How to take out a student loan: a step-by-step guide
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If worrying about how you’re going to pay for your education makes you sleep through the night, you’re not alone. Today, tuition and fees at a four-year public college or university – traditionally the cheapest option – cost nearly $ 11,000 a year, according to the College Board.
A four-year, private, nonprofit college or university can cost over $ 37,000 per year. And none of those numbers include room and board, books and supplies, transportation, and other personal expenses.
It’s no surprise that many students apply for student loans which, unlike scholarships and grants, must be repaid with interest. Don’t know how to take out a student loan? You can do it. Just follow these steps.
What to do before your loan application
Before you apply for a student loan to finance your college education, ask yourself these questions.
- What is the real cost of attending university? Beyond tuition and fees, add up any costs, like room and board if you live on campus, meal plans, books and supplies, transportation to and from campus, and all personal expenses that you will owe.
- Will you be working during your college studies? Getting a job can help offset the cost of a college education. Some employers offer tuition reimbursement. Consider a work-study program if your school offers one.
- Will you be living on or off campus? The average cost of renting a studio in 2020 was $ 1,690, according to Rent.com. A large three bedroom apartment rented for over $ 2000 per month. The average cost of living on campus is between $ 4,000 and $ 5,000.
- Are you considering applying for grants and scholarships? Grants and scholarships are free money to help pay for college education. Unlike student loans, you don’t have to repay them unless your enrollment status changes or you withdraw from a program earlier. Grants are generally need-based, while scholarships can be merit-based or need-based.
How to take out federal and private student loans
If you’re like most students, you’ll need to apply for federal or private student loans – or a combination of the two – to pay for your education. It is important to understand your student loan options and the steps involved in applying.
Credible makes it easy to find your private student loan options and compare rates from several lenders.
Completing the FAFSA
The free application for federal student aid is available from October 1 for the following school year. Completing the FAFSA is the first step in applying for student loans and the only way to be eligible for federal student loans.
FAFSA uses your financial information to determine the types of federal student aid for which you are eligible. You will need to complete the FAFSA each academic year. Once your FAFSA is submitted, you may have access to several types of financial aid, including:
- Federal scholarships and grants
- Federal student loans
- Federal work-study programs
- State aid
Consult your financial assistance offer
After you submit your FAFSA and get approval for financial aid, each school that accepts you will send a financial aid award letter. This is what you will find in every offer.
- Cost of participation (COA): This is what you can expect to pay for a year of school, including tuition and fees, books and supplies, room and board, transportation, and miscellaneous expenses like related costs. to a disability or work-study program.
- Expected Family Contribution (CEF): This is used to determine the amount of financial assistance you will receive.
- College scholarships and Scholarships: Grants are generally need-based, but scholarships can be merit-based or need-based. Neither should be refunded.
- Federal work-study programs: These programs give you a job, enabled or disabled–campus and a paycheck.
- Federal student loans: Direct student loans can be subsidized (the government pays the interest while you are in school) or unsubsidized, and you will have to pay them back when you leave school.
When deciding where you want to attend, you will need to call the school’s financial aid office and let them know which loans you want to accept or decline.
Take out federal student loans
If you need to take out student loans to cover all or part of your tuition fees, you have two options: federal and private. Because the government supports federal loans, they are often cheaper than private loans, do not require a credit check, and have income-based repayment plans and fixed interest rates.
Federal loans may be eligible for loan forgiveness. Therefore, if you are having trouble making your payments, you have more relief options than with private loans.
Federal direct loans can be subsidized or unsubsidized. Both offer benefits like low interest rates, flexible repayment options, forbearance and deferral programs, and the ability to consolidate your loans. But there are key differences between the two.
- Only for undergraduates
- Need-based requirement
- Lower borrowing limits
- Interest is increased during postponements
- Undergraduate and graduate students are eligible
- No requirement based on need
- Higher borrowing limits
- Interest is not subsidized during deferrals
There are three main types of federal student loans: Direct Subsidized, Direct Unsubsidized and Direct PLUS Loans.
Direct subsidized loans
Students who can demonstrate financial need can apply for direct subsidized loans. These loans generally do not charge interest while you are in school or during periods of deferment or grace. Interest does not accrue if you are in school at least part-time, but it will take effect after you complete your studies or go below half-time.
Limits for granting direct subsidized loans: up to $ 5,500 per year (subject to change)
Direct unsubsidized loans
Direct unsubsidized loans are unsecured (meaning you don’t need collateral to qualify) and are funded by the federal government. You don’t need to demonstrate financial need or have a good credit rating to qualify. Interest rates are based on your level of education and start accruing the moment you take out your loan. You make monthly payments to the US Department of Education after a six-month grace period, giving you time to find a job.
Limits for granting direct unsubsidized loans: up to $ 20,500 per year, less any subsidized loans you may receive during the same period (subject to change)
Direct PLUS loans
Direct PLUS loans help you pay for costs related to your studies not covered by other financial aid. They are available to graduate and professional students, as well as parents of dependent undergraduate students. You don’t have to show financial need, but your credit score is taken into account when calculating loan amounts. You will make your payments to the US Department of Education.
Direct PLUS loan allocation limits: tuition fees (as determined by the school) less any other financial assistance received
Consider a co-signer
It’s no secret that students who need a loan to pay for all or part of their education are more likely to get better rates and terms if they have a co-signer.
Borrowers who checked rates with a co-signer prequalified for loans at interest rates 2.36 percentage points lower, on average, than those available to borrowers without a co-signer, according to an analysis of data from Credible .
While you usually don’t need a co-signer to get a federal student loan, having one could help you get a better interest rate.
And because banks, credit unions, and other financial institutions offer private student loans, your credit matters. If you have little or no credit history, it can be difficult to qualify for a private student loan. A co-signer with good or excellent credit can help because it makes it easier to get your loan approved, often at a lower interest rate. Choose someone you know and trust, such as a parent, guardian, spouse, sibling, or friend.
Compare private student loans
Before taking out a private student loan, it is best to exhaust all federal loan options, scholarships and grants, and work-study programs before applying. Interest rates are generally higher for private student loans than for federal student loans.
Private lenders have their own methods of evaluating claims, so price comparisons are the only way to know if you will qualify. It’s also the easiest way to make sure you’re getting the best interest rates. By shopping, you also show your co-signer that you are spending time and effort, which can help them feel a little more comfortable taking on the risk of co-signing your student loans.
With Credible, you can compare the private student loan rates of several lenders.