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How To Apply For Federal And Private Student Loans

8-minute read

Getting to read that acceptance letter feels good, and now it’s time to figure out how to apply for student loans. If you’re one of the few who doesn’t need to, that’s great. However, most students or their families rely on loans since paying for college out of pocket is still out of reach. The good news is that there are a wide variety of government and private student loans available that can help bridge the gap between savings, scholarships and grants.

Investing in your education is a good idea since you can reap the financial benefits throughout your working years. However, don’t take out more than you truly need because it could cost you more in interest and time to pay them off. Plus, not all student loans are created equal, so it’s crucial to figure out where to apply, how the application process works, how much it’ll cost you in interest, and requirements for repayment.

How To Apply for Federal Student Loans

Federal student loans are probably the most popular ways to borrow money for educational expenses since they offer benefits such as the ability to qualify for free money like scholarships and grants, relatively low interest rates and more flexibility in repayment plans.

These government-backed loans are administered by the U.S. Department of Education (your lender), and the federal student loan program is called the William D. Ford Federal Direct Loan Program, or Direct Loan Program, for short.

Here are the types of student loans which you may qualify for:

  • Subsidized loans – These types of loans are for undergraduate students who can prove financial need to help them cover the costs of higher education. Your school will indicate how much you can borrow. The perk is that you don’t need to pay interest while you’re still in school as long, as it’s at least half-time, or for the first 6 months after you graduate.
  • Unsubsidized loans – These loans are for eligible undergraduate, graduate or professional students where it’s not based on financial need. Again, your school will determine how much you can borrow. Unlike subsidized loans, borrowers need to pay interest as soon as the loan is disbursed. Even during grace periods or during the time you’re attending school, interest will accrue.
  • PLUS loans – Parents of undergraduate students, graduate students or professional students can apply for this loan if your expenses cannot be covered by other types of financial aid. Though PLUS loans aren’t based on financial need, borrowers will need to go through a credit check. There may be also additional requirements if the applicant isn’t deemed creditworthy.

The amount you can borrow will depend on factors such as your credit profile, income, whether you’re considered a dependent and other financial information. For all borrowers, there is a cap on the amount you can borrow per year.

The first step when figuring out how to apply for a federal student loan is to navigate the FAFSA, which stands for Free Application for Student Aid. The FAFSA is more than just determining your eligibility for federal student loans — it can also help you qualify for federal student aid such as work-study programs and grants. Don’t forget that you need to fill this out each year you’re enrolled in college so you can receive federal student aid or loans.

The FAFSA can be complicated and require a lot of information, so it’s a good idea to do your research and gather all relevant documents before you apply for a student loan. First, do some research into which type of federal student loan or aid you may qualify for (don’t forget to look at free money like scholarships since that’ll help you pay less for college).

When gathering your documents, know that the FAFSA will ask for personal information such as your name and date of birth, plus details about your financial situation. Some of the documents include federal tax returns or relevant information such as your W-2, records of untaxed income (such as ones you receive from parents if you’re a dependent, or child support funds) and information on your parents’ financial assets if you’re a dependent. This can include balances in your checking and savings accounts, investments and any business assets.

The U.S. Department of Education recommends filling out the form online as it'll be a faster process, especially when it comes to sending your information off to schools. You need to list at least one school in order to receive your information. Then you'll need to determine your dependency status and input your parents' information. Afterward, you'll move onto inputting all relevant financial information. 

Once complete, submit your application through the FAFSA website or app and wait for the school’s financial aid office to send you a letter indicating what you qualify for. You have 3 days to review your information and fix any mistakes. In some cases, you’ll need to submit documentation for verification purposes, so make sure to provide those on time.

How To Apply For Private Student Loans

Private student loans are available in addition to federal ones. Generally, private loans are for those who don’t qualify for government-based loans. This could also be the case because you’ve already capped out on the total loan amount of federal loans you can borrow.

Don’t forget to compare the pros and cons of each type when doing your research. Generally speaking, federal student loans offer a bit more flexibility than private ones. For one, borrowers don’t necessarily need a credit check to be considered (with the exception of PLUS loans) which could mean it’s easier to qualify (though it will depend on financial need.

If you receive a subsidized loan, you don’t need to pay interest (the government does) while you’re in school, during the grace period, or deferment. The rates are also fixed, meaning they’ll remain the same throughout the lifetime of your loan.

