When it comes to paying for education, it’s not an easy task. Some families and employers bear the costs of education, but not everyone is that lucky. If you need more money to cover college expenses, you’ll need to know how to obtain a student loan.
Federal Loans vs. Private Loans
When you borrow for education, you have several options. Be sure to consider all of your options and choose the one that suits you best. Make sure to consider:
- Loans offered under federal programs: These are usually the best option because interest rates are based on credit history, and you have multiple repayment options, as well as forbearance and deferment periods.
- Private student loans: Interest rates are affected by your credit history, and there are usually no restrictions.
In addition to loans specifically designed for education financing, you may use:
- Loans or gifts from family members.
- Home equity loans (if you own a home).
- Credit cards (for purchasing books, food, etc.).
How to Obtain a Federal Student Loan
Federal student loans typically have lower interest rates, and some of the interest (subsidized) may be paid on your behalf while you are in school. There are some advantages to government-subsidized loans – they are easier to qualify for and have flexible repayment structures, for instance.
The main drawback of federal programs is that they may not cover all your expenses. There are limits on how much you can borrow, and if you need more, you’ll have to seek it elsewhere.
To obtain a student loan as part of a federal program, visit the financial aid office at your school. Let them know that you are interested in borrowing, and they will guide you through the steps you need to take. You will need to fill out the Free Application for Federal Student Aid (FAFSA), which will determine the type of aid you are eligible for.
To complete the FAFSA, you will need to provide details about your finances, such as assets in bank accounts and investment accounts, income levels, and Social Security numbers (for you and your parents). If your parents claim you as a dependent on their taxes, they will need to fill out part of your FAFSA application.
After the Department of Education processes your FAFSA application, you will receive a financial aid offer (known as a “Student Aid Report”) from the schools you listed on your FAFSA. You can accept or decline the offers if you decide to take another route. If you decide to accept the funds, you will need to complete entrance counseling (a relatively brief training on how student debt works) and sign a loan agreement.
Be mindful of interest
While applying for loans, remember that you will have to repay them someday. Run some numbers to understand what you will be facing – before you get the loan. Input your loan details into a loan repayment calculator, and see how much you will have to pay each month, and the total amount you will pay in interest over the life of the loan.
How to Obtain a Private Student Loan
You should be able to qualify for some federal loan programs regardless of your income or credit history. However, if you need more money than you can get from federal student loans, you may have to turn to loans from private lenders.
The process for obtaining these loans is a bit less complex than what you go through for federal student loans. There is no FAFSA; instead, you will fill out a relatively quick financing application.
One of the main differences between private student loans and federal ones is that private lenders take your credit history into account. This usually means that you will need a good credit score, a solid repayment history, and a reasonable debt-to-income ratio (you may need sufficient income). As a student, you may not meet the criteria because you may not have built a strong credit history yet.
If
The private lender has denied your application for student loans. You may need assistance from someone else – another person can apply for the loan with you and promise to repay if you fail to do so. Signing as a guarantor is a risky proposition, so ask for help only from someone who can bear the risk and understands what they are doing.
Frequently Asked Questions
How do I apply for federal loans?
If you want to get federal student loans, you will need to fill out the Free Application for Federal Student Aid (FAFSA). Filling out the application should take less than an hour.
How do I apply for private student loans?
Private student loans are usually found at banks and non-bank lenders. The application is likely to be fully online and takes just a few minutes to complete. The lender will consider your credit history when deciding whether to approve your loan.
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Sources:
- Federal Student Aid. “Federal Versus Private Loans.”
- StudentAid.gov. “How much can I borrow?”
- Federal Student Aid. “The FAFSA Process.”
- Federal Student Aid. “7 Things You Need Before Filling Out the FAFSA Form.”
- National Foundation for Credit Counseling. “What Are the Credit Requirements for a Private Student Loan?”
- Discover. “Undergraduate Student Loans,” Click “Do I need a cosigner?”
- Federal Student Aid. “How Long Will It Take To Fill Out the FAFSA?”
- Discover. “Undergraduate Student Loans.”
Source: https://www.thebalancemoney.com/how-to-get-a-student-loan-315839
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