If you want to know how to get a student loan because attending university or college can be expensive, you aren't alone. Tuition costs, living expenses, materials, and books prompt students to reach out for financial assistance. Although grants and scholarships can defray the costs of higher education, not all students are eligible for this help.
A student loan is one of the ways to pay the costs of higher education when you or your family have exhausted other financial resources. Student loans have several attractive special features. The student often gets a better interest rate than at the bank or credit union and most students can borrow student loan money regardless of credit history or current income.
Government programs offering student loans tend to offer the most competitive rates. It is important to understand that student loans must be repaid: these loans are not discharged in bankruptcy.
How To Get A Federal Student Loan
To secure student loan funds, you must fill out the Department of Education Free Application for Federal Student Aid, also known as FAFSA. Take care to identify the actual FAFSA site, because some websites offer to help the student fill out the form for a substantial fee.
Fill out and submit the FAFSA as soon as possible. Although the FAFSA requires submission of a tax return, it is fine to estimate earnings and correct the form later on.
FAFSA must also be completed for many private student loan programs. The form can be filled out and submitted online.
After completing the FAFSA, visit the college or university student aid office. Speak with a financial aid counselor to ask what kind of financial aid package to expect. Most colleges have an online student aid page with helpful information and forms.
Types Of Federal Student Loans
The most commonly offered government student loans include:
- Perkins loans offer low interest rates and are available to undergraduates and graduate students.
- Stafford loans might (or might not) offer the student subsidized, lower interest charges based on income requirements.
The interest on a subsidized loan is paid by the government while you are still in school. In contrast, an unsubsidized loan is more expensive. You are charged interest on the loan while enrolled in school and must repay principal and interest after graduation. Many students qualify for Stafford loans. These loans are available to undergrad and graduate students.
- PLUS loans offer parents the flexibility to borrower higher amounts to cover total costs. PLUS loans are offered through the Department of Education. PLUS loans require credit approval and parent borrowers must agree to repay the loans. Accessing PLUS loan funds usually prevents the family's need to apply for private student loans.
Not all borrowers qualify for all student loans. If in doubt about qualifying for any loan program, discuss your financial situation with the student financial aid office.
You and/or your parents can arrange to postpone the repayment of loans under some conditions, generally referred to as deferment of student loans. If you're still in school, you might qualify for in-school student loan deferment. After leaving school or graduating, you can temporarily cease repayment of loans without damaging credit or additional financial penalties by requesting deferment by contacting the Department of Education.
Accepting Federal Student Loans
Before agreeing to accept student loan funds, it is important to know that these loans must be repaid in the future. To understand the financial impact of accepting loans, plug loan information into any loan amortization calculation tool to know how much must be repaid each month and interest paid over the life of the loan.
Before student loan funds are released, you will be required to note and accept this financial information. Accepting the reality of a high future debt load is a weighty decision. A Master Promissory Note (MPN) must be signed before federal student loan funds are released.
Government Student Loan Deferments
After graduation, you must repay student loans to the U.S. government. The lender will arrange an amortizing repayment schedule. If you took out multiple loans during his or her undergraduate or graduate school years, consolidating the loans may help to manage repayments. The benefits of consolidating student loans are unique: you can pull one or more loans into a new loan structure. Some of the reasons to consolidate student loans include:
- Fixed interest rate structure to lock in current low interest rates
- Possibility of lower monthly payments to stretch current income after graduation
- Write a single check for all loans to streamline payments and avoid missing a single payment
- Flexible repayments in financially challenging periods to prevent default and negative credit impact
Things You Should Consider
Know that lowering monthly student loan repayments or by extending the period in which to repay them costs more over the long run. However, choosing lower monthly payments now can help you keep good credit standing and making larger than necessary payments later is always an option. Defaulting on student loans may lower your ability to obtain future credit.
Keep in mind that interest paid on student loans might be tax deductible. Student loan debts are discharged at the borrower's death. If you make payments as agreed and on time for a period of at least 10 years or 120 consecutive payments, or if you hold a public service job for this period while making student loan payments, you may apply for student loan relief or forgiveness.
How To Get A Private Student Loan
Many students and families prefer private student loans offered by banks and other lenders. These loans are not offered in any part by the U.S. government. They are typically credit-based loans issued for the purpose of funding an education.
Lenders generally require you to be enrolled in order to qualify student loans, but some offer loans to allow post-graduates in need of additional funds. You might use these funds to look for work or to relocate to a new job.
