Grants Or Federal Loans

Grants or Federal Loans

The answer may seem obvious, a grant is money that is yours to use for school and doesn’t have to be paid back whereas a loan is just that. A federal direct loan is still a loan, interest is charged and you have to pay the principle plus the interest back. One of teh reasons people go for federal direct loans is because they are easy to get, the work involved in getting a loan will usually be less work that it would take to secure a grant for school.

Taking the easy route is almost certainly costing you money. There is no way to get out of a federal loan, you can’t just decide to stop paying, they are similar to the IRS in that they will get their money back if they have to take 30 years to do it. The interest rate may seem low when you take the loan out but after a year or two of missing payments it can add to the capital amount dramatically. Compound interest is great when you are receiving it on an investment but not so good when you are paying it back on a loan for a college course that you finished ten or twenty years ago.

Apply For Grants First
The decisions on federal direct loans can be made very quickly generally while grants can take some time to be approved so start applying for them as soon as possible. Make sure that you have as much information as possible ready to give to anyone who may offer a grant. Letters of recommendation from your school, church and any jobs you have done are well worth getting.

Small Amounts Add Up
When you apply for a loan it will be for a huge amount, thousands of dollars which you have to pay back and by the time you add interest it could well be a lot more than you borrowed. There are many grants available which may be as little as a hundred dollars, but to get them you have to ask for them and take the time to do what they ask. I recently heard of a local group that allocated $500 each year to student grants. No one had claimed them in five years so they were going to stop doing it.

Each person could only get a hundred dollars but all you had to do was write a letter saying what you were hoping to achieve with your education. So write a letter that would probably be as long as this web page and get a $100 check for doing it. That sounds like the easiest way I have ever heard of to pay for at least one book. If you could collect a few of these smaller grants you could soon find your books are paid for and if you start moving on up to bigger grants you could well be surprised by just how much you can collect.

Where To Find Grants
Ask…Yes it is as simple as that, call your local social groups and ask. Call the lions group, ask the church you go to, ask the local veterans branch. Write letters and make calls, what is the worst that can happen they can only say no. Keep a spreadsheet with list of who you called, who you spoke to and who said yes, then next year you know who to speak to again. When you are in college take some time to write letters of thanks to the people who did give you grants, don’t say thanks on Facebook, don’t tweet about it. Take the time to produce a personalized letter saying thanks.

As we use mail less and less sending a letter will make you stand out from the crowd. That letter could well guarantee you more grant money next year so it really is worth spending the 50c on a stamp and envelope. If all this seems like a lot of work, just think about how many hours you will have to work to pay back the loans (including interest) that you take out. The thought of working for months on end to pay back loans that I didn’t really need makes me shudder.

Loans Are Serious Business
I know I already said this but taking out a loan for school is a serious long tern commitment. Nelnet and Sallie Mae may give you payment holidays if you get into financial difficulties but they will not stop asking for payments on your federal loan for very long. My wife has just made her last payment, she is 40, for school loans which she took out nearly twenty years ago. Due to personal circumstances she had to have various payment holidays over the years but the interest kept on being applied and the amount owed kept on growing.

School is a fun time of your life, you will be meeting new people and learning new things every day but it will only be a few years before you are out in the workforce looking for a job. Once you have a job then you have to start paying back the loans you used to pay for school, that is when you will wish you had looked into grants a lot more. Federal direct loans are great and they are a vital part of the education system but why take out a loan for $20k when you can get $5k in grants and only need to borrow $15k.

By using grants instead of loans you not only save the original $5k , but you save all the interest on that sum. Depending how long you take to pay off your loans that could be another couple of thousand dollars, not an amount to be sniffed at.