can compare to see which might best meet your needs. If your school does not have a lender list, you can investigate Credible or other websites which will provide loan program options and help you compare features.

2. Decide which features are the most important to you.

  • Rates – In comparing interest rates, you will see some lenders use an index called London Interbank Offered Rates (LIBOR), and others use the Prime Rate index. Since they aren’t the same, look at the loan programs’ Annual Percentage Rates (APRs). The lowest and highest APR ranges are be displayed. If APRs aren’t listed, be aware that the Prime Rate is typically two to three points higher than LIBOR. The most current rates can be located in the Federal Reserve’s Statistical Release.
  • Fees – Most private loan lenders offer zero application and origination fees. Check all loan programs you are considering to make sure this is true and to determine if there are other fees associated with the loan.
  • Repayment plans and terms – Would you prefer in-school interest payments to keep your costs down? Perhaps multiple repayment period choices like a 5, 10, or a 15 year period are best for you. With private loans, you choose your repayment period at the time you take out your loan. You may also want to check to see if there are deferment or forbearance options if you run into difficulty in repayment.
  • Cosigner release – Your cosigner is responsible for making payments if you do not. The cosigner’s credit report reflects any late or missed payments as well. When investigating options, determine if the program offers a cosigner release, how many payments you will need to make before that is possible, and how involved the release process is.
  • Borrower benefits – Lenders offer a variety of benefits like interest discounts for auto-debit payments, cash back for achieving certain grades, or interest reductions after a specific number of on-time payments. Be sure you determine which are the most important to you and take the required action to meet the requirements.

3. Understand the difference between fixed and variable rates.

As you compare differences between programs, interest rates may be a primary factor. You will need to decide between fixed rates, which may be higher at first but remain the same throughout the life of your loan, or variable rates which may be lower at first but change periodically based on fluctuations in the economy. For more information about the factors to consider before making this decision, go to U-fi From Nelnet’s frequently asked questions.

4. Your rate is the one that matters most.

Lenders may advertise low rates when they share their program’s interest ranges, and many students assume they will receive the lowest rates. See if lenders allow you to use a calculator. If you can enter general information about you and your cosigner, you may be able to obtain a preview of what your interest rate will be before completing the application process and providing authorization for your credit to be pulled.

Private loans can provide a solid financial option for students who need help bridging the gap between financial aid and college costs. Be sure to first research programs fully and understand your responsibilities before taking out any type of education loan. If you have questions, your college financial aid office is the best source of information and guidance about your individual situation.

Most students need to borrow money to cover the cost of their college education. It’s important to understand the borrowing options available. If you completed the Free Application for Federal Student Aid (FAFSA) and received an award letter from your college financial aid office, you’ll likely have the option to borrow through the federal loan program called the Direct Loan Program, or simply known as Direct Loans. In the Direct Loan Program, you can borrow through the Direct Subsidized Loan or the Direct Unsubsidized Loan programs. Graduate students and parents of dependent students can also borrow in the Direct PLUS Loan program. These are all federal loan programs as opposed to private, and are generally your first option.

Direct Loans

If you’re an undergraduate student, you’ll want to explore Direct Subsidized and Unsubsidized Loans first. A subsidized loan simply means that you do not incur any interest charges while you’re in school. You can receive a Direct Subsidized Loan if you have financial need as determined by the results of your FAFSA. A Direct Unsubsidized Loan may also be available to you. As you might guess, the unsubsidized loan means that you are responsible for interest that accrues on the loan while you are in school.

Private Loans

After you’ve exhausted your federal loan options, you may still have outstanding expenses at your college. That’s when you might seek additional funding options in the form of a private loan. While your college financial aid office will instruct you on how to apply for federal loans, you’ll need to determine which private loan lender you want to use. Some schools may provide you with a list of private loan providers for you to evaluate and select. Other schools may simply direct you to find a private loan provider on your own.

Federal vs. Private

A few years ago, there were significant differences in federal loans and private loans. Now, the programs have many similarities and offer unique benefits. The chart below outlines some key factors in the federal and private loan programs.

