Unless their parents somehow saved enough money — or earned huge salaries — most students need to borrow to pay for college today. Working your way to college is a thing of the past, too. Few students can make enough to pay for college while they attend classes either. For this reason, student loans (and debt) are becoming increasingly common. Here’s what you need to know about applying.
- To apply for federal college loans, students and parents need to fill out the Free Application for Federal Student Aid, or FAFSA.
- Federal student loans come in two basic types: subsidized and unsubsidized. Subsidized loans are more affordable, if you qualify.
- Other sources of loans include Federal PLUS loans to parents and private loans from banks and other lenders.
- Payments and interest on student loans from federal agencies have been suspended until early 2022.
Step 1: Fill in the FAFSA
The first step in applying for student loans is to fill out the Government’s Free Application for Federal Student Aid (FAFSA). The FAFSA asks a series of questions about a student’s and parents’ income and investments, as well as other related matters such as whether a family has more than one child in college at the same time. Based on the information you provide, the FAFSA will calculate the Expected Family Contribution (EFC). This is the amount of money the government believes you should be able to pay to the university for the next academic year from your own financial resources.
You can complete the FAFSA online at the Federal Student Aid website office. To save time, gather all your account information before you sit down to start working on it. You must not only complete the FAFSA when you apply for assistance but every year thereafter if you hope to continue receiving assistance.
Second Step: Compare Your Financial Aid Offers
The financial aid offices at the colleges you provide will use the information from your FAFSA to determine how much assistance they will provide you with. They calculate your need by subtracting your EFC from your cost of attendance (COA). The cost of attendance includes tuition, mandatory fees, room and board, and some other expenses. It can be found on most college websites.
In order to bridge the gap between your EFC and their COA, colleges will put together an assistance package that may include Federal Pell Scholarships and paid work-study, as well as loans. Grants, unlike loans, do not have to be repaid, except in rare cases. It is intended for students with what the government considers an “exceptional financial need”.
Award letters can vary from college to college, so it’s important to compare them side by side. In terms of loans, you’ll want to look at how much money each school offers and whether the loans are subsidized or unsubsidized.
Subsidized Direct LoansScholarships, 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 a student at least half the time and for the first six months after graduation.
Unsupported direct loans Available to families regardless of need, interest will begin to accrue immediately.
Payments and interest on these loans were suspended in 2020 during the economic crisis, and both resumed in early 2022.
If you qualify, the college may offer you 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 payment plans.
The Confusingly Named Expected Family Contribution (EFC) will be renamed the Student Aid Index (SAI) in July 2023 to clarify its meaning. It does not indicate how much the student must pay to college. It is used by the school to calculate the amount of student assistance an applicant is entitled to.
However, the amount you can borrow is limited. For example, most first-year undergraduates can only borrow up to $5,500, of which no more than $3,500 can be in subsidized loans. There are also limits to the total amount you can borrow over the course of your college career.
If you need to borrow more than that, one option is the Federal Direct PLUS Loan. PLUS loans are for parents of undergraduate students (as well as professional students and graduate students). PLUS loans have higher limits – up to the full cost of attendance minus any other assistance a student receives – and are available regardless of need. However, the principal borrower must generally pass a credit check to prove their creditworthiness.
Private student loans lack the flexible repayment options available with federal loans.
Step 3: Consider 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 regardless of need, and you can apply for them using private financial institution forms instead of the FAFSA. To get a private loan, you will need to have a good credit rating or get someone who has one, such as a parent or relative, to sign for the loan.
Having less than excellent credit can make it difficult to qualify for student loans. Private lenders will take into account your income and credit history, and as a college student, you likely have poor credit or no credit at all. However, some lenders offer student loan options to borrowers with bad credit.
In general, private loans carry higher interest rates than federal loans, and their rates are variable rather than fixed, which adds some uncertainty to the question of how much you’ll ultimately owe. Private loans also lack the flexible payment plans available with federal loans and are not eligible for loan consolidation under the Direct Federal Consolidation Loan Program. However, you can refinance your own loans after graduation, perhaps at a lower interest rate.
Each college will notify you of the amount of assistance they offer at the same time you receive your formal admission. This is often referred to as an award letter. In addition to federal aid, colleges may provide funds from their own funds, such as merit scholarships or sports.
Step 4: Choose your school
The amount you have to borrow to attend one college versus another may not be the most important factor in choosing a college. But it definitely should be at the top of the list. Graduating from college with an unmanageable amount of debt — or worse, taking on debt and not graduating — is not only a burden that may keep you up at night; It can limit – or even derail – your career and life choices for years to come. Also factor in the future jobs you’re considering when you choose to pay more for college. A career with a higher income will put you in a better position to pay off your loans and justify taking on more debt.
How do you borrow college money under federal loan programs?
There are five letters to remember: FAFSA. To qualify for a federal loan, you will need to complete and submit an Application for Free Federal Student Aid, also known as a FAFSA. Borrowers must answer questions about a student’s and parents’ income and investments, as well as other related matters, such as whether the family has other children in college. Using this information, the FAFSA determines the expected family contribution, which is rebranded as a student aid indicator. This number is used to calculate the amount of assistance you are eligible to receive.
What are some advantages of federal loans over private?
Federal loans have relatively low fixed interest rates (private loans often have variable rates) and offer a variety of flexible payment plans. Private loans, unlike those provided by the government, are not based on financial need. Borrowers may have to pass a credit check to prove their creditworthiness. Borrowers with little or no credit history, or a poor score, may need a cosigner on the loan. Private loans may also have higher borrowing limits than federal loans.
What are the differences between subsidized and unsubsidized direct loans?
Like scholarships, direct subsidized loans are for students with exceptional financial needs. The US Department of Education will cover the benefit when you are a student at least half the time and for the first six months after graduation. By contrast, direct, unsubsidized loans are available to families regardless of need, and interest will begin to be collected immediately.
Student loans are among the resources available to help families pay college bills. Private and federal loans have advantages and disadvantages depending on your situation. Private loans, operated by banks and credit unions, are much like any other type of loan which means that a credit check will be required. Federal loans are often needs-based with low interest rates and repayment flexibility. Those who do the work required will find the options that best meet their needs.