What are Loans?



What are Loans


College tuition rates are steadily rising from year to year. According to Collegeboard, College Tuition and fees in 2017 averaged about $33,700.

The important question: How are you going to pay for that tuition? Well, there are several options. One option is to pay for it all out of pocket (by yourself or perhaps through your parents). Or perhaps you can get a scholarship (although most scholarships you come across probably won’t pay for everything). And then, there are loans.

Now, it’s likely that at some point you’ve heard of loans but do you really understand what a loan is? For those of you that don’t, a loan is money provided to you that’s expected to be paid back in the future. Under most circumstances, a loan is paid back with interest, which is essentially a fee that is paid in addition to the amount of money owed.

If you can avoid loans, by all means, do so! The process of paying back what you borrowed can be lengthy and can oftentimes take ten or more years according to various statistics.

Paying back college loans can be stressful after you graduate. Minimize the stress and keep the following tips in mind

Now, the whole process of obtaining loans, strategies to pay back loans, and requirements of loans is very complicated. I recommend you seek out some kind of professional help in order to truly exhaust all of your potential options (likely from your financial aid department in your college).

To be honest, there are quite a few different types of loans but in order to make things less complicated, I’ll briefly go over Private Loans and Federal Loans and some things to look out between the two.

For a brief guide on the two, check out this video for a super simplified yet detailed explanation of Private and Federal Loans.


Federal Loans

A federal loan is money granted to you by the government based on how much they believe you’ll need. The government will determine the amount they’re willing to provide through a FAFSA (Free Application for Federal Student Aid). Out of both options, the overwhelming majority agree that if you absolutely need to take out a loan, it should be done as a Federal Loan.

As mentioned above, you’ll need to pay off these loans eventually. Unlike Private loans, you can wait until after you graduate (typically) to start chipping away at your loans (you aren’t required to start paying back Federal Loans until usually about 6 months after graduation). Also, Federal loans are the greater of the two options due to their various forgiveness options as well as their low-interest rates.

Private Loans

For many people, Federal loans don’t completely cover their college costs. Because of this, people typically resort to Private loans to fill in the monetary gap. Now, I’ve basically touched on why Private loans are not really ideal but to reiterate: expect higher interest rates (more money you’ll need to pay back over time) as well as an expectation to begin repaying while still in college.

Now, for those of you that have already taken out loans, I encourage you to check out the aticle below that I did with a Penn State alumni about some methods to repay those loans as quickly as possible.


For those of you that haven’t taken out any loans but are considering it, keep some of these ideas in mind.

It might take 10 years or more to pay back your loans after graduation

Let that sink in for a second. Typically, college students don’t truly consider their finances until after graduation. Unfortunately, this is the worst time to start thinking about them.

It’s important to consider that along with loans (which will likely be a large sum of money on its own) you’ll probably have other things to consider such as credit card debt, car payments, and perhaps apartment rent (if you choose to move away from your parents).

Also, keep in mind that according to various resources that monitored students in 2016 and 2017, it takes the average college graduate anywhere from 3 to 9 months to find a job after graduation.

Make Sure Your School is Right for you both Education-wise and Financially

Do your research! While it might be pleasing to your family and parents to study at University X, you might be able to study at University Y (a lesser known school with the same quality education) for far less money.

Don’t Sleep on Scholarship Money

Many students neglect to take advantage of the millions of dollars of scholarship money available out there. I know, it’s tedious, boring, and sometimes confusing (probably intentionally) but it could potentially save you tens of thousands of dollars in the long run.

For an easier way to check out scholarships you qualify for, check out the app Scholly on the app store. This app’s founder created Scholly with you in mind. He managed to obtain over 1 million dollars in scholarship money and wants to allow others the same benefits as efficiently as possible. Don’t pass on this app, it might be the best investment you make in your entire college life.

What is the ROI of your Major?

ROI stands for return on investment. College is indeed an investment. Your major should yield valuable returns. If you choose to become a doctor or engineer, your major will likely have a greater return than someone that chooses to major in a career with few well-paying job options available. I’ll go into this more in a future article but keep this in mind: your major should be both enjoyable and profitable!

Your Student Loan Payments Should be a Small Chunk of your Monthly Pay

This ties in with the above point. If your annual loan payment is only barely less than what you’ll make in a year, you might want to reconsider either your major or your career options.

Factor in Cost of Living, EFC (Expected Family Contribution), and Financial Aid

Sometimes, families only factor in the tuition when applying to schools. Of course, tuition will probably be the most expensive thing but you should consider costs of living (rent, food, etc.), potential clubs you join (depending on your school, your club can have fees), clothing, equipment (if you’re on a sports team), and other costs along these lines. FinAid.org can provide you with information about your family’s EFC.

FAFSA doesn’t take into consideration your family’s saved money for retirement, their debt, or financial circumstances

When you apply to FAFSA you might end up only being granted a small amount based on income. However, what your family makes isn’t necessarily an accurate representation of what you can afford. The FAFSA doesn’t recognize this so it’s important you factor that in when applying.

Hopefully, this article made you think more about applying for loans if you haven’t done so yet. And if you have applied for loans, hopefully, you can find some insight from this article to help you pay for your loans more efficiently or avoid certain pitfalls.

If you’d like more insight or guidance, check out the articles listed below. Also, I highly encourage you to check out Debt-Free U by Zac Bisonette using the link below. He offers some interesting strategies that he personally used to aggressively pay off his own college tuition.

(By buying the book using the link, not only would you have some great help and advice, I’d also receive a small kickback from the purchase so it’d be a win-win).

Thanks for reading the article! If you have any questions, as usual, let me know in the description or by email. And if you know anyone that could benefit from this article, please be sure to share this article. Thanks again, and stay positive!

//Check out these articles and links for more information on loans!!//

| https://studentaid.ed.gov/sa/types/loans | https://bigfuture.collegeboard.org/pay-for-college/loans/8-tips-for-taking-out-student-loans | https://bigfuture.collegeboard.org/pay-for-college/loans/types-of-college-loans | https://bigfuture.collegeboard.org/pay-for-college/loans/quick-guide-which-college-loans-are-best | https://www.forbes.com/sites/troyonink/2013/01/22/use-these-8-loans-to-pay-for-college/#7ce70cc57c82 | https://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2016-17 |