Introduction Paying For and Selecting a College Federal Loans, Private Loans, and How to Tell the Difference Repayment Plans Student Loan Servicers and Ombudsman Offices COVID-19 and Student Loan Repayment If You Can't Repay Your Loan Loan Consolidation Programs Loan Cancellation/Forgiveness Programs If Your Loan Defaults Collection Activities Additional Information and Assistance Glossary Index of Resources
Paying For and Selecting a College
A college education generally costs tens of thousands—sometimes even hundreds of thousands—of dollars. Figuring out how to pay such an expense is often difficult for families. Doing your homework and making smart decisions now, will mean fewer surprises and hardship later.
When thinking about college, you and your family should ask and research the answers to several important questions before you make a decision about whether and where to attend school. It is important that you strongly consider the following:
- Why do I want to go to college?
- What career interests me?
- What kind of training or credentials do I need to pursue my career goals? A certificate or diploma? An associate’s or bachelor’s degree? A graduate degree?
- What type of school will prepare me for that career? Technical school? Community college? A four-year college? A university? Does the school and program meet standards for me to pursue my career goals?
- Do I have the academic preparation for the school and career I am considering? Do I have the time to commit to a degree program through to graduation?
- Do I understand the costs of the college I am considering, and have I compared it with other schools?
In considering these questions, you should consult with your family and others who you support/support you. You can also talk with counselors that may be available at your high school. You can also consult with licensed professional or college counselors, including those who specialize in your desired career field.
If you decide to attend school, it is important to determine the total program cost to attend the institutions that you are considering. You should research and consider the following:
- What is the total cost of the program through completion, including tuition, room and board, fees, books and supplies, transportation, and personal expenses?
- How will I be able to pay for my education? If I am taking out loans, how difficult will it be to repay that debt?
- How much will can I plan to earn after I graduate? What are the chances that I get a job in my desired field if I complete my degree? What if I don’t get a job in my desired field or at my desired level of earnings? Will this institution and program adequately prepare me for obtaining a job in your chosen field?
One of the biggest concerns you should have before deciding to attend college and choose a school is whether you have the time and resources to complete the program. Recent studies have shown that students who do not complete their programs earn significantly less than graduates and may not financially benefit at all from their education. Competing work and life commitments can make completing a degree very challenging, and you should make sure that you, your family, and your employer have a plan and are committed to your completion of your program.
Resources to Answer Questions
You should talk with a school’s financial aid office about the cost of attendance. But you shouldn’t only rely on a school to provide you information about the cost of attendance and your job and earnings prospect for after graduation. The Minnesota Attorney General’s Office has received many complaints and has a lot of experience with schools that did not provide accurate and complete information to students and were more interested in profiting from the student’s enrollment.
You can talk with your high school guidance counselor or other licensed career counselors. There are several tools online that prospective students can use to weigh the cost of school and the financial benefits of earning a degree. The federal Consumer Financial Protection Bureau, for example, has an online Financial Aid Shopping Sheet available to help you compare actual college costs and financial aid packages.
The U.S. Department of Education’s website also features “the College Scorecard,” which allows people to search for schools and learn about average costs, graduation rates, and graduates’ earnings at each institution. The site compares those earnings to those with high school diplomas, which allows people to compare how much more they could make if they attend the school.
And another resource is the Bureau of Labor Statistics (www.bls.gov), which tracks average wages for specific fields and occupations.
In considering whether to attend school and where to attend, you should explore all your options for paying for college. A few of your options may include tax credits, scholarships and grants, work-study or other employment, and savings. Most grants such as federal Pell Grants, do not have to be paid back. Along with federal grants, states and schools often provide their own grants as well. Talk to a school's financial aid department to discuss your options to obtain grants and scholarships.
An early eligibility estimator is available to help you plan ahead for paying for college. The U.S. Department of Education has prepared the Federal Student Aid Estimator to help you understand your options for paying for college. The Federal Student Aid Estimator may be found at www.studentaid.gov/aid-estimator/.
The first step to apply for financial aid is to fill out the Federal Application For Student Aid (FAFSA). You must complete the FAFSA to be eligible for any federal student loans or grants. Many colleges and universities use the FAFSA to make their award determinations.
If you apply for financial aid, the school may suggest loans as part of your school’s financial aid package. Remember that loans have to be paid back, with interest. Consider how the loan payments will affect your future finances, and how much you can afford to repay. Learn about your repayment options (discussed below) and consider how you would plan to repay your loans or work towards loan forgiveness.
There are two main types of student loans: (1) federal student loans; and (2) private or non-federal student loans. “Federal” student loans are made or guaranteed by the federal government, and follow federal standards and protections for the charging of interest and options for repayment. Since 2010, all federal loans have been issued to students directly by the U.S. Department of Education (called “federal direct loans”). “Private” student loans, on the other hand, are extended by banks and other private financial institutions and are not subject to the same federal guidelines and protections as federal loans.
For most borrowers, federal student loans are the best option. Federal loans, including Direct (subsidized and unsubsidized) PLUS Loans, are usually cheaper than private loans, and generally have better repayment options and consumer protections. The interest rate for a federal student loan is fixed. The fixed rate will be helpful in predicting your payments after graduation. In some cases involving subsidized federal loans, the federal government will pay the interest on your loans while you are in school. And federal loans offer repayment programs like income-based repayment (discussed below) that work better for borrowers and allow the borrower to work towards cancellation of the debt after a certain number of payments. To learn more about the federal student loans that may be available to you, visit the federal student aid website on federal student loans.
Private student loans often have variable interest rates, which means your interest rates and payments could go up and down over time. Private loans are usually more expensive than federal loans; rates have been as high as 16 percent in past years. Private lenders may require you to begin to pay back the loan while you are still in school, and often require a cosigner. When it is time to repay, the repayment terms and consumer protections may not be as favorable as federal student loans. Click here to compare federal and private student loans.
It may also be cause for concern if federal loans become unavailable to you and you are required to take out private student loans to finance and complete your education. Eligibility to take out federal student loans is not unlimited. As of 2022, undergraduates who are not dependents could borrow up to $12,500 each academic year and $57,000 during their lifetimes. So, if you learn that federal financial aid will not cover the cost of your education, it may be cause for concern that the program or school charges too much for tuition. Some private and for-profit institutions, for example, charge up to five times as much for a degree than public or community colleges. If you will be required to take out expensive private loans to complete your education, you may want to consider whether that school is the best option for you.
Most private student loans will require a cosigner. Cosigning someone else’s loan means you agree to take full responsibility for the debt if the borrower can’t or doesn’t make the required loan payments. The loan will appear on the cosigner’s credit report. In recent years, the Attorney General’s Office has heard from graduates, parents, aunts and uncles, and friends and acquaintances who cosigned a student loan to help someone attend school, only to be hounded by debt collectors when the student can’t afford to pay back the loan. For more information about cosigning loans, review the Minnesota Attorney General’s Office flyer on Cosigning A Loan.
Alert: Be Wary of Schools that Push Private Student Loans to Finance Your Education
The Attorney General’s Office has received many complaints from former students of private and for-profit colleges that had to take out costly private student loans. Borrowers report not knowing they would need to take out these loans, not knowing about the high interest rates, and not knowing how it would affect a
co-signer. Borrowers also frequently did not know that they could have attended other, quality schools that would not have required them to take out additional private debt. Many borrowers report that they cannot afford to repay these loans and are still burdened with such debt 10 and 20 years later, without any ability to pay down the principal. Make sure that you plan how you will pay for the entirety of your education. And beware of any school or program that will require you to take out private student loans.
A degree or certificate at a for-profit college can be considerably more expensive than at a comparable public or community college. If you are thinking of enrolling in a for-profit college, do your homework. Check the school’s graduation rates, job placement rates, future earning potential, and whether the school and program’s accreditation is recognized. Before you enroll in a for-profit college, check For-Profit Colleges: Do Your Homework for more information. Do not just rely on a school’s admissions staff to give you the information you need to make a decision. And be wary of any admissions staff or recruiter that makes you feel undue urgency in making an enrollment decision, makes promises of employment after graduation, or otherwise aggressively pushes you to enroll.
As you research paying for college, you may see offers to help you file your FAFSA application for a fee, or companies that guarantee scholarship money. FAFSA has only one site for filing, and there is no fee. The FAFSA website provides instructions, and most schools and colleges will offer advice free of charge if you run into problems. If you are asked for credit card information while filling out the FAFSA online, you are not at the official government site. Remember, the FAFSA site address has .gov in it!
Be wary of companies that “guarantee” you scholarship money and create a sense of urgency for you to sign. Much of this information is free from reputable companies to help you find sources of scholarships and grants. Your high school guidance counselor or college financial aid office can provide information about grant or scholarship options. For more information, see the Federal Trade Commission information on scholarship scams.