The majority of students today must take out loans to pay for college unless their parents have saved up a sizable sum of money or are extremely wealthy. Additionally, working your way through college is mostly obsolete now.
Few students are able to support themselves financially while attending college and taking coursework. Student loans (and debt) have therefore become more widespread. What you should know about applying is provided here.
KEY LESSONS
Students and parents must complete the Free Application for Federal Student Aid, or FAFSA, in order to apply for federal loans for college.
Subsidized and unsubsidized federal student loans are the two main categories available. If you are eligible, subsidized loans are more inexpensive.
Federal PLUS loans for parents and private loans from banks and other lenders are additional borrowing options.
Up to the beginning of 2022, payments and interest on government agency student loans have been frozen.
Step 1: Complete the FAFSA.
Filling out the government’s Free Application for Federal Student Aid is the initial step in applying for student loans (FAFSA). In addition to other pertinent information like whether the family will have more than one kid enrolled in college at the same time, the FAFSA includes a number of inquiries regarding the student’s and parents’ income and investments.
The FAFSA will calculate your Expected Family Contribution based on the data you provide (EFC). The government estimates that you should be able to cover that portion of the cost of education for the upcoming academic year on your own.
On the website of the Federal Student Aid office, you can submit the FAFSA online.
Gather all of your account information before you sit down to begin working on it to save time. The FAFSA must be completed every year following the initial application for help if you want to keep getting it.
Comparing your financial aid offers is step two.
The FAFSA data will be used by the financial aid departments at the universities you apply to to calculate how much money will be made available to you. They determine your requirement by deducting your EFC from their attendance fee (COA). Tuition, required fees, lodging and board, as well as some other expenditures, are all included in the cost of attendance. The majority of colleges’ websites have it.
Colleges will put together an aid package that may include federal Pell Grants, paid work-study, and loans in order to close the difference between your EFC and their COA. Grants, as opposed to loans, do not typically require repayment. The government defines them as being for students with “severe financial need.”
It’s crucial to compare award letters side by side because they can vary from one college to another. When it comes to loans, you should consider how much each institution gives as well as whether or not the loans are subsidized or unsubsidized.
Grants and direct subsidized loans are intended for students with extraordinary financial need. Subsidized student loans have the benefit of having the interest paid for you while you’re enrolled at least half-time and for the first six months after you graduate.
Families can apply for direct unsubsidized loans regardless of their financial situation, and interest will start to accrue right away.
Due to the economic crisis, these loans’ interest and payment obligations were halted in 2020; they were resumed in mid-2022.
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A college might provide you with both subsidized and unsubsidized loans if you meet the requirements.
Compared to student loans from banks and other commercial lenders, federal loans have a number of benefits. They provide a number of flexible repayment options and have relatively low, fixed interest rates (private loans can have variable rates).
The total you can borrow, though, is constrained. For instance, the average first-year student is only permitted to borrow up to $5,500, of which no more than $3,500 may be in the form of subsidized loans. Additionally, there are restrictions on how much you can borrow overall during your time in college.
A federal Direct PLUS Loan is a choice if you need to borrow more money. Parents of undergraduate students are supposed to use PLUS loans (as well as for professional and graduate students). Regardless of need, PLUS loans are available with higher ceilings that go up to the full cost of tuition less any financial aid the student is getting. To demonstrate their trustworthiness, the parent borrower must often pass a credit check.
The various repayment choices offered by federal loans are absent from private student loans.
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3. Take into account private student loans
Applying for a private loan from a bank, credit union, or other financial organization is another choice if you need to borrow more money than what federal student loans can offer.
No matter your financial situation, you can apply for a private loan utilizing the financial institution’s application instead of the FAFSA. You must either have good credit to qualify for a private loan or cosign the loan with a cosigner who does, such as a parent or other family.
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Having poor credit can make it challenging to be approved for student loans. As a college student, you probably have bad credit or no credit at all, which private lenders will take into account when determining your loan eligibility. However, several financial institutions provide choices for students with poor credit.
The interest rates on private loans are typically higher than those on federal loans, and since they are variable rather than fixed, it is uncertain how much you will ultimately owe. Additionally, private loans do not qualify for loan consolidation under the Federal Direct Consolidation Loan program and do not offer the same flexible repayment options as federal loans. After you graduate, you can refinance your private loans, perhaps at a cheaper interest rate.
Around the time you receive your official acceptance, each college will let you know how much aid it is offering. This is frequently called an award letter. Colleges may also offer financial aid from their own resources, such as merit or sports scholarships, in addition to federal funding.
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Step 4: Pick a school
The amount of debt you’ll need to take on to attend one college over another may not be the most crucial consideration when selecting a college. But it should unquestionably be at the top of the list. It’s not just a burden that might keep you up at night to graduate from college with insurmountable debt, but it can also restrict or even ruin your professional and personal choices for years to come.
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When deciding whether to pay extra for college, take into account your potential future professions as well. You’ll be in a better position to pay off your debt and justifiably take on more debt if you pursue a career with a high entry-level salary.
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