If you want to get a college education, you probably won’t get around the rising costs of tuition. Every student who’s interested in going to college has to come up with a way to pay for it.
Scholarships and grants are possible, but aren’t always as easy to get as you’d think – qualifications put “free” money out of reach for many soon-to-be freshman students.
When you and your parents can’t afford to pay for college out of pocket, a loan might be the next option.
The First Step
Before you can apply for a student loan, you need to fill out the Free Application for Federal Student Aid (FAFSA). Not only do federal student lenders use this form to qualify you for loans and grants, many schools also use the application to determine your eligibility for other types of non-federal student aid including loans.
You can (and should) fill out a FAFSA prior to every school year no later than June 30 of that year. Your state may have a sooner deadline. You can confirm any state deadlines on the FAFSA website or with your college’s financial aid administrator.
Types of Student Loans
When it comes to students loans, there are three basic types:
- Federal student loans are guaranteed by the government.The interest rates and fees influencing the cost of the loan are limited by the federal government. Federal student lans do not require a credit check, down payment, or other type of collateral to receive the loan.
- Federal student loans for parents are similarly backed by the government. Interest rates and fees are set by the government, as well. However, parents must usually pass a credit check to receive the loan.
- Private students loans are available through many banks, credit unions, and savings & loans. The terms of private loans are decided by the lender rather than the government. Applying for a private loan is like applying for other types of loans with a credit check and income requirements.
Federal Student Loans
Federal student loans include the Federal Stafford Loan and the Federal Perkins Loan.
Stafford Loans are available through private lenders like banks and credit unions through the Federal Family Education Loan Program (FFEL). They’re also available directly to students and their parents through the Federal Direct Student Loan Program.
The loans may be subsidized, meaning the government pays interest on the loan while you’re in school, or unsubsidized where you pay the interest while you’re in school.
There are limits on the amount you can receive annually from a Stafford loan. These limits depend on your year in college, whether you’re an independent student, and whether your parents are receiving a loan on your behalf.
You are eligible to receive an unsubsidized Stafford Loan whether you have a financial need or not, as long as you submit your FAFSA. Subsidized Stafford Loans, on the other hand, are based on financial need, but still require a FAFSA to be completed.
You may receive a Federal Perkins Loan if you are an undergraduate student and you have “exceptional financial need.” These loans are available on a limited basis through your school, but are still provided and backed by the federal government. You can borrow up to $4,000 each year as an undergraduate student or $6,000 a year as a graduate student. You must fill out a FAFSA to qualify for a Federal Perkins Loan.
Student Loans for Parents
Parents can also take out a PLUS loan to help pay for their students’ college education. PLUS loans are available through the FFEL Program directly from lenders or the Direct Loan Program directly from the government.
For your parents to apply for a Direct PLUS loan, you must be a dependent student. Your parents need to fill out an application form that can be obtained from your college’s financial aid department. FFEL PLUS loan applications are available through the loan or directly from a lender like Sallie Mae, Chase, Citibank, or Bank of America.
In general, parents must pass a credit check or have a co-signer to obtain a PLUS loan. Your parents can only borrow the cost of your attendance minus any other aid you receive. Funds from the PLUS loan are sent directly to your school. Parents are responsible for repaying PLUS loans.
They can begin repayment 60 days after the first disbursement has been made or six months after your student status drops below half-time.
Private Student Loans
Private student loans are available through lenders and help cover the gap between what your education costs and any other aid you’ve received. You might consider a private student loan if you have expected family contribution that your family cannot actually afford to pay.
You don’t have to fill out a FAFSA or any other federal forms to apply for a private student loan. Instead, you apply for the loan directly through the lender of your choice. Private lenders often require a credit check and a source of income to qualify you for a loan.
If you cannot qualify for a private loan on your own, you would have to have a qualifying adult co-sign with you. Not only does having a co-signer help your chances of getting approved, it can also help you get a lower interest rate on your loan, allowing you to pay less in interest charges over the years. Private lenders choose their own fees and interest rate, within the bounds of the law, of course.
Check out Simple Tuition — they compare loans from dozens of financial institutions. Don’t just get the first loan you see — check the institution against its competitors.
Quick Review of the Steps
Getting a student loan for college through the federal government isn’t so hard. Private student loans can be tougher. To get a student loan you need to:
- Fill out the Free Application for Federal Student Aid
- Fill out loan applications from your school’s financial aid office
- Contact lenders directly to find out availability of private student loans
Don’t forget that there are alternatives to college, and a degree isn’t always necessary for success. To learn more, check out our college planning series.