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Financial Aid: What Are My Options?

Scholarships and grants: Go for the free money first

Scholarships and grants should be at the top of your list for funding a college education, for one simple reason: you don’t have to pay them back. To find out if any of this free money might be available to you, start with the financial aid office at your school.

Federal student loans: Your next-best bet

If scholarships and grants come up short, federal student loans should be the next option on your checklist. These government loans give you flexible repayment and deferment options, and they typically have lower interest rates than private loans from banks and other lenders. (“Interest” refers to a percentage of the loan amount you must pay back, in addition to the original loan. The longer it takes you to pay off a loan, the more interest you’ll owe – which is what makes any loan “interesting” to the folks doing the lending!)

Oh, and while we’re on the topic of interest: Even though you may not have to start repaying student loans (federal or otherwise) until after you graduate, for most loans the interest clock starts ticking as soon as the loan is issued. Say, for example, that as an incoming freshman you take out a $20,000 student loan at an interest rate of 5%. By the time you settle into your sophomore year, the amount you owe on that freshman-year loan will have quietly grown to $21,000 – and if you’re at a four-year school, it will grow to more than $24,300 by the time you graduate. Yikes!

OK, that’s the scary news. On a happier note, once you decide to do so, it’s actually quite easy to apply.

How to Apply for a Federal Student Loan


Fill out the FAFSA form.

Even if you haven’t committed to a school yet, you should download a Free Application for Federal Student Aid (FAFSA), which determines how much you and your family must contribute each year for your education. (Already know your school? Then be sure to check in with the financial aid office before completing the FAFSA – some schools want students to use the school’s own application form when applying for federal loans.)

The FAFSA is available:

  • From the FAFSA website
  • At your high school guidance office
  • From the college you plan to attend
  • By calling 800-433-3243


Send in the FAFSA – ASAP!

Complete the FAFSA and submit it to the FAFSA processor as soon as possible. A few weeks later, you and the schools you name on your application should receive your FAFSA Student Aid Report. This letter is important, because it will tell you how much money you and your family are expected to contribute toward your college education.


Review your financial aid award letter.

Your college financial aid office will use your FAFSA Student Aid Report to create a custom financial aid package for you. This information will be sent to you in an award letter, which will specify your family’s expected contribution and the types and amounts of financial aid you qualify for. You’ll need to let your financial aid office know if you accept or reject the aid offered in the package.
Your award letter may also state that your family has the ability to cover a specified amount toward your education. Note that this doesn’t mean your family actually has the money on hand. If your family needs additional funding to meet its expected contribution, a private student loan from a bank or other lender can help.

Private student loans: It pays to shop around

Private student loans are offered by banks, schools and education loan organizations. You should only turn to them when federal loans, grants, scholarships, and other sources of income come up short.

Interest for private student loans varies by lender. Many lenders also charge fees to review and process your loan application. When comparing lenders, be sure to ask whether they charge any “origination fees” or other fees in addition to interest, what your final tab will be, and when you’ll have to repay it.

To determine your eligibility for a private student loan, your school may require you to complete the FAFSA.

The iron law of student loans: They must be paid back

Remember, both federal and private student loans must be repaid even if you don’t finish school or aren’t happy with the education you receive – no refunds, no exceptions. And while we’re on the topic, if you ever file for bankruptcy, your student loans most likely cannot be discharged – which means you’ll still be on the hook, even if you’re flat broke. (Ouch.)

Bottom line: A college education may be the most important investment you’ll ever make – the one that unlocks your future earning potential – and student loans can be a great way to fund that investment. Just remember that from the moment you take out a student loan, you’re obligated to repay it someday – and paying back a loan is never as easy as it sounds.

Financial Aid: What Are My Options?

U.S. Bank no longer offers Federal or Private Student Loans.

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