Perhaps the biggest perk is their repayment plans. Federal loans offer more types of options to pay off your loans, including the ability to change plans even if you’ve already taken out your loan. There are also repayment plan options based on your income, called income-driven repayment plans. That means if you can’t afford your payments, you can apply for deferment or forbearance, which means you can stop making payments temporarily.

Depending on whether you qualify, there are also loan forgiveness programs the federal government offers. Known as Public Service Loan Forgiveness, or PSLF, this program will forgive the remaining balance on direct loans once you’ve made 120 consecutive qualifying payments while working full-time for a qualifying employer under a qualifying repayment plan. Qualifying employers include government organizations and certain not-for-profit organizations.

Private loans, on the other hand, offer some benefits that federal ones don’t, the most obvious being that private student loans typically allow you to borrow a higher amount. They’re not capped, so this is helpful for those who’ve already explored options for federal student loans, grants and scholarships.

Interest rates for private student loans can vary between fixed or variable. That means you can choose from predictable monthly payments or opt for variable ones, where you may be able to get a lower interest rate. Borrowers also have various repayment plans such as making fixed or interest-only payments while you're still enrolled in school — it can help lower your overall loan costs.

However, repayment plans for private student loans aren’t as flexible as federal loan options. For one, you can’t get an income-driven repayment plan for private student loans, nor will you be able to have them forgiven. Plus, since private student loans are based on your creditworthiness, you could be subject to higher interest rates if your credit isn’t that great. Otherwise, you’ll need to have a co-signer (like your parents) in order to qualify.

Before applying for a private student loan, don’t forget to shop around for lenders and learn about the loans available to you. That way, you can find a lender that offers you the best rates and terms that suit your needs. Consider asking the financial aid office at your college to provide you with a list, or search third-party comparison websites to read some reviews. See what lenders to offer in terms of repayment options, fees and interest rates.

To apply for a private student loan, you may need less paperwork than the FAFSA. Requirements will differ from lender to lender, but you’ll usually need to provide personal details such as your college of choice, address and Social Security number. Most places will allow you to check your rate without it affecting your credit score. Once you proceed with the full application, the lender will conduct a hard inquiry, which could affect your credit score.

After that, it’s just sitting back and waiting to see how much you’re approved for and sign your loan documents.

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How Much Student Loan Should I Apply For?

Student loans can be extremely helpful in providing a way to pay for college education, but that doesn’t mean you need to borrow the full amount that’s offered. Remember, you need to repay all loans you take out, including interest (whether you opt for private or federal student loans).

So when you’re reviewing your loan offer, calculate to see how much you need to repay each month and what you’ll pay overall to see whether it’s worth it. Of course, you want to calculate tuition plus anticipated costs like living expenses, but try not to take more than that.

Think about it: there is a difference between your needs and wants. Sure, you may want to live in a much nicer apartment by yourself, but it might not make sense when you can live with a roommate and cut your rent in half. Or you can live with your parents for a year or 2 before moving out.

The point is, be discerning about what you need and what’s nice to have and try to budget accordingly. There are plenty of ways to save money in college. Some of these include finding student discounts from major retail chains, finding free things to do (on and off campus), and meal planning.

Another crucial reason not to take on too much debt is that it might make your future credit potential for things like auto loans or mortgages more difficult to get. Lenders look at DTI, or debt-to-income ratio to determine whether you’re eligible for a loan. This number is a percentage that looks at how much you make compared to the amount of monthly debt payments you have. If that percentage is too high, your loan may be denied. You may not need an auto loan now, for example, but when you start working, a car will help you get to and from your job.

Don’t forget having a large loan payment due each month, combined with a low income when you’re starting out in your career, can make it difficult to save for your future. You want to be able to have a well-rounded financial plan, and that includes having things like an emergency fund and an investment for retirement.

Yes, college can be expensive, but there are lots of ways to get free money for college too. Search online and locally for organizations that offer grants and scholarships for college students, see if you’re eligible and apply. The worst they’ll say is no.

Summary: Know That Money Is Available, But Be Responsible

Understanding how to apply for student loans can be a simple and straightforward process as long as you have all necessary information and paperwork beforehand. For federal loans, you can have the advantage of various repayment plans and subsidized loans if you qualify. However, private student loans are still a great option since there are typically no caps as to how much you can borrow. Though keep in mind that you may need a co-signer to take out a loan and there are generally not as many protections compared to federal loan programs.

Whichever option you choose, avoid over borrowing and apply for as many scholarships as you can. That way, you can set off on the right financial foot when you graduate instead of being overburdened by your student loans.

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