Borrowers must have good credit to qualify for private student loans. Without good credit or no credit, you'll be asked to post collateral, such as real estate or stocks and bonds, and/or a co-signer. If you don't repay the loans, the co-signer must do so. Defaulting on student loans can ruin a relationship with your co-signer.
Advantages And Disadvantages Of Private Student Loans
Unfortunately, students enrolled in private colleges or out-of-state students are often in search of more money. Private student loans allow you to take out higher loan amounts than those offered by the government. It is up to you to repay funds after graduation.
Before deciding to apply for private student loans, evaluate the pros and cons. Most financial experts recommend starting with government funded student loans outlined above:
- Government student loan programs offer advantages that are not available from private lenders. Although it is best to limit any kind of borrowing to finance an education, consider using government student loans for lower potential interest rates and repayment flexibility after graduation.
- In some cases, private student loans offer greater flexibility. Most government-funded loans require either full-time or half-time enrollment. If you aren't enrolled at least half-time, your government-funded loans become due unless you request student loan deferment.
Is A Private Student Loan A Smarter Choice?
Student loans from private lenders may be your only way to cover all educational expenses. According to the Department of Education, you must be enrolled at least 50 percent of the time in the college or university's degree or certificate programs, or you won't qualify. If a lighter course load is elected, private student loans are a good choice. Federal student loans might not be available in this situation.
Graduates might need money after leaving school with a degree. You may need money to obtain licenses, such as taking and passing an industry-required exam or completing practicum or intern/extern hours. Private student loans you cover expenses while completing these important tasks.
Things You Should Know About Private Student Loans
Private loans might also require less paperwork. Not all private lenders require the FAFSA, which requires you to gather and report information about personal and family finances. Some families and students do not want to share financial information with the government.
Taking out private student loans requires the completion of the lender's application. Private lenders use credit and FICO scores to make a decision about loan approval. If your credit history (or co-signer's credit history) is strong, the lender will approve the loan.
The decision to consolidate loans later may be more challenging if you take out both government and private student loans, however. The Department of Education is considered a more borrower-friendly and flexible lender.
Student Loan Consolidation
Keeping track of multiple student loans can be a challenging and confusing task. Loans are likely to have different interest rates. If in doubt about the student loan interest rate charge, contact the lender to inquire. Rising interest rates in the future could make consolidation at today's historically low interest rates a sensible decision.
Some borrowers consolidate their student loans with a spouse. It is possible to jointly consolidate these loans, but spouses should carefully consider this decision. Each spouse must individually qualify for deferment. Combining and consolidating student loan debt could have a negative impact if one of the spouses dies. The surviving spouse must then repay the deceased individual's loan. In addition, a future divorce could complicate financial decisions concerning the repayment of student loans.
In general, consolidation of student loans can extend the grace period prior to repayment. It is possible to request consolidation prior to graduation. The decision to request consolidation involves several factors, such as:
- Locking in a lower interest rate or cost of debt
- Lowering monthly payments by requesting an extended repayment schedule
Borrowers may have multiple consolidation offers from various lenders. For more details about consolidating Direct Loans provided by the Federal Direct Student Loan Program (FDSLP), consult the government loan consolidation site.
Before borrowing student loans, it is crucial to understand that it is best not to borrow any money to attend college or university. Student loans are relatively easy to obtain, but repaying student loan debt is more difficult later. Student loan debt is considered "positive" debt because education is considered an investment, but unpaid student loans will ruin your credit. Depending upon your ultimate educational goals, it is often a good idea to borrow money if a future professional income is possible.
Before borrowing government or private student loan funds, reduce future debt burdens now:
- Identify part-time employment or request work-study hours
- Take a reduced course load over one or two semesters to build cash reserves
- Look for employer assistance to pay for an education. Parents or students may have employee benefits to reduce the cost of funding college or graduate school.
- Apply to less expensive educational institutions, such as going to a state school over a private Ivy League college
- Search for grants and scholarships
You may also have additional student loan options (ranked by affordability), such as family loans, peer to peer loans, home equity loans, unsecured loans, or credit cards. Generally speaking, family loans are least expensive and credit cards are the most expensive.
According to the Wall Street Journal, the average Class of 2015 carries approximately $35,000 in student loan debt. Understanding how to get a student loan is an important part of making good financial choices for the future.
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