Ufi-Loan-Type-Comparison

As you can see from the chart, there are a lot of similarities in both programs. Trying to decide between the two? Here are some important factors to consider:

  • If you’re an undergraduate student, in most cases you will have a more favorable interest rate and loan terms with a federal loan. If you think you’ll be entering any type of career that might qualify for Public Service Loan Forgiveness, you will want to stay with federal loans when possible. Private loans do not typically offer any type of forgiveness for public service.
  • Federal loans typically provide a greater array of repayment options, including income-driven repayment plans. Most private loan providers do not offer repayment plans tied to your income.
  • If you can afford to make a higher monthly payment over a shorter repayment period, you may find a lower interest rate with a private loan.
  • Many borrowers, especially undergraduate students, find it necessary to use a cosigner for their private student loans. Learn more about the benefits of having a cosigners here.

Complete the FAFSA

Regardless of what type of funding you’re considering, you will generally still want to complete the FAFSA to take advantage of all the financial aid opportunities available to you before borrowing any type of loan. Check out your federal loan options first and then turn to private loans only when necessary to cover additional school costs. Do your research to get a full understanding to know your options and be an informed consumer. If you do consider private loan options, not all private loans or lenders are the same. You may find significant differences between private loan providers, so find one that best fits your needs and circumstances.

Have you decided to go to graduate school? You may be researching how to pay for tuition and other expenses. You have another decision to make as well – what to do about any undergraduate student loan debt you may have.

If you attend graduate school at least half-time, your loans can be deferred. That means you don’t have to make payments. Although that will provide immediate relief, there are other long-term financial implications to consider. It’s important to look at the kind of undergraduate loans you have before determining how to proceed.

What are the different types of education loans and their in-school interest rate charges?

Federal Subsidized Loans – With these loans, the federal government pays the interest while you are in school at least half-time. An in-school deferment on subsidized loans means you won’t move into repayment until you leave school.

Federal Unsubsidized Loans – Some or all of your federal undergraduate student loan may be unsubsidized, which basically means that you are responsible for the interest, even while in school. You can still defer your payments if you attend at least half-time. But, the interest continues to build, and is capitalized at repayment. Capitalization is unpaid interest that your lender adds to the principal balance of a loan. Future interest then accrues on the larger balance. That can add up.

Private Loans – These loans are taken out from banks, credit bureaus, and other lending organizations. You can generally defer private loan payments while in school at least half-time. However, interest accrues and capitalizes at repayment as well. More information about private loans is located in U-fi From Nelnet’s Frequently Asked Questions.

Tip: Paying any of the interest on private loans or unsubsidized loans each month while in graduate school can help. It can amount to significant savings in the long run.

How do I find out about my undergraduate student loan and my in-school options?

You can go to the National Student Loan Database (NSLDS) to obtain information about your federal undergraduate student loan. There, you will see the types of loans you have and the terms of each. You can also see the federal loan servicer(s) to whom your loans have been assigned. To find out about your private loans and servicers, check with your lender. Federal and private loan servicers work with you during school. They are also responsible for billing, collection, and information services provided throughout your undergraduate student loan repayment period.

You may wonder how servicers will know that you are in school and eligible for deferment. Your federal servicer(s) receive notification of your in-school status. This happens when your school reports enrollment information as part of their regular administrative procedures. Federal servicers automatically place you in deferment status and notify you. Make sure your private loan servicers know you are in school. Contact them and submit any required information, if needed.

Tip: Your servicers can advise you about the best in-school payment options. For example, working at a non-profit organization or at certain income levels may put you on a different repayment track for federal loans. It’s wise to take advantage of your servicers’ individualized counseling before making any decisions about how to handle your loans before, during, or after graduate school.

Do I have other loan management options for my private loans?

If you took out private loans as an undergraduate, you may want to explore whether refinancing your loans into one new private loan is a viable option before entering graduate school. If your undergraduate private loans have higher interest rates than those currently available, or if you would like to combine multiple loans into one loan, refinancing may be a good choice for you. Private refinance loans are based on credit and you may need a cosigner to get the best rate. Refinance loans usually offer in-school deferment options if you attend school at least half-time. Interest accrues and will be capitalized at repayment.

Be cautious about including federal loans in a refinance loan. Even if the rate is lower, you will lose loan forgiveness, income-driven repayment options, and some other features available only in federal programs.

What about the loans I’ll take out while in grad school?

Since subsidized federal loans are not available to graduate students, interest accrues on both federal and private loans while you’re in school. If you are unable to make interest payments on all of your loans while in graduate school, consider paying interest on the highest rate loan(s) first. Any progress you can make on paying interest will put you in a better position when you move into loan repayment.

Talking with your federal and private loans servicers can help you determine the best options in your specific situation. Education loan management can seem complicated. Your servicers can look at your accounts and provide information about the best choices for you.

Ever taken out or refinanced your student loans? You probably know the interest rate of your loan, and may have seen the letters APR on your statement. (APR stands for Annual Percentage Rate.) Understanding the difference between the interest rate and the APR is important. While they both measure the cost of borrowing money, they are not the same. Knowing the difference could save you thousands of dollars on your student loans.

What is the difference between the student loan interest rate and the APR?

The interest rate on a student loan is the cost to borrow money. It is shown as a percentage. Your interest rate does not reflect any fees or other charges you may pay for the loan. The APR goes a step further. It takes the interest rate on a student loan and adds in any upfront costs, such as an origination fee. The APR is also a percentage, but it measures the total cost of borrowing money on an annual basis.

By law, private student loan issuers must show customers the APR. The law requires this to facilitate a clear understanding of the actual interest rates and fees applicable to their agreements. In the U.S., the calculation and disclosure of APR is governed by the Truth in Lending Act.

Tip: While U-fi From Nelnet and many private student loan lenders do not charge an origination fee, some lenders do. Be sure to carefully read the loan terms before applying for and accepting a loan.

Why is it important to know the APR if I know the student loan interest rate?

As mentioned above, the APR gives a more complete picture of the cost of borrowing. For student loans and student loan refinancing, if the lender doesn’t charge an origination fee and you immediately begin making full principal and interest payments, the interest rate and the APR will likely be the same. However, if the lender charges an origination fee or you defer making principal and/or interest payments while you are in school, your APR will not likely be the same as your interest rate. By looking at both the interest rate and the APR, you will be able to get a clearer picture of your expected monthly payment and the total cost of the loan.

Does the interest rate and APR tell the complete story?

Interest rates and the APRs are useful tools to help understand the cost of borrowing and to compare different loans. But, they don’t always tell the complete story. For instance, federal Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans come with an origination fee, but the fee is deducted from the loan disbursements, so the origination fee is not included in the APR. Thus, if you took out a $10,000 federal Direct PLUS Loan with its 4.272% origination fee, you would only receive $9,572.80, but you would have to pay back the entire $10,000, plus any accrued interest on the loan.

Also, the stated APR may or may not include any borrower benefits associated with the loan, such as an interest rate reduction for auto debit payments or cash back rewards for good grades. Some federal student loans also come with loan forgiveness programs, so be sure to take all these into account when comparing loan offers.

Tip: The interest rate and the APR for a variable rate student loan reflects the interest rate and costs at the time you take out the loan. If interest rates change, the APR changes as well.

Knowing the difference between APR and interest rate helps you make an informed decision when taking out student loans.

While preparing for college, one of the most important considerations is how to pay for it. All students should complete the Free Application for Federal Student Aid (FAFSA) because it is used to determine students’ potential eligibility for various financial aid programs, as well as various state and institutional-based aid programs. All of this is based on a variety of factors, including your Expected Family Contribution.

Expected Family Contribution

When completing the FAFSA, you’ll need to provide certain information. You need to detail your (and possibly your parents’) income, family size, and number of family members attending college. The FAFSA uses all of the information you provide to determine a figure known as the Expected Family Contribution (EFC). Don’t be alarmed if your calculated EFC is high. Colleges use your EFC college financial aid offices to determine the amount of financial aid you are eligible to receive.

Cost of Attendance

Each college sets a figure known as the Cost of Attendance. Direct costs such as tuition, fees, books, as well as room and board make up the Cost of Attendance. It also includes other indirect costs such as transportation and other personal expenses. Colleges and universities have varying Costs of Attendance, but your EFC remains the same, regardless of where you go.

Determining Eligibility

Financial aid offices use the formula below to establish your financial need. This determines if you qualify for grants and other financial aid programs.

Cost of Attendance – Expected Family Contribution = Financial Need

The lower your EFC, the greater the likelihood that you’ll qualify for need-based financial aid.

Remember that your EFC stays the same no matter what school you attend. The name Expected Family Contribution might sound like you have to directly contribute or pay that amount. But, it’s just a part of the formula that determines your financial aid eligibility. There are other financial aid sources that can be used to fully fund your college education such as unsubsidized Direct LoansPLUS loans, private loans, and other aid programs not based on financial need. It’s best to exhaust all sources of grants and scholarships before borrowing for college. You can use a free search at Peterson’s to find available scholarship opportunities. You can also visit the U.S. Department of Education’s Federal Student Aid website to learn more about the EFC, FAFSA, and other financial aid programs.