Student Loans: Do the Math

Have you thought through the commitment you’re about to make? Earning an education isn’t as simple as just signing up for courses and completing work. Before you enroll at an online university, you must ensure you’re financially stable and prepared to pay for tuition costs.

A quality education isn’t cheap, and many students seek aid to help offset the cost of college. If you’re serious about attending school, you’ll need to create a financial plan and explore some of the different ways that will help make the cost of education more affordable.

Creating a Plan

If you’ve never constructed a budget before, now is a good time to start. You should plan out your income and expenditures, and decide how much of your money you can set aside to pay for your education.

Any of your own money you contribute to your tuition helps; you don’t want to borrow more money than you need. Over the years, schools have steadily raised tuition prices, and most people seek financial aid to help pay for college. In fact, according to the College Board, roughly 2.1 million graduate students received an average of $23,955 in student aid in the 2010-11 school year.

Breaking down the numbers

Graduate students received an average of $23,954 in student aid from 2010 to 2011. What factors are considered for this figure?

  • $6,750 – Grants
  • $16,423 – Federal Loans
  • $714 – Tax benefits
  • $67 – Federal Work Study

Source: College Board “Trends in Student Aid”

After creating a budget and finding how much income you can dedicate toward paying for college, it’s time to crunch some numbers.

Depending on the university you’re interested in, tuition prices may be higher or lower. Different universities also calculate the price of education differently. While some calculate tuition on a per quarter or semester basis, others do so by calculating the individual cost of a class.

As an example, an average graduate student at a major online university is estimated to pay $14,731 in tuition and fees for the 2011-12 academic year. If your budget allots you $5,000 to pay toward your education, you’ll still need to find $9,731 before meeting financial requirements for the academic year.

Thankfully there are a number of ways to find student aid – including loans, grants and other scholarships available to students on an individual basis.

What are my options?

Student aid comes in the form of federal and private aid. Federal loans are the most commonly used form of student aid, and consists of a few different options.

Federal loans available to graduate students include:

  • Perkins Loans
  • Direct Stafford Loans (Subsidized)
  • Direct Stafford Loans (Unsubsidized)
  • Direct PLUS Loans

Learn more about Perkins Loans here.

A Perkins Loan is a low interest (5%) loan that allows you to borrow up to $8,000 for an academic year. Participating institutions provide Perkins Loans to students through their financial aid offices, so it’s up to you to speak with a financial aid officer to see if you’re eligible.

The federal government provides Perkins Loans to a university who then distributes the loans. This means you’ll actually be paying back your university for the loan, rather than the federal government.

Typically, students have between 10 and 25 years to repay their loan, so speak with your adviser to outline a payment plan.

Direct Stafford Loans (Subsidized)

Direct Stafford Loans come directly from the U.S. Department of Education, and consist of subsidized and unsubsidized loans. To apply for a subsidized Direct Stafford Loan, you must demonstrate financial need. Learn more about Subsidized and Unsubsidized Direct Stafford Loans.

Subsidized loans are set at a fixed interest rate of 6.8% for graduate students under the Direct Stafford Loan. Under this option, interest does not accrue until you’ve attended school at least half-time. The maximum amount you may borrow depends on your financial need and what grade level in school you’re entering.

Direct Stafford Loans (Unsubsidized)

The biggest difference between subsidized loans and unsubsidized loans is that unsubsidized loans don’t require you to demonstrate financial need. Learn more about Subsidized and Unsubsidized Direct Stafford Loans.

Like the subsidized loans, the unsubsidized loans are set at a fixed interest rate of 6.8% for graduate students. Interest begins to accrue after you receive your first loan pay out, and you may begin to pay off interest while still in school.

Direct PLUS Loans

The federal government offers Direct PLUS Loans specifically for graduate students. In order to be eligible to receive this loan, you must pass a credit check to ensure you’re prepared to pay back the loan. Learn more about Direct Plus Loans.

Direct PLUS Loans are offered with a fixed interest rate of 7.9%, and can fully fund a student’s education. The maximum amount of money that may be borrowed through the Direct PLUS Loan program is the total cost of tuition at a student’s university.

When talking with representatives about your loans, make sure to explore different repayment plans. Typically, student loans must be repaid within 10 to 25 years, but each student can set their own plan.

How do I apply for federal aid?

With a better understanding of the options available to you for aid, you’re prepared to speak with the financial aid officer at your school to determine your eligibility. Your financial aid officer will help you plan out methods to pay for your education, and will walk you through the requirements needed to receive aid.

Some of these requirements include:

  • Demonstrate need for financial aid
  • Have a high school diploma or GED
  • Be enrolled or accepted for enrollment as a student working toward a degree in an eligible program
  • Be a US Citizen
  • Have a valid Social Security Number
  • Register with selective service, if necessary
  • Maintain satisfactory academic progress in school
  • Certify that you are not in default from previous student aid
  • Certify you will only use federal student aid for educational purposes

If you meet the basic requirements, you need to begin the loan application process. In order to apply for federal aid, students must complete a Free Application for Federal Student Aid (FAFSA).

The FAFSA determines whether or not you’re eligible for financial aid, and also tells you how much funding you may receive. When submitting your FAFSA, you must include the following information:

  • Income Tax Returns
  • W2 Forms
  • Identification (Social Security Card, Drivers License)
  • Current Bank Statements
  • Current Business and investment mortgage information

The FAFSA report will determine how much federal aid you may receive, and ensures you meet all requirements. Even if you aren’t eligible to receive federal loans, there are still options to help you pay for your education. In addition to federal aid, students can seek private aid to receive additional college funding.

Private student aid

Universities, banks, and other organizations offer private loans aimed at helping to provide students with financial aid. These organizations and programs all have different requirements, fees, and rules associated with them.

Students must carefully consider the requirements and stipulations that come from private loans. Make sure to ask many questions, and understand exactly how much money you’ll owe from a private loan. If you can, try to see if you can find a private loan that matches the interest rate of a federal loan you might have looked into.

In addition to private loans, students can also receive private scholarships from many online universities. When speaking to a financial aid officer at your chosen university, ask about scholarship options and how you can meet their requirements.

Many schools offer teacher scholarships or grants if students promise to spend time teaching in high-need areas, like literacy, science, math, and special education. Try to explore these options and find specific scholarships that pertain to your educational focus. Scholarships and grants are sometimes the best option for students seeking aid, because unlike loans, these funds do not need to be repaid.

Whether you choose to explore federal or private aid, the most important step you can take toward success is to meet with your financial aid adviser. Be sure to ask many questions, and gain a full understanding of your future financial responsibilities.

If you’re interested in learning more about online education and financial aid, request information from schools offering online master’s degrees in education.