There were times when student loans were seen as the last available solution for those who couldn’t afford college. However, with an increasing cost of education, and other unaffordable expenses at college, it is so common for students to apply for Student Loans.
It is thus rare to find someone who wouldn’t want financial aid to pay off the tuition. According to the College Board’s Trends in Student Aid Report, undergraduate students in the 2016-2017 academic year received $14,400 in financial aid.
Studies have shown that student loan borrowers carry 3.7 loans on average.
List of Contents
- Type of Student Loans
- Types of Federal Student Loans
- Private student loans
- Application Process for Federal Student Loan
- CSS Profile
- Online Application of FAFSA and the CSS Profile
- Review of Student Aid Report
- Waiting for a Financial Aid Award Letter
- Application process for Private Student Loans
Type of Student Loans
Student loans are broadly divided into two categories.
Federal Loans and Private Student Loans
Federal Student Loans
Before taking up a student loan, there will be several precursors such as FAFSA filling, grants, and scholarships application, looking out for the work-study program, part-time job opportunities, and more.
The Federal Student Loan Program started in 1958, after capitalizing the loans from the US Treasury.
The Focus of the Program extended to Federal Family Education Loan Program in 1965.
Private Lenders such as Sallie Mae offer loans to students.
The advantages of the Federal Student Loans as compared to the Private Student Loans are as given below.
Fixed and lower interest rates
Non-requirement of credit-checks and co-signers
Flexible payment options along with adequate loan forgiveness programs
Multiple federal loan consolidation in order to create a lower monthly payment.
The amount borrowed is determined by the grade level, dependency status, along with the cost of attendance
The federal government or school chooses the lender
Tax deduction on paid interest is possible.
More flexibility is granted for the personal financial crisis and puts loans in deferment or in forbearance.
The disadvantages of Federal Student Loans are as given below.
The amount that is borrowed is set by Congress and hence all the costs may not be covered by your loan.
A loan default can result in serious outcomes such as wage and federal tax return garnishment.
Federal student loans are not bankrupt-able.
Types of Federal Student Loans
Federal student loans are broadly divided into 6 categories.
Federal Perkins Loans
Direct Subsidized Federal Loans
Direct Unsubsidized Federal Loans
Direct PLUS Loans
Parent PLUS Loans
Direct Consolidation Loan
Federal Perkins Loans
This loan program is not currently available. This loan was mostly availed by low-income, undergraduate, graduate and professional students.
These loans helped students to cover the cost of attendance whenever the available financial aid wasn’t sufficient to meet the expenses of college.
During the time when the loan was available, students were not charged any processing fee for loan application.
When compared to other Federal Loans, Perkins Loans offered a lower interest rate as low as 5.00%. A nine-month grace period was also granted for the loans.
This was higher than the typical six-month grace period for any other federal student loan program. Undergraduate students received $5,500 in a year or a sum total of $27,500 for their entire college duration.
Graduate or professional students received $8,000 per year or a sum total of $60,000 including the amount that was borrowed as an undergraduate.
As the Perkins Loans funds were limited, the competition for the loans was stiff.
In fact, your eligibility for Federal Perkins Loans did not guarantee you a Federal Perkins Loan.
Unlike direct loans, Perkins loans have different repayment options and loan forgiveness opportunities.
For Perkins loans, the payments are made directly to the college and not just the servicer.
Federal Perkins Loans were discontinued so as to shift the federal student loan program into one federal student aid, one federal loan and one federal grant.
If you are currently a student, making use of the benefits of the Perkins Loan Program, you can continue to use the benefits of the program, till the end of the academic year.
The other Federal-aid programs can be accessed by submitting the FAFSA form.
If in case you already used up the federal student aid, but haven’t got your expenses met, then you can use some Private Student Loans.
Direct Subsidized Federal Loans
The direct federal loans, that include the direct subsidized loans and the direct unsubsidized loans, are known as the Stafford Loans.
For Direct Subsidized Loans, the interest that is applied to your loan is covered up by the US Department of Education, while the student is enrolled half-time in school. The interest amount for a $5,500 loan is $206.80 for a 2016 college freshman.
Undergraduate students, who are eligible to receive financial aid, should demonstrate a financial need.
The interest rate applied for undergraduates is 3.76% and for post-graduates, it is 5.31%.
The maximum amount that is borrowed ranges from $5,500 to $12,500. The loan fee charge is 1.069%.
The loan term is 10 to 25 years.
These loans have fixed interest rates.
Though an origination fee is applied for Federal Stafford Loans, borrowers can make use of several protections.
