How to Get a Student Loan
Few students can simply dip into their back pockets in order to pay the tab for their tuition, and even those who might be able to cover the cost of a semester or two might find it hard to pay for an entire 4-year education without a little help from an outside source. Often, this means that students must apply for and obtain loans in order to pay for school, and unfortunately, many students aren’t quite sure about how they should proceed in order to get the money they need.
How to Start a Search
Any reasonable search for a student loan should begin with a Free Application for Federal Student Aid (FAFSA). This form, which students must fill out on a yearly basis, serves as the gateway to all of the loans provided by the U.S. Department of Education, and schools also use the information on the FAFSA in order to determine a student’s eligibility for grant money and some scholarships. In other words, filling out a FAFSA can help students get free money and beneficial federal loans. It’s an amazing tool, but unfortunately, few students take advantage of the opportunity. In 2012, for example, just 55% of students completed a FAFSA, according to data released by the U.S. Department of Education. Students who don’t fill out this form could be missing out on an intense amount of benefits.
When students do fill out a FAFSA, the data they enter is reviewed and a letter is generated by that student’s school that explains the options students have open to them. Sometimes the FAFSA contains a great deal of information about federal loans and grants, and sometimes the letter indicates that students aren’t eligible for some of the more spectacular types of aid that could help them to pay for school. For some, the search begins and ends here.
Students who get great news on the FAFSA may not need to do any more searching for a student loan. But those who don’t get the news they were hoping for may need to explore their options on the private market. These students can visit financial institutions they’ve worked with in the past, including the banks that hold their savings accounts, or they can visit banks and credit unions in the community and ask about loan products for school. Sometimes these local searches provide students with great deals.
The Internet can also be a great resource for loans for college students. Online tools (including the one we offer on this site) can help to match students in need with private lenders that can help. Often, websites provide comparison tools, so students can look at several loan products at the same time and make decisions about the products that are best for their specific situations.
Direct Subsidized Loans are designed to help students who can demonstrate financial need. The U.S. Department of Education doesn’t define that need on its website, and it’s possible that eligibility varies depending on the financial health of the students who apply during a particular year. But in general, students struggling to pay for school and who attend school at least part-time are eligible for this program. The U.S. Department of Education picks up the tab for interest on these loans while the student is in school.
Direct Unsubsidized Loans don’t come with the same requirement regarding financial need, but students are still required to attend school at least part-time in order to get this loan. In theory, every student who fills out a FAFSA should be offered a Direct Unsubsidized Loan, unless that student has obtained a loan like this in the past and is now over the borrowing limit determined by the U.S. Department of Education.
Students who are no longer eligible for the Direct loan program, and who are working on a graduate degree, can apply for Direct GradPLUS Loans. These applicants must not have a poor credit history, and they must prove that they are enrolled at least half-time, but these loans are designed to help these needy students.
Perkins Loans are the last form of product offered by the U.S. Department of Education, and they might be considered the hardest form of help to receive. Students must demonstrate a significant level of financial need in order to participate in this program, and they must attend a school that participates in this program (and not all schools participate). Interest rates on these loans are generally kept low, as these loans are designed to help students who might not be able to afford a standard loan.
Federal loans come with some perks that students can find appealing, but in 2007-2008, more than 2 million students got loans from private lenders, according to the Project on Student Debt. Eligibility requirements for these loans are hard to define, as they may vary from loan to loan and student to student, but it’s likely that these borrowers had good credit and/or a co-signer in order to get a loan from a private bank.
How to Compare Loan Options
Students who explore all of their options for loans, including federal and private, may be left with a list of five or even 10 loans. They might be a little baffled about which product to choose, but looking for a few keywords can help to narrow the field. Those products that contain the words “subsidized” or “grant” typically contain help for a student in financial distress, and those should be the products that a student chooses first.
Looking at monthly payments can seem like a good next step, as some loans might require students to adhere to a monthly payment schedule that seems unreasonable. But the more important figure concerns the total cost of the loan. When all of the payments have been tallied, and the interest costs have been added in, students can see how much they’ll pay for the loan product as a whole. This is the figure that really should separate a poor loan from a better option.
If these figures aren’t outlined on an offer letter, the U.S. Department of Education repayment calculator can help. Here, students can estimate how much they’ll pay based on the repayment plan they select. This tool is
designed only for federal loans, but it can be a good tool for students to use on private loans too, if students look only at the “standard” repayment plan option. Private loans should detail this information, however, so calculators might not be required.
It’s also vital to determine what add-ons the loans have. Federal loans, for example, come with a suite of options that can allow students to tie their monthly payments to their income levels, and they might even allow students to discharge debt left behind when the payments are complete. Private loans might not provide anything that appealing, and that might allow a federal loan to seem like a better option.
Financial aid officers at most major schools are more than happy to go over loan information with students and help them to make good decisions about their loans. These people aren’t financial advisors, of course, but they deal with loans each and every day, and they might provide a level of insight that’s crucial for students who want to make an informed economic decision about the loans they’ll agree to.
How to Apply for Student Loans at the Federal Level
Students who want to take advantage of federal loans will work directly with the school they’re planning to attend. The school will provide an offer letter that details the types of loans the students can take and the amount of aid they’ll get, and they’ll notify the school when they’ve decided what loans they’d like to accept.
When students accept a loan, they’re asked to sign paperwork. A Master Promissory Note (MPN) is common, and students can work with that form online, using their FAS ID. Once students sign on, they’ll be taken to a form that they’ll sign electronically. Students are also required to complete a short online course about their loans, and they can access that module on the same website.
- Provide proof of their identity
- Demonstrate proof of their financial health
- Obtain a co-signer for the loan (if they have poor credit)
- Sign a series of documents about the loan
It can be a time-consuming process, but often, students are given many opportunities to ask questions about their loans and otherwise find out more about how much they’ll be asked to pay and when payments will begin. Working with a small bank can be particularly enjoyable, as students may get a significant amount of one-on-one attention from a loan servicer at a small bank or credit union.
Online banks may not be able to provide this kind of face-to-face service, but students might have the opportunity to chat with representatives online, or they might call to ask questions and get more information. Online banks may have all of the loan paperwork online in interactive fields, and they might be able to process that paperwork in mere minutes and get students the money they need in no time at all.