Are you having trouble figuring out how to get a student loan? Discover how student loans work and the best sources for them.
If you are about to head to college, there are a lot of fun things to think about. You can look forward to the excitement of picking classes, getting to know dorm mates, and possibly even joining a fraternity or sorority. However, not everything about college is fun. The financial aspect of applying for college can certainly be daunting, especially if your family is unable to assist you with paying for your college costs.
According to U.S. News & World Report, the average cost of attending a private college during the 2020-2021 school year was $35,087. Attending a public out-of-state or in-state school was cheaper, but the cost of attending those types of colleges was still thousands of dollars on average. Applying for a student loan may be your best option for paying such a high amount. However, you need to shop around for a student loan that fits your needs, much like you shop for clothing or vehicles. Not all student loans are the same. Here are some things you need to know about how to apply for the student loan you need.
Common Types of Federal Student Loans
Federal student loans are common. You can almost certainly qualify for one. They are typically provided without a credit check or the need for a co-signer. To apply for one, you simply have to fill out a special form. The form is commonly known as a FAFSA form, which stands for “Free Application for Federal Student Aid.” When you qualify for such a loan, you may be eligible for perks like:
- Ability to Postpone Repayment (Deferment Period)
- Consolidation Options for Multiple Loans
- Loan Forgiveness if You Go Into Certain Service Professions
Federal student loans come in subsidized and unsubsidized versions. If you obtain a subsidized loan you do not have to pay loan interest while you are in school. You also have no interest payment requirements during periods of loan deferment or grace periods. However, if you obtain an unsubsidized loan you must always make interest payments.
Other Types of Student Loans
In addition to or instead of a federal student loan, you may opt to obtain a private student loan. Such a loan is typically offered through a bank, credit union, or other type of financial institution. Private parent loans are also available. To apply for a private student loan, you may need to pass a credit check. If you have poor credit, your parent can apply for a parent loan, instead. In either case, the requirements for such loans vary from one institution or another, and so do the exact types of loans offered. For example, there are:
- Undergraduate Loans
- Graduate Loans
- Consolidation Student Loans (Allow You to Combine Existing Student Loans Into One)
Student Loan Eligibility Requirements
Student loan eligibility requirements vary by loan type and lender. The guidelines are uniform for most types of federal student loans, but they are also intricate. For example, you must be a U.S. citizen or qualified non-citizen. You must also typically:
Demonstrate Financial Hardship
Have a GED or High School Diploma
Have a Grade Point Average (GPA) of 2.0 or Higher
Have a Valid Social Security Number
When seeking a private student loan, you do not have to meet as many requirements. However, the requirements you do have to meet vary widely. Since each lender sets its own standards, shopping around is quite beneficial. Although the requirements are different depending on the lender you apply through, private student loans often require a co-signer. There may also be income requirements and other standards you must meet.
Student Loan Interest Rates and Fees
One of the most important reasons to select the student loans for which you apply carefully is to limit the interest you eventually have to pay. As mentioned previously, some federal student loans allow you to not pay interest while attending school. Federal student loan interest rates are the same for all applicants in a given year. However, loan rates are subject to annual changes.
Some student loans have what are called variable interest rates. If you obtain a student loan with a variable interest rate, that means the rate can potentially change. The rate reassessment takes place either each month or each quarter. Therefore, applying for the student loan with the lowest starting interest rate is not always a guarantee that you are paying the lowest possible amount of interest over time.
Repayment Requirements for Student Loans
Many federal student loans do not require you to start repayment until you have been out of school or below half-time attendance for six months. However, the repayment requirements for private student loans are up to the lenders. Always make sure you know the terms of the loan for which you are applying. No matter when your loan repayments start, you must make at least minimum payments toward your loan balance at regular intervals until the balance is paid in full. Paying more than minimum amounts is advisable because doing so allows you to pay your loan back faster and pay less interest over time.
Top Private Student Loan Providers
If you are interested in federal student loans, the financial aid department at the school to which you are applying can help. However, private student loans are often more difficult to pinpoint. Even though the financial aid department can assist you, searching on your own is also helpful. Some of the top private student loan sources include:
Study Your Student Loan Agreement
Always familiarize yourself fully with the loan parameters. Know when your loan payments are due and how long it will take to repay it when you make minimum payments. Use that information to keep your student loans organized, decide when to consider loan consolidation, and limit how much interest you have to pay. That way you can get the best education possible without paying for it forever.