It is never to early or to late to start planning financially for college. The question most people have when it comes to college is how to pay for it. There are scholarships, but even these are unlikely to cover all the costs and expenses, such as room and board, meals, books, and materials associated with college.
The first loan option is student loans. The federal government has quite a few student loan options available to everyone, regardless of income. Federal loans are guaranteed loans, and these are often offered in your colleges financial aid office. These loans tend to be the best option to start out with as they are lower interest. Federally guaranteed loans interest rates are set at lower-than-market levels. These loans are also often subsidized by the federal government, so interest will not begin accruing until you are out of school. You can even get extensions and renegotiate payment amounts that are due monthly with these loans. If you want to take advantage of one of these loans, file out an FAFSA (Free Application for Federal Student Aid). You will at the very least qualify for an unsubsidized Stafford loan.
If your parent or if you are a parent looking to help finance your child’s college education, a home equity loan may be a good option to consider. A home equity’s loan interest is much better than the 15% plus charged for private student loans. These are also known as a second mortgage. These can be a better solution than some of the federal student loan programs as well, depending on which federal student loans you qualify for. You can often deduct the interest rate of your mortgage at tax time, thus lowering your effective interest rate, which in some cases will be even lower than that of a PLUS or even a Stafford loan. Another option is a home equity line of credit (HELOC). These can be tapped into as needs arise such as tuition and expenses, and you merely pay back interest on the amount advanced, however in today’s market, housing values are plunging and a lender can shut down your line of credit if this happens. The other draw back to a HELOC is that the interest rates are variable, while your second mortgage can be set at a fixed rate. However you can sometimes get a HELOC that has an option to fix the rate at one or more points during loans lifetime, however these are harder to find.
The last option for funding a college education would be private personal loans. personal loans are great if you do not qualify for federal aide other than a Stafford student loan, and a Stafford loan will not cover all of your expenses, merely some of them. Private student loans however it should be noted, are not subsidized or guaranteed by the federal government. The interest rates on these loans are determined by the lender and are based off of your credit worthiness, not you financial need. While like a federal guaranteed loan you can get payments deferred until you leave college, interest begins the moment you take one of these loans out.
A home equity loan can often times be the best option if you do not qualify for the best of the many and various federal student loan programs based of income and need. The best advice is to do some solid homework before choosing a lending option.