How to get a student loan?

Learn all about how to get a student loan and apply for federal and private loans, understand the different types, choose the best options and compare them.

Updated by Gowtham Ramesh on 8th June 2019


When it comes to education, it's not so easy paying for it especially if you've taken a student loan. Even though education is quite expensive, it is necessary for obtaining competitive jobs with decent pay. Some cover the cost of it with families and employers but not everyone is blessed with it.

Further, if you need to go to college, you need to come up with funds for your tuition fees. For this, you need to know how to get a student loan.

To get a student loan for college is not that of a big deal. 

Before getting into the process let's first understand the 2 broad types of student loans - Federal Loans and Private Loans.


Table of Contents

 


What are Federal student loans?

Federal student loans are provided by the federal government. It's further broken into 3 types which are given below. 

Direct Subsidized Loans

This is basically provided to the borrower based on the financial need. The interest that accumulates during the school term is paid by the government. 

Direct Unsubsidized Loans

It’s not based on financial need, credit ratings, and other things. Furthermore, you don't need a co-signer for the loan. The school will determine the money and how much can you borrow, based on the cost of attendance and other financial aids you receive.

Direct PLUS Loan

This loan is purely based on the credits and is further divided into two types - Parent PLUS Loans for parents and Grad PLUS Loans for Graduate/Professional students.

It's always important to consider and look for federal student loan first, before taking Private loans, since there are huge differences in the interest rate, repayment options, and other factors.


How to apply for federal student loans

First, you need to apply for the Federal student loan by filling out and submitting a free application from Federal Student Aid (FAFSA) form online.

You must submit FAFSA to be eligible for a Federal student loan.

Things to keep in mind while applying for FAFSA

  • Remember it's free of cost for submission (if it's charging a fee, then you are on the wrong site).

  • Completion of FAFSA needs to done every year as you need money for tuition fees.

  • Complete and get it before October as soon as possible. The earlier might have a change of getting some grant on the first-come, first served basis.

Federal Aid of both grants and loans. Stafford loan consists of Subsidized and Unsubsidized loans which are provided to a student, irrespective of financial need and it depends on the funds allotted to the college. Direct PLUS Loans are also a part of Federal aid. 


Requirements for federal student loans

  1. Valid Social Security Number

  2. Male students between 18 - 25 must register with a service to receive loans.

  3. Permanent citizens with green cards can apply for aid. Immigrants with T-1, battered-immigrant-qualified alien are also eligible.

  4. A student holding a high school diploma or equivalent GED or certificate from the homeschooling program.

  5. Enrolled in an eligible school unaccredited schools might not qualify for a federal loan. some school has chosen not to receive federal aid.

  6. Filling of FAFSA asks your family's financial information to determine how much of amount are you qualified for. Without FAFSA, you can’t receive Federal loans and grants.

  7. Maintain good standing with federal financial aid which students can't have defaulted on other federal loans or owe money on federal grants.

  8. Accumulation of 2.0 GPA or risk losing financial aid until the grades improve.

  9. Students must be considered part-time to be eligible for loans. The college determines what part-time and full-time status is.


Federal Subsidized Vs Unsubsidized loan

Difference between subsidized and unsubsidized student loans is that students who have financial need receive a subsidized loan where the charge of interest will be the same while in school and paid by the government. Students who defer their loan also don't have to pay interest during that time.

Unsubsidized loans are not need-based and the interest which accrues during school term is not paid by the government.

Students whose FAFSA don't meet the required financial need can receive an unsubsidized PLUS loan which levy interest during the semester and the six-month grace period following graduation.


[Learn more about Direct Subsidized and Unsubsidized Loans ]


Repayment of Federal Student loans

After six months of the grace period, you generally start to make principal and interest payments.

Repayment is flexible for Federal loans and will change your life situation. You can apply for Deferment or Forbearance- a timeline where you don't have to pay back the interest on federal loans and some private loans. Under the Unsubsidized loan, the interest will keep accumulating during the deferment.

1 - Standard repayment plan

A fixed monthly amount is fixed to be paid with a goal of paying your loan off in 10 years. This saves money overall but costs more money at one time.

2 - Graduated Repayment plan

This plan is used to make smaller payments which increases every 2 years again with the goal of paying off the loan in 10 years.

3 - Income-Based Repayment plan

Under this plan, if your payment is capped at 10% of your discretionary income then the difference between your income and 150 percent of the poverty guidelines for your state and family size will be given off as student loan amount.

How to apply for student loan?

source - pexels.com

4 - Extended Repayment plan

The monthly payment is fixed with the goal of paying the loan in 25 years. Under this option, you must have at least $30,000 of Federal Loans or more to be eligible.

5 - Income-Contingent Repayment (ICR) plan

You are required to pay 20% of your discretionary income. Though, your payment may be fixed because of the amount which can be paid in 12 years terms or less. 

6 - Income-Sensitive Repayment plan

Under this plan, monthly payments are based on the annual income for up to 15 years. Federal Student Aid has a repayment estimator which can tell you the information.

If you provide the number of your loans your interest rates, and your income to see options that might work best.


[Learn more on Income-driven repayment plans here


What are Private student loans?

A Private student is another way of financing education for students who are worried about how to get a student loan. It should be considered as your last resort as interest on Private loans is generally high than your Federal loans.

Basically, they are issued by the banks or other financial institutions.

For students

These loans are basically taken out by the students. It's often taken out with the help of co-signer who is usually a parent or another creditworthy individual.

For Parents 

Another way to get money for college. A parent or other creditworthy individual takes out the loan to help their child pay for college.


How to apply for private student loans

Since the private student loan is offered by banks and financial institutions, you can apply directly to the lender.

