With the cost of tuition, fees, housing, books and more, most college students depend on loans to finance their education. Among bachelor’s degree recipients, 61% took out student loans to pay for college expenses, according to the most recent Department of Education statistics.
If you’re among the majority of students who need to borrow money for college, here’s how to get federal and private student loans.
[Read: Best Private Student Loans.]
How to Get a Federal Student Loan
Federal student loans are issued by the Department of Education. They have low, fixed interest rates and come with robust borrower protections, making them a good first choice when borrowing money to pay for college expenses. Here’s how to apply for federal student loans.
Fill Out the FAFSA
The Free Application for Federal Student Aid is used by colleges to determine your eligibility for financial aid such as federal loans, grants and work-study programs. To complete the FAFSA, start by creating an account on the Federal Student Aid website.
It takes most people less than an hour to complete the FAFSA, according to FSA. Be sure to gather documentation such as your Social Security number or alien registration number, driver’s license or state ID, tax returns, bank statements, and other financial information. You’ll also need to list any schools you’re interested in attending.
Additionally, the FAFSA will ask a number of questions to determine your dependency status. Independent students generally receive more federal aid than dependent students, who must also report their parents’ financial information.
Review Your Financial Aid Award Letters
After you submit the FAFSA, you’ll receive a Student Aid Report within three weeks. The SAR is a summary of the FAFSA data you submitted, which you can review and correct if necessary. However, the SAR doesn’t outline how much financial aid you’ll get. For that information, you’ll need to read your financial aid award letters from the schools you’ve chosen. Here are a few terms you may need to know while reviewing your financial aid offers:
— Cost of attendance. The school’s certified cost of attendance may include tuition and fees, room and board, books, transportation, personal expenses, and other education costs. You can use this estimate to compare the cost of attending one university versus another.
— Direct unsubsidized loans. With unsubsidized loans, you’re responsible for paying interest during all periods. If you defer payments while you’re in school, your interest may accrue and be added to the principal of the loan. You may also choose to make interest-only payments while in school to avoid graduating with a higher principal balance.
— Direct subsidized loans. Direct subsidized loans are awarded to students based on financial need. If you qualify for subsidized loans, the government pays the interest on your student loans while you’re in school at least half time, during deferment and through the six-month grace period after graduation.
— Grants and scholarships. “Gift aid,” such as a grant or scholarship, does not need to be repaid. Federal grants, like Pell Grants, are awarded based on financial need. You may qualify for academic scholarships or merit grants through your university, and you may be eligible for additional need-based grants from the state in which you live.
— Work-study. The federal work-study program is a type of student aid, based on financial need, in which you earn money to pay for school through student employment. If you qualify for work-study funds, your school may match you with a job, or you may need to find and apply for a position on your own.
The amount of federal student loans you can borrow varies depending on the school’s cost of attendance and that academic year’s borrowing limits. The total loan amount is also based on your dependency status and the type of loans you need to borrow.
Accept Your Financial Aid Offer
Once you’ve reviewed your options, contact your chosen school to accept the financial aid offer. You should compare the total cost of attendance with your estimated financial aid award to determine whether you’ll need to borrow additional money to pay for school, such as through federal Parent PLUS loans or private student loans.
[Read: Best Student Loans for Bad Credit. ]
How to Get a Private Student Loan
Federal student loans should always be your first option when borrowing money to pay for higher education. When federal aid doesn’t cover the full cost of attending college, private student loans can bridge the financing gap. Private student loans may also offer lower interest rates and fees than federal PLUS loans issued to parents and graduate students.
Be careful to consider the alternatives, including federal PLUS loans as well as scholarships and work-study programs, before taking out private student loans. But if you’ve exhausted all your other options and you need to borrow additional money to pay for school, here’s how to apply for a private student loan.
Check Your Credit
Unlike federal student loans, private student loans are issued based in part on your creditworthiness. You’ll need good credit and a low debt-to-income ratio to qualify for private student loans, especially if you want a competitive interest rate. You can check your credit score on a number of apps, and you can request a free copy of your credit report on AnnualCreditReport.com.
However, many rising college students are too young to have built a sufficient credit history in order to qualify for private student loans on their own. If you don’t meet the eligibility requirements, you may need to apply with a creditworthy co-signer who does, such as a trusted relative.
Compare Offers From Multiple Lenders
Private student loan lenders let you prequalify to see your estimated terms, such as the annual percentage rate and monthly payment, with a soft credit check. This means you can shop around for the lowest interest rate without impacting your credit score. With multiple offers in hand, compare the terms to find the best loan for your financial situation based on the following criteria:
— Fixed vs. variable APRs. Fixed interest rates remain the same while you repay the loan, while variable interest rates can change depending on economic conditions. Lower interest rates translate to cheaper loans, but be careful when borrowing a variable-rate student loan since the APR and monthly payment can rise over time.
— Repayment terms. Shorter-term student loans will come with higher monthly payments, but they can save you money and help you get out of debt faster. A longer-term student loan can help you achieve lower monthly payments, but it will be more expensive to repay over time. Use a loan calculator to estimate your future payments.
— Hardship options. Private student loan lenders don’t offer the same forbearance and deferment options as federal student loans, but many private lenders have their own hardship programs. Be sure to compare each lender’s hardship options, so you can avoid delinquency or default if you experience unforeseen circumstances such as job loss.
Formally Apply for the Loan
Once you’ve chosen a student loan lender, you’ll need to complete your application. This will require a hard credit inquiry, which will leave a temporary negative impact on your credit score. The lender will need to know your citizenship status and Social Security number, as well as information on your income and debts. You’ll also need to provide information such as the name of your school, the school’s certified cost of attendance (as found on your FAFSA) and the type of degree you’re obtaining.
The lender will communicate with your university to certify the cost of attendance and release the funds directly to the school within a few weeks of approving your application. You may be able to defer private student loan payments while you’re in school, or you can make fixed payments or interest-only payments to reduce the principal balance when you graduate.
Pros and Cons of Private Student Loans
Pros
— Private student loans aren’t beholden to the federal student loan borrowing limits.
— Private student loan lenders let you get prequalified to compare rates without hurting your credit.
— Private student loans may offer lower interest rates than federal PLUS loans for graduate students and parents.
— Many private lenders don’t charge student loan origination fees or refinancing fees.
— Private student loans may be available to international students who don’t typically qualify for federal loans.
Cons
— Private student loans aren’t eligible for federal forbearance, deferment or income-driven repayment plans.
— Private student loans don’t qualify for federal student loan forgiveness programs.
— Private student loans tend to come with higher interest rates than federal student loans for undergraduates.
— Applying for a private student loan requires a hard credit check, and you may need a co-signer with good credit.
— Private student loans are always unsubsidized, unlike federal student loans, which can be subsidized.
— While deferment may be available, you might be required to make fixed or interest-only payments while still in school.
[READ Best Student Loan Refinance Lenders]
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How to Get a Student Loan originally appeared on usnews.com
Update 07/16/24: This story was published at an earlier date and has been updated with new information.
