How to Apply for Student Loans

This is a companion to our post about repaying student loans. You might want to read that one next.

There are a lot of ways to pay for college: scholarships, financial aid, juggling for loose change as a street busker. Granted, some methods are more common than others, though none so common as student loans. So what do you need to know to determine eligibility, apply for, and receive your student loans? Here’s a quick rundown:

Completing Your FAFSA

Your very first step should be to complete a FAFSA. The Free Application for Federal Student Aid, or FAFSA, is a form that both current and prospective college students can fill out annually to determine individual eligibility for student financial aid. The FAFSA is made available by the Department of Education and all students seeking assistance for undergraduate or graduate studies have the right to fill it out. In fact, you should complete your FAFSA even if you don’t think you’ll be eligible for a need-based loan. There are unsubsidized loans which are available to all, regardless of income.

Eligibility for Aid

Your eligibility to receive a loan of any kind is based on the following criteria:

Preparing Your FAFSA

Beginning in the 2017-2018 academic year, the FAFSA will be made available to the public on October 1st. Historically, the date of availability had been January 1st. The decision to make the FAFSA available to applicants three months earlier was done to more closely coordinate the financial aid application process with the typical college admission application process.

You have the option of preparing your FAFSA through any of the following channels:

After you have filed your FAFSA, you will receive a Student Aid Report (SAR) indicating your eligibility for certain grants or loans.

Common Loan Types

Once your eligibility is determined, you will be entitled to apply for certain loans based on your Expected Family Contribution (EFC) (a legally established formula measuring your family's financial strength based on taxed and untaxed income, assets, and benefits like unemployment or Social Security).

Pell Grant

A grant for those with demonstrated financial need, the Pell is an award in the amount of $5,815 (at the time of writing) and, unlike traditional non-needs-based loans, the recipient is not responsible for paying back this sum.

Stafford Loans

A Federal Direct loan with a fixed interest rate of 4.29% (as of the 2015-2016 academic year), the Stafford is available in both subsidized and unsubsidized forms. For subsidized loans, which are granted on the basis of financial need, the interest on the loan is paid by the federal government as long as the student is enrolled in college at least half-time. The borrower becomes responsible for repayment of interest upon leaving or completing his or her studies. For unsubsidized loans, the interest amount accrues while the student is enrolled, and must be repaid along with the principal loan balance after a student leaves school, graduates, or drops below half-time enrollment. There are several options for how to structure the repayment process which may include some deferment period (typically a grace period of six months following departure from school).

Federal Perkins Loan

Similar to the Stafford Loan in most regards, the primary difference is that the Federal Perkins Loan is lent directly by Title IV-eligible schools (as opposed to the Federal Government) and must be repaid at a fixed interest rate of 5%.

Federal Work-Study Program

The Federal Work-Study Program give students who are eligible the opportunity to do part-time on-campus work to help offset the cost of tuition. Typically, half of the student’s wage will by paid by the federal government with the other half funded by the school itself. Every college has a different set of working opportunities from which applicants can choose. Consult your colleges of choice to learn more about such opportunities.

PLUS Loan

The PLUS Loan is actually a student loan granted to the parent of the enrolled student. The PLUS has similarities to the Stafford or Federal Perkins Loan, including repayment schedule (at least for loans granted after 2008. Repayment for PLUS Loans from prior to 2008 must begin within 60 days of final disbursement). By contrast to Stafford and Perkins Loans, the PLUS Loan is granted with a fixed 7.9% interest rate. Though there are no limits to the cost of attendance, provision of such loans is subject to credit review, which is not the case for Stafford loans.

Consolidation Loans

Under the terms of the Federal Direct Student Loan Program, a borrower may consolidate Stafford Loans, PLUS Loans and Federal Perkins Loans into a single debt, reducing monthly payments and applying a single fixed interest rate to one lump sum.

Private Loans

Typically used to supplement standard aid loans like a Pell Grant or Stafford Loan, a private loan generally lacks many of the protections accorded to those availed by the federal government. These commercially advertised loans will often lack forbearance, deferment and financial hardship protections and there is no ceiling to interest charges, meaning the cost of repayment will often be higher.

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