Unless their parents somehow saved enough money or earn huge salaries, most students have to borrow to pay for college today. College education is also a thing of the past. Few students can earn enough to pay for their college education while they are also taking classes. For this reason, student loans (and student loans) have become more and more common. Here’s what you need to know about applying for a student loan.
Key points to remember
- To apply for federal college loans, students and parents must complete the Free Application for Federal Student Aid, or FAFSA.
- Federal student loans are of two basic types: subsidized and unsubsidized. Subsidized loans are more affordable if you qualify.
- Other sources of loans include federal PLUS loans for parents and private loans from banks and other lenders.
- Interest on student loans from federal agencies has been suspended until at least September 30, 2021 due to the coronavirus crisis.
Step 1: Complete the FAFSA
The first step in applying for a student loan is to complete the government form Free Application for Federal Student Aid (FAFSA). The FAFSA asks a series of questions about student and parent income and investments, as well as other relevant questions such as whether the family will have more than one child in college at the same time. time. Based on the information you provide, the FAFSA will calculate your Expected family contribution (EFC). This is the amount the government estimates you should be able to pay for college for the upcoming school year out of your own financial resources.
You can complete the FAFSA online at the office of the Federal Student Aid website.To save time, gather all of your account information before sitting down to start working on it. You must not only complete the FAFSA when you first apply for help, but every year thereafter if you hope to continue receiving help.
Step 2: Compare your financial aid offers
The financial aid offices of the colleges you apply to will use information from your FAFSA to determine the amount of aid to be made available to you. They calculate your need by subtracting your CFE from their participation fee (COA). The cost of participation includes tuition fees, compulsory fees, accommodation and meals and certain other expenses. It can be found on the websites of most colleges.
In order to bridge the gap between your CEF and their COA, colleges will set up an assistance program that may include Pell Grants and paid work and study, as well as loans. Grants, unlike loans, do not need to be repaid except in rare cases. They are intended for students with what the government considers “exceptional financial need”.
Award letters may differ from college to college, so it is important to compare them side by side. In terms of loans, you will want to see how much money each school is offering and whether the loans are subsidized or not.
Direct subsidized loans, like scholarships, are intended for students with exceptional financial needs. The advantage of subsidized student loans is that the US Department of Education will cover the interest while you are still at least a part-time student and for the first six months after you graduate.
Direct unsubsidized loans are available to families regardless of their needs, and interest will begin to accrue immediately.
In both cases, note that interest on student loans from federal agencies has been suspended until at least September 30, 2021, due to the coronavirus crisis.
If you qualify, a college might offer you both subsidized and unsubsidized loans.
Federal loans have a number of advantages over student loans from banks and other private lenders. They have relatively low fixed interest rates (private loans often have variable rates) and offer a variety of flexible repayment plans.
The confusingly named Expected Family Contribution (CEF) will be renamed the Student Aid Index (ISC) in October 2022 to clarify its meaning. It does not indicate how much the student must pay in college. It is used by the school to calculate the amount of student aid to which the applicant is entitled.
However, the amount you can borrow is limited. For example, most freshmen can only borrow up to $ 5,500, of which a maximum of $ 3,500 can be in the form of subsidized loans. The total amount you can borrow during your college career is also limited.
If you need to borrow more than that, one option is a Federal Direct PLUS loan. PLUS loans are intended for parents of undergraduate students (as well as professional and graduate students). PLUS loans have higher limits – up to the full cost of attendance minus any other help the student receives – and are available regardless of need. However, the parent borrower usually has to pass a credit check to prove their creditworthiness.
Private student loans do not have the flexible repayment options available with federal loans.
Step 3: Think about private student loans
Another option if you need to borrow more money than federal student loans can provide is to apply for a private loan from a bank, credit union, or other financial institution.
Private loans are available for any need, and you apply for them using the financial institution’s own forms rather than the FAFSA. To get a private loan, you will need to have a good credit rating or have someone who does, such as a parent or other family member, co-sign the loan.
Having less than stellar credit can make it difficult to qualify for student loans. Private lenders will take your income and credit history into account, and as a student you likely have poor credit or no credit at all. However, some lenders offer student loan options for borrowers with bad credit.
Typically, private loans carry higher interest rates than federal loans, and their rate is variable rather than fixed, which adds some uncertainty to the question of how much you will eventually owe. Private loans also do not have the flexible repayment plans available with federal loans and are not eligible for loan consolidation under the Federal Direct Consolidation Loans program. However, you can refinance your private loans after you graduate, possibly at a lower interest rate.
Each college will notify you of the amount of assistance it offers around the time you receive your official acceptance. This is often called an award letter. In addition to federal support, colleges can make money from their own funds, such as merit or track scholarships.
Step 4: Choose your school
The amount you will need to borrow to attend one college versus another may not be the most important factor in choosing a college. But it should definitely be high on the list. Graduating from college with an unmanageable amount of debt – or, worse yet, going into debt and not graduating – isn’t just a burden that could keep you from sleeping at night; It can limit – or even derail – your career and your life choices for the coming years. Also consider the future careers you envision when choosing to pay more for college. A career with a high entry salary will put you in a better position to repay your loans and justify taking on more debt.