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                                     Credit: Pixabay
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:::info
This piece is not financial advice. It is solely based on my college experience and everything I have learned about financing throughout my college years.

:::

As of June 2022, the student debt crisis has reached [$1,910,259,171,760](https://africa.businessinsider.com/politics/the-dollar17-trillion-student-debt-crisis-was-caused-by-deliberate-policy-decisions/n5m6xk9). The vast majority of student loan borrowers especially undergrad freshmen and sophomores have very little understanding of the terms of their loans. These terms include understanding how long they have to pay off their loans, their monthly payments, and how much of their future income will go towards repayment. In fact, interests on some student loans start accruing immediately, even if they are still in school and not yet required to make payments.

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There are good loans and bad loans. Bad loans are loans that negatively impact one’s net worth and jeopardize your current and **future** financial health. Student loans are considered “good loans” because it involves investing in their future. However, it entirely relies on choosing the right degree program that will lead them to a career path that produces a decent income, at least enough to meet their basic needs plus repaying the loans. So the first lesson I learned was: to borrow as much as you can pay back (expected starting salary) and not how much you need.

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# Reducing Cost of College


:::tip
Do not take out loans just yet!

:::

Taking out student loans must be your last option after exhausting every other way that can potentially minimize the cost of college. In the United States, the average annual cost of public colleges is [$25,487](https://educationdata.org/average-cost-of-college) for in-state students and [$43,161](https://educationdata.org/average-cost-of-college) for out-of-state students. This includes the cost of tuition as well as additional expenses such as meals, housing, and books. There are plenty of ways to slash tuition costs. Some might apply to you, and some might not, but you won’t know until you fill out the [FAFSA](https://studentaid.gov/h/apply-for-aid/fafsa) (Free Application for Federal Student Aid) form.

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:::tip
Fill out the FAFSA as soon as you can! It’s a first come first serve basis so your financial aid package depends on it!

:::

Filling out FAFSA will determine how much aid a student can receive, by way of grants, work-study schemes, scholarships, and loans. The form also lets students add multiple schools to their list so once it is completed, it will be sent to all the schools. Filling out the application will be time-consuming and will require students to have the following documents ready: 

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* Driver’s license/State ID
* Social security number
* Current bank & investment statements
* Prior year’s W-2s
* Federal income tax return, and 
* Untaxed income. 

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Dependents (students under 24 years old) are also required to have their parent’s financial information.

### Grants

Receiving grants is as good as it gets! It’s free money and does not need to be paid back. Every student receives different amounts of grants because it depends on their school’s cost of attendance,  household income, tax returns, net worths, number of dependents in a household, etc. A student (dependent and independent) with an annual household income of less than $27,000 would have to contribute $0 to college costs. A common misconception about financial aid that goes around is that you shouldn’t apply if you or your family has a high income. It is important to acknowledge that there are no income limits with the FAFSA.

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Depending on the university, there are all sorts of grants given out to students. The most common one that every school has access to is the [Federal Pell Grant](https://studentloanhero.com/featured/pell-grant-requirements-how-to-apply/). First and second-year students who are eligible typically receive around 2 to 3 types of grants. The maximum Federal Pell Grant award for the school year 2021-22 was $6,495. Every university has its own kind of grants that they give out, mostly to first and second-year students. For example, the University of Colorado Boulder offers “Promise Grants” to Colorado residents and first-time freshmen or new students transferring from any CU campus or Colorado community college.

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:::tip
Students with a lower household income (<$60,000-$80,000) might receive a surplus of federal grants which means that the university owes them a refund.

:::

### Scholarships and Work-Study

Scholarships are typically sourced by donations from private individuals, corporations, foundations, and the university itself. The criteria are specified by the donors or the university. First-year students are automatically considered for scholarships that the university funds. For other scholarships, students must submit an application, write an essay, and meet certain criteria. Unlike grants and loans, not every student can qualify for scholarships, but it is worth checking out what your school offers.

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Work-study programs in colleges are designed for students because they are less stressful, have a lighter workload, and include flexible hours that incorporate students’ school schedules. Work-study is also part of the FAFSA, hence, just like the grants, it is available to most eligible students. They are funded by the federal and state governments and can include both on-campus and off-campus jobs. On-campus jobs typically involve working at a library, cafeteria, or book store, being a research assistant or a teaching assistant, etc.

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:::tip
If eligible for a work-study award, apply at a school library. It is a laid-back job where you can get a lot of school work done!

:::

# Last Resort: Student Loans

The loans students are eligible to receive are also correlated with their FAFSA information. Federal student loans are different from private loans taken out from a bank, or other private institutions. The major differences are that with federal loans, there are lower interest rates and payment flexibility. In most cases, students over 18 don’t need their parent’s consent in order to receive student loans which is why It is extremely important for students to fully understand the terms of their loans before accepting them.

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There are two main types of federal student loans that most students will likely take out:

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1. **Direct Subsidized Loans**: With this program, students are relieved of all the interest on their loans until six months (grace period) after they graduate. After that, the interest rates will begin. If a college freshman takes out a direct subsidized loan of $2000, their balance will remain the same until they graduate. Then, they will have six more months to figure out their payment plans. The maximum amount they can borrow for direct subsidized loans depends on the student’s financial needs (FAFSA), their school, and class year. Usually, it’s around $3500 for the first year of undergrad, $4500 for the second year, and $5500 for the third year and beyond.

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:::tip
Students have the option to appeal for more Direct Subsidized Loans under acceptable circumstances and it’s a way better option than moving on to unsubsidized and private loans.

:::

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2. **Direct Unsubsidized Loans**: While direct subsidized loans depend on various factors (mentioned above), direct unsubsidized loans are available to all undergrad students regardless of need as long as they are enrolled in a degree program at least half-time at the school. With this program, even though the students can defer payments, the interest starts accumulating as soon as the loans get disbursed to the student. Therefore, by the time the student graduates, the student loan balance far exceeds the original amount they borrowed.

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3. **Parent Plus Loans and Private Loans**: These types of loans are typically used by graduate students who have exhausted all the other aid for attending college. These programs are also available to undergraduate students whose grants, and federal loans just don’t cover the cost of school. Parents of dependent students are eligible to borrow in order to pay for their children’s costs of college but they don’t receive the same standards that students do. On the other hand, students can consider private loans if they have good credit and the ability to make concurrent payments.

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:::tip
If you are able to make concurrent payments, you are better off taking out private loans from a bank which will also boost your credit!

:::

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To conclude, here is a basic checklist for students to manage and prioritize their Financial Aid. Find additional details [here](https://studentaid.gov/h/understand-aid/how-aid-works)

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**Order of Financial Aid Prioritization**:


1. Federal Grants
2. Scholarships
3. Work-Study Jobs
4. Direct Subsidized Loans
5. Direct Unsubsidized Loans
6. Parent Plus Loans
7. Private Loans

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