Finding a student loan application for school is one of the most crucial decisions you’ll make while arranging for education. You can borrow money, but there are various sorts of student loan application to pick from, each with its own set of advantages and disadvantages.
If you decide to take out a loan, be sure you understand who is making the loan as well as the loan’s terms and conditions. Because of their low fixed interest rates and consumer protections, federal student loan application are frequently the first choice to explore.
Private student loan application, on the other hand, can be a viable option in some instances due to their large borrowing limits. Continue reading to understand more about student loan application.
Different Types Of Student Loan Application
There are two main types of student loan application: federal and private. However, within each type, there are several different loan options intended for different types of borrowers.
- Advertisement -
For instance, direct subsidized loans are available only to undergraduate students with financial needs, while direct PLUS loans are meant for parents and graduate students. Each of these options has its own rates, terms, and features.
Types of federal student loans
Federal student loans are one of the most common methods to pay for education, however, there are many other alternatives as well. These loans not only have flexible payment alternatives, but they frequently have inexpensive interest rates as well. Several loan options, each with unique benefits, are available through the government Direct Loan Program.
Direct Subsidized Loans
Undergraduate students with a financial need who can prove it can apply for Direct Subsidized Loans. While the borrower is enrolled in school, during the six-month grace period, and for any subsequent periods of deferment, no interest is charged on these loans.
You can only borrow a certain amount in subsidized student loans each year:
- $3,500 for first-year students
- $4,500 for second-year students
- Students in their third and subsequent years: $5,500
- The total loan maximum for college is $23,000.
Direct Unsubsidized Loans
Undergraduate, graduate and professional students can apply for Direct Unsubsidized Loans. Borrowers are not required to demonstrate financial need, but interest is charged on these loans immediately. This means you’ll be charged interest while in school, after graduation, and during periods of deferment and forbearance.
If you are over the age of 24, married, a graduate or professional student, a veteran, in the military, or meet other requirements, you are considered independent for the purposes of the FAFSA.
First Year $5,500 $9,500
Second-year $6,500 $10,500
Third and subsequent years $7,500 $12,500
Professional or graduate This is not applicable
(all graduate students are
considered independent) $20,500
Total loan amount $31,000 Undergraduates pay $57,500
($138,500 for graduates or
Direct PLUS Loans
Graduate or professional students, as well as parents of dependent undergraduate students, may be eligible for Direct PLUS Loans to help with educational costs.
In comparison to Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans (also referred to as Graduate PLUS Loans and Parent PLUS Loans) have higher interest rates and loan origination fees.
Parent PLUS loans are taken out directly by parents, in contrast to other federal student loans. While students are able to make payments on their own, parent PLUS loans must still be fully repaid by their parents, both legally and financially. Only the parent’s credit report will reflect the loan; the student’s credit report will not.
How to Apply for Federal Student Loan
By completing the FAFSA, you can apply for other federal financial aid programs, such as student loans. You might be eligible for federal grants, like the Pell Grant, that can help defray the cost of your education without having to be repaid, depending on your financial need.
Borrow up to the maximum amount permitted in federal loans before turning to private loans if you need to borrow money because federal loans typically have lower interest rates and more versatile repayment options than private loans. This is the procedure.
Fill Out the FAFSA
The FAFSA application for the following school year is available beginning October 1. That means the FAFSA will be available on October 1, 2022, for the 2023-24 school year.
To ensure that you receive all of the financial aid to which you are entitled, submit the FAFSA as early in the year as possible. Some types of financial aid, such as federal work-study, are distributed to students on a first-come, first-served basis. The FAFSA can be completed online.
You must create a Federal Student Aid (FSA) ID and password in order to complete the FAFSA. You should also have the following information on hand:
- Your Social Security number, or Alien Registration Number if you are a non-citizen.
- Your previous tax year’s federal tax information or returns (as well as your parents’ tax returns). This means you’ll be providing tax information for the 2023-24 school year.
- Untaxed income records
- Balances in cash, savings accounts, and checking accounts
- Other than the home you live in, information on investments
- Make a list of the schools you’d like to attend.
After submitting the FAFSA, you will receive a Student Aid Report (SAR), which is a summary of the information you provided. On the upper right-hand corner of the SAR, you will see your Expected Family Contribution (EFC). Your EFC is used by schools to determine how much your family can afford to spend on college costs, and thus how much financial aid you will receive.
The federal FAFSA deadline for the 2023-2024 school year is June 30, 2024, at 11:59 p.m. Central Time. However, states and universities frequently have earlier deadlines. To find out when you need to submit the FAFSA, check your state’s deadline and contact your school’s financial aid office.
Learn About the Full Spectrum of Funding Options
Be aware that there are alternatives to student loans for financial aid that might work better for you.
Scholarships: Scholarships are a type of gift aid, not requiring repayment. Scholarships are frequently awarded on the basis of talent rather than need. The FAFSA may be used as a qualification tool for scholarships offered by educational institutions, private companies, and nonprofit organizations.
Grants: Grants, like scholarships, don’t require repayment. The federal government, states, universities, and private organizations can all award grants. The Pell Grant, Federal Supplemental Educational Opportunity Grant, Iraq and Afghanistan Service Grant, and Teacher Education Assistance for College and Higher Education (TEACH) Grant are the four main types of grants that the federal government currently offers.
Work-study: If you submit the FAFSA correctly, you might be eligible for the government’s work-study program. You are able to work a part-time job related to your field of study with the help of federal work-study programs, and you can use your income to cover some of the costs of your education.
You can lower your cost of attendance and lower the amount of student loans you need to borrow by utilizing these financial aid options, individually or in combination.
Select the Best Federal Loans for Your Situation
The William D. Ford Federal Direct Loan Program allows the federal government to grant loans. Many borrowers find federal loans a good option because they typically don’t require a credit check and don’t have minimum income requirements.
Types of private student loans
Sallie Mae, Discover, and Citizens Bank are among the most well-known private student loan companies, but there are dozens more. Banks, