Understanding Loans, Part One
Student loans can help make college more affordable by covering educational expenses not met through other financial aid awards. Because loans typically need to be repaid, understanding how they work can help you confidently make informed borrowing decisions.
What Should You Know Before Borrowing?
Before accepting a loan, make sure you understand the loan repayment terms. This may include:
- The amount you are borrowing
- The interest rate
- When repayment may begin
- The estimated monthly payment
- Any extra fees that may apply
If there is something you do not understand, ask questions before accepting the loan.
How Much Should You Borrow?
Before accepting a student loan, consider how much you actually need to borrow. Review your financial aid award letter alongside your school's cost of attendance (COA) to understand your total expenses and available financial aid.
You may be able to reduce borrowing by planning ahead and applying for scholarships throughout the year. You can also help cover costs by using savings or working part-time while enrolled. Because every student's financial situation is different, aim to borrow only what you need to keep your future repayment manageable.
Common Misconceptions
Many students have questions about borrowing. Here are a few common misconceptions.
“Student loans are free money.”
Student loans provide funding for school, but they generally must be repaid according to the repayment terms.
“I should borrow the maximum amount offered.”
The amount offered may not be the amount you need. Some students choose to borrow only what is necessary to help cover education costs.
“I don’t need to think about repayment until after graduation.”
Understanding repayment before borrowing may help you make more informed decisions about loans and student debt.
Why Does Planning Matter?
Borrowing for school is a personal decision. Taking time to understand your options may help you choose a borrowing amount that helps cover your educational expenses. Because college costs and financial aid offers can change from year to year, completing the FAFSA each year may help you understand what other funding may be available before borrowing.
The more you know before borrowing, the better prepared you may be to manage your loans in the future.
The Bottom Line
Student loans can help cover college costs when other resources are not enough. Before borrowing, take time to understand the repayment terms, think about how much you need, and learn what repayment may look like after graduation.