Subsidized loans can only be borrowed only for 150 percent of the length of your degree program. This can apply for three years of an associate degree and six years for a Bachelors degree.
Direct Unsubsidized Loans
Undergraduate and graduate students take out Federal Stafford Loans. Moreover, these loans aren’t reserved not just for low-income students.
Even during times of deferment or forbearance, you are responsible for the interest on unsubsidized student loans.
However, the 150 percent time limit does not apply to these unsubsidized Federal Stafford Loans.
Thus students can fund college costs, with unsubsidized Stafford Student Loans.
As the loan limits on unsubsidized student loan limits are higher, their degrees can take longer to complete.
As the loan limits on unsubsidized student loans are higher, students can cover more of their costs with it.
Direct Subsidized Loans
Low-income undergraduate students who demonstrate financial need can make use of the Direct Subsidized Loans.
With Subsidized Stafford Loan, you can pay your principal and interest.
However, if you are still in school, or during your post-graduation grace period, or during your deferment, the US Department of Education takes care of your interest.
The funds for Direct Subsidized Loans are limited hence students can borrow only a maximum of $5,500 in a year, for this type of loan.
1. Direct PLUS Loans
The graduate PLUS loan was built for graduate and professional students, who wanted more time to improve their credit score. In order to qualify for PLUS Loans, bad credit history can be helped by an endorser who has strong marks on the credit report. You can make your first Direct PLUS Loan repayment, until 6 months after they finish or graduate school.
For loans disbursed between July 1, 2016, to July 1, 2017, the interest rate is 6.31%. The maximum amount that is borrowed is the cost of attendance minus any other financial aid. The loan fee is 4.276%. the loan term is 10 to 25 years.
2. Parent PLUS Loans
The parents of undergraduate students can make use of the Parent PLUS Loans, in order to support their kids in their education. Even adoptive or step-parents can apply for the Parent PLUS Loans. Though deferment can be requested, parents are expected to make their payments while their children are in school.
The interest rates for Parent PLUS Loans is 6.31% and the money that is borrowed is calculated as the total cost of tuition minus the financial aid that you receive. The loan fee is 4.276% and the loan term is 10 to 25 years.
3. Direct Consolidation Loans
By consolidating different loans you can bring several loans under one single provider. Thus you can also make a single monthly payment. As the repayment period can extend up to 20 years, the loan payment would also be lower than your past loans.
As different loans have different repayment policies and associated offers, consolidating the loans can sometimes result in the loans losing individual benefits that it was supposed to receive.
The interest charged is the weighted average of your interests on existing loans. The repayment term is up o 30 years.
Private Student Loans
Government student loans are beneficial than private student loans, with regard to every benefit that they offer.
Favorable interest rates, discounts, and repayment plans are offered by Private Student Loans.
Most private student loan lenders are successful in presenting your student loans as a customizable product.
For private student loans, variable rates are offered in addition to the fixed rates. Credit history can lower your interest rates, provided the cosigners are required.
Monthly bills can be made more manageable with the loan specific repayment options, deferment programs, in-school payments and more.
There are several private student loan lenders who offer school loans for students and parents.
Lenders such as Sallie Mae, Earnest, College Ave and more have already established their regime in student loan assistance.
Application Process for Federal Student Loans
Federal Student Loans are granted on a First Come First Serve basis. Hence the earlier you apply for the Federal Student Loan, the better is your chance to obtain the loan.
1) All information that you require for a student loan is compiled
You can fill out the Free Application for Federal Student Aid known as the FAFSA in order to obtain federal student aid. Even if the form takes some time to fill out, the application process is made easier.
FAFSA Applications are released in October of every year. And you’ll need to apply in prior if you have plans of attending the college in the next academic year. As there is a lot of information on the form, you can start compiling what you need in September.
The necessary information that has to be included in the FAFSA form is as given below.
The adjusted gross income of the parents two years prior to applying.
Tax returns of parents from that same period.
Personal tax returns of the borrower
The Social Security Number and dates of birth of the borrower and his/her parent.
Details of the aids that are currently received such as Medicaid, Supplemental Security Income, Supplemental Nutritional Assistance Program, Free or Reduced Price School Lunch, Temporary Assistance for Needy Families, Special Supplemental Nutrition Program for Woman, Infants and Children.
Details of untaxed income such as child support, payment to tax-deferred pension retirement savings plan and so on.
Assets and investments that you currently have.
List of 10 schools that you are applying for.
Details of educational financial aid that you have already received.
Though FAFSA is the ultimate application form for federal student aid, there is one other form called the CSS Profile that can be filled in to receive institutional aid.
This institutional aid helps to supplement the Federal Aid that you have already received.