  • First, go to the lender's website.

  • Check the interest rate of the loan with the repayment flexibility options and benefits.

  • Apply through the website. Choose the type of repayment option and interest rate according to your need.

  • Consider adding a co-signer which might boost your chance of getting a loan.

  • The lender will check your credit score and your co-signers if you have any and will contact you for further steps.

Getting a private loan is not that difficult. Contact your university whether they are enrolled in school channel loans. School channel loans are loan programs arranged as collaborations between colleges and financial organizations.

There are several private financial organizations that specialize in direct to consumer private loans by contacting them and under various possibilities, choose the one that fits your need the best.


Requirements

  1. Each private loan service has different requirements.

  2. Most companies require a minimum income and credit score before they will agree to lend you the money.

  3. Private lenders often need a co-signer because a college student typically has no income or credit history.

  4. Comparing your private student loan option with review sites and service providers allow you to get a better deal.

  5. Beware of scammers who provide a six-figure loan without any necessary document verification.


[Also Read: Student loan scams you need to beware of ]


What's your borrow limit?

The Financial Aid Office will account your maintenance costs and you can turn down a loan or request a lower amount if you feel their expenses are too high. Borrow only for your required financial need. It's always better to calculate your estimated living expenses yourself and get the money accordingly.

Applying for Federal Loan fill out FAFSA

Source - pexels.com

Always make sure not to take more loans than the expected salary in your field. You are expected to pay back the loan even if you can't get a job in your field or your plans changes.


Interest rates

Interest is the money paid to the lender for a particular rate in exchange for borrowing a large sum. The interest rate is being calculated as the percentage of your unpaid loan amount which is also called as the principal amount. You are responsible for paying interest on unsubsidized loans.

How does interest work?

Example-

A loan with a 5% interest rate (.05 divided by 365.25) will give you a daily rate of 0.00013689253.

With this interest rate factor, you can find how much interest accrues on your loan from month to month.

If your student loan is around $33,000 the average debt of a student graduated in 2014. It's been 30 days since your last payment and you have a 5% interest rate.

33,000 (principal) X 30 (unpaid days) X 0.00013689253 (Interest rate) = about 135.5 or $135.50 is incurred in that month.


[ Learn more about Student loan interest deductions ]


Federal loans vs Private loans

The key point of student loans is in the cost and use of credit score in determining the eligibility.

  • Undergraduate students applying for Federal loan will not have to go through the credit check can be denied if there is conflicting info present in his credit history.

  • The interest rate on the Federal Student loan is fixed and the interest rate on the Private Student loan can be variable or fixed and they are usually high

  • Undergraduates students demonstrate financial need could receive a federal subsidized loan government will pay their interest until you graduate. Private loans are never subsidized you need to pay all the interest.

  • Federal loans offer flexible repayment options and loan forgiveness programs. The private loan has few repayment options and no loan forgiveness programs.

  • Federal loans don't have to be paid until you are graduated or dropped below half time as student status. Many private loans ask for repayment while you are still in school.


Conclusion

While looking for getting a student loan either from federal or private institutions, always make sure to be aware of the terms and conditions. Choose the action which will be suitable for you as at the end of the day, you will be repaying the loan amount that you have taken. 

Plan for the student loans accordingly and check the repayment plans as well. Decide on a co-signer with a good credit history and you're good to go. 


FAQ'S

  How do I apply for a student loan?


To get a Federal student loan you need to follow these steps - Submission of an Application for Federal Student Aid (FAFSA). With the information from the college or school, they will send an offer which consists of Federal financial aid. To get a private loan, you have to apply for it at the lender's website.

  Who can qualify for a student loan?


To be eligible for a student loan, you require to prove that you have been enrolled in a particular school. You must be a U.S. Citizen or a permanent resident of a legal age.

  Can I apply for a student loan in the middle of the semester?


Yes, applying for a student loan can be done during a year in college. Until you have not filled the FAFSA before the deadline closes. 

  How much can I get in student loans?


The money that you borrow depends on several factors such as Federal or Private loans and the school. Undergraduates can get up to $12,500 annually and in total, they can get up to $57,500 for Federal student loans. Graduate students can get up to $20,500 annually and in total, around $138,500.

  Can an 18-year old take out a student loan?


As a minor, the education loans and other responsibilities are tied up to your parents as they are responsible for your education. A co-signer for your Federal student loan is not required and your parents don't need to get it if you are 18 years old. Defense of Infancy doesn't apply to Federal student loans.

  Are student loans worth it?


A student loan can be seen as a problem as it leaves you with thousands of dollar as a debt. Even though it leaves you with debts, it's a great investment for your education which can help you get a good income and career in the future.

  Can you apply for student loans before being accepted?


You can apply for your loan by filling the FAFSA before getting admission to a school or college. It will generally get processed until you have been admitted in the school. The information will be forwarded to the college but will not process anything until you are enrolled in a degree program.

  Do I have to apply for student loans every year?


Yes, you are required to submit a new application at the starting of every academic year. The financial situation changes every year, hence, a new assessment is required to process in order to provide a loan in a specific academic year.

  How quickly can you get a student loan?


Generally, the money will be sent to the college directly which will take around 1-2 years before the remaining amount is sent to you. From the date the loan is allocated, it can take over 3-10 weeks to receive the student loan money from a private student loan lender.

  How much can a freshman borrow in student loans?


The Direct Unsubsidized Loan gives you an annual limit based on the undergraduate students year in school. For the year 2015-2016, the limit was $5,500 for the freshmen and $6500 for sophomores. It varies and moves depending on the students and the year of their college.