5 Alternatives to the Traditional Student Loans
5 Alternatives to the Traditional Student Loans
1. Scholarships and Grants
Looking for other ways to help pay for college without taking out loans? Scholarships and grants are great options. This is money that doesn’t need to be paid back and can go towards tuition, fees, transportation, or room and board. There’s a lot of money out there, and we’re here to help you find it.
Scholarships Types
Scholarships come in many forms:
- Academic achievement: Academic scholarships are based on earning superior grades in the classroom, a high GPA and/or excellent standardized test scores.
- Arts: Creative students can search for scholarships geared toward music, visual arts, theater and more.
- Career, major or industry: You may find scholarships designed for your expected field of study or career plans.
- Family background: Some scholarships are awarded based on student’s traits or background. For example, you can find scholarships designed for first-generation college students, people in LGBTQ community and underrepresented minority groups.
- School-based scholarships: Most colleges and universities provide their own scholarships as part of their ongoing financial aid programs. Ask your school’s financial aid office about your options.
- Sports: Man colleges offer athletic scholarships to standout student-athletes who agree to play on the school’s team.
Find your scholarship
With so many out there, it’s important to find the right ones for you. General internet search is a great place to start, but online tools and databases like Fastweb, Scholarships.com and Unigo can really narrow your search. Also, ask friends and family or check around your community for local scholarships.
Once you’ve found a scholarship that fits you, keep these things in mind when applying:
- Be organized
- Know your unique strengths
- Be wary of scams
- Follow instructions
- Apply early
- Continue applying for aid during school
- Keep an eye on continuing requirements
Grants
Scholarships and grants are both free money for school, but they aren’t exactly the same. Scholarships tend to be merit based, while grants are generally need based. Depending on your situation, one, the other, or both many be worth pursuing.
According to the College Board, during the 2018-2019 school year, undergraduates and graduates received $135.6 billion overall in grant money.
Grants are offered by both the federal government and private organizations. Here are some grant options to consider:
- Federal Pell Grants: awarded to eligible undergraduate students who show exceptional financial need.
- Federal Supplemental Education Opportunity Grants (FSEOG): undergraduate students with exceptional financial need.
- Teacher Education Assistance for College and Higher Education (TEACH) Grants: TEACH Grants provide federal grants to students pursuing degrees in education.
- Iraq and Afghanistan Service Grants: These grants are available if your parent or guardian died as a result of serving in Iraq or Afghanistan after Sept. 11, 2001
- State-based grant: Nearly every state hosts a financial aid program to help students pay for college
- Private Grants: You can search for private college grants using the U.S. Department of Labor’s free scholarship and grant search tool
2. Educational Investments
As ISA, or Income Share Agreement, is an an agreement between a student and a school where in exchange for covering the cost of that student’s tuition, the students agrees to pay back a portion of their income after graduation for a set amount of time as long as they are earning an agreed-upon yearly income.
This was created in response to unsustainable loan payments, where borrowers had a low income but high monthly payments. The payment percentage varies between 2.5-17.5% depending on what you choose and is paid over a set period of time. Agreements also include a minimum income threshold under which you do not need to make payments, as well as a payment cap in order to not punish you for making a larger-than-expected income. For a full glossary of terms, see here.
If you choose to enter an ISA, there are three ways to satisfy the agreement:
- Make the required number of payments: the percentage of income given each month is considered a payment
- Pay the Max Payment Cap: if you are earning a higher than expected income. It is usually some amount above the funded amount.
- Reach the end of the payment window: the agree upon time window for making payments, usually between 2 and 10 years, closes.
By achieving any of these three scenarios, you have satisfied your ISA!
3. Group Rate Negotiation
In the summer of 2012 two Harvard undergrads received their dreaded tuition bills. Instead of taking out these expensive, high interest rate loans, they decided to negotiate. They realized that if they could “buy in bulk” they could get a discount. They gathered together 700 students from 10 different schools and bargained for a lower group rate saving their classmates about $15k each.
They went on to found Juno. Juno pulls together borrowers to negotiate lower student loan rates. They have changed the game and challenged traditional student loans. Borrowers often save thousands with Juno deals – think Groupon for student loans. It’s worth signing up for offers and seeing if you can save.
4. Peer to Peer
Peer-to-peer (P2P) lending (also known as person-to-person, social lending, and microlending) is an option for people to get the funding they need from other people instead of banks. It’s a community based lending where one individual borrows money from another.
Make sure to do your research on peer-to-peer loans. In some cases the rates can be 20-30 percent higher and regulations vary from state to state. If you’re struggling to find the right loan from a traditional lender, this could be an option.
5. Crowdfunding
Though not often associated with education, crowdfunding has become a tool used more and more often to help pay of school.
Data from GoFundMe shows that between 2014 and 2017, over 130,000 campaigns raised $60 million on this site alone. The money generated came from over 850,000 donations for student loans and related expenses.
Some of the most popular crowdfunding sites are:
- GoFundMe – This site is known as “the leader in online education fundraising.” GoFundMe offers several education-based crowdfunding categories, including college tuition and student loan repayment.
- LoanGifting – This is a student loan management resource that also offers crowdfunding. Unlike many other sites, the money raised goes directly into a student loan and isn’t handled by the recipient.
- Indiegogo – Popular among small business startups, Indiegogo also helps fund education and learning
*It’s important to be aware that these sites charge fees one each donation, which vary per site.
Unlike a loan, these funds are free and easy to set up. However, you must be realistic about your expectations: most of these campaigns do not achieve their goals. When the goal is not achieved, you do not receive any of the money. Even when they are successful, they are generally under $15,000. So, you should not expect to pay off a debt of $100,000 with this method.
But, at the end of the day, this can be a way to make a difference – whether large or small – in paying for your education.