Access to grants is unlocked by CSS Profile and not just loans.
An initial $25 fee is first applied and later for every college that you are applying an additional $16 is applied.
Unlike FAFSA detailed information has to be entered at most places in the CSS Profile.
Online Application of FAFSA and the CSS Profile
FAFSA and the CSS Profile can be electronically entered. For that, the FAFSA registration can be done online through fafsa.gov.
Once the registration is complete, FAFSA application and editing can be done online.
By using the IRS data retrieval tool you can skip some of the steps. The College Board helps you to fill out the application.
Before the online application is filed, make sure that you have your desired colleges in the list that is attached.
Review of Student Aid Report
After the FAFSA is filled you’ll get a student aid report. Three days to three weeks is the range of these reports.
You can also review your accuracy or edit your FAFSA. You might sometimes need to confirm what is entered on your FAFSA.
Missing the deadline means not getting any federal financial aid.
Waiting for a financial aid award letter
After FAFSA completion a financial aid award letter is granted from the colleges that you have listed on the form.
These college timings vary from one college to the other.
If you have received admissions acceptance from a college but no financial aid award letter, the letter’s status can be enquired.
From the loans that are offered to you, a mixture of subsidized and unsubsidized loans are granted. As subsidized loans do not accrue interest, it is best to use these loans first.
For scholarships and grants, you must understand the conditions that you meet.
For the work-study program, you do not have to repay the money, but you’ll have to work for it.
Researches have shown that students into part-time jobs do their jobs better.
For federal student loans, the money is repaid with interest.
Subsidized loans do not accrue interest until you leave school.
For private student loans, you’ll have to repay the money with interest and the loan condition will not be good as the federal student loan.
There are times when federal student loans come up short. Expected family contribution plays a role in how much you pay for your tuition.
Application Process for Private Student Loans
Private student loans come into picture when you either do not have the eligibility to apply for federal loans or you do not have the sufficient funds left for college expenses with the federal aid that you have already taken.
The procedure to be followed while applying for private student loans is as given below.
Make a thorough study on Private Student Loans
Find out the private student loan application deadline
Check for the need and availability of a cosigner
Find out the essential documents for private student application
Timely submission of a formal student loan application
1)Study on the availability of private student loans
We already know that a private student loan is issued by a private agency, whereas a federal loan is issued by the government.
And hence the process of application would differ for each.
When it comes to private student loans, it is always best to choose trusted and aged lenders such as the Citizens Bank, Sallie Mae, Lendkey and more.
You can also check for a preferred lender list. You also need to choose the correct loan for your education level. Moreover, you need to compare interest rates, payment terms, and fees in order to find the most cost-effective loans that would suit you.
Once the best offer is identified, you need to make the online application.
However, before application, you need to know the exact amount that you are supposed to borrow and also the college that you choose to study in.
2)Find out the deadlines for private student loan applications
Though FAFSA applications have a deadline, private student loan applications do not have one.
The private student loan application can be done throughout the year.
However, make the loans applications long in advance because the process may take some time and hence tuition payment should not be made late due to the delay in private student loan processing.
3)Check for the availability of a cosigner
Your credit history is one important factor that determines the sanctioning of your loans.
But do not be disappointed even if you do not have sufficient credits. You can seek the help of a cosigner.
A cosigner can be anyone in your family or your friend-circle, whose credit-history is good enough.
Moreover, if you miss a monthly payment you would not only damage your credit history, but also the credit history of your cosigner.
4)Paperwork for a loan application
Before filling out the loan application, you’ll need to have with you, social security number, personal information, gross annual income, assets, and their values, Monthly rent or mortgage, copy of the latest tax returns, employment information and personal reference.
Along with the school information, name of the college, date of graduation, the tuition, and the amount that you borrow are also added up.
A FAFSA application would clearly tell you the exact expenses for you in the college.
Hence you can plan the amount that you borrow from the private lenders. For more amount that you take out a loan, you’ll have to pay more interest.
You have to fill out the Private Education Loan Applicant Self-Certification form. This private student loan application can be found out from the financial aid or the Department of Education.
5)Submission of a private student loan application form
The details to be entered include the personal information and the cosigner information.
Financial information ranging from the paystub to the tax return is then entered.
School information includes graduation rate, loan amount and loan period.
Sometimes a personal reference section has to be included on the private student loan application.
You can agree on the lender’s terms and conditions including your credit check.
You can then proceed with the loan application.
Most lenders would have different interests, repayment rates, and application processes. Hence it is necessary to understand the differences before you choose a lender. However, it is best to manage your expenses with federal loans. This is because private loans are not entitled to any benefits and the interest rates are high.