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1: Maximize non-repayable forms of financial aid
There are forms of education funding that you do not have to pay back. So your first step should be to maximize non-repayable forms of financial aid. Once you have done this, supplement with loans to cover the remaining cost of attendance. Federal loans generally have lower interest rates, making it a common practice to use as much federal money as possible before taking out private loans. This allows you to pay for college and minimize the loan debt you will have upon graduation. Check with your school to see what types of aid they participate in and start applying for the ones that will work best for you.
2: Determine the exact cost of attending
The second thing you must be aware of in order to successfully navigate the loan process is exactly what your cost of attendance is. When you apply for loans you are not just applying for tuition money; these are meant to fund all the costs associated with attending college. Housing, food, school supplies, transportation and much more are necessary to get through your college career. Since these are rarely free but are very necessary, they must be paid for somehow. Your loans can be used for all of these expenses.
3: Know the difference between need-based and credit-based loans
The third thing you should know is the difference between need-based and credit-based student loans. The loans based on your financial need will be given to you after your Free Application for Federal Student Aid (FAFSA) is processed. In most cases this still does not completely cover the cost of higher education. This is where private student loans come in. Many private lenders still require you to file a FAFSA since they use much of that information in determining whether or not to approve private loans as well.
Financial aid based on credit is a lot like applying for a credit card. It is important to understand that bad credit does not automatically make you ineligible for private student loans. There are companies who specialize specifically in loans for people with low credit scores. They tend to offer higher interest rates, but they are available.
Another way around bad credit is to apply with a cosigner. A credit-worthy cosigner can not only get you approved for a private loan, but might even lower your interest rate. The cosigner agrees to repay the loan and any interest accrued if the primary borrower defaults.
If you have maximized your need-based loans and still need money, bad credit does not have to mean the end. One of these options can often mean the difference in financing college or not going to school at all.
4: Learn how to calculate interest on different loans
Fourth on our list of things to know is how to calculate interest on your loans. The cost of attendance minus any contributions you can make and any other non-repayable sources is what you want to take out in loans. You will, however, pay back more than that when you add the interest.
There are many different services available online that provide student loan calculators. Using this resource allows you to arrive at an estimate of how much you will be responsible for paying off following graduation.
5: Learn how to budget and save
The last item on this list is something you should start doing once you arrive at college: Start saving your money. The more money you are able to save while attending school the more you will have put away once you are finished. This can provide you with a nest egg, making it easier to get on top of loan payments once your grace period is over. If you secure a well-paying job straight out of college you can use that savings to make a large payment and clear off a sizable portion of your loans right off the bat.
Navigating the murky waters of student loans can be a complicated task. Being prepared and armed with the right information, however, can help you prepare to handle your finances once out of college and in the "real world."
See also: Student Loan Tips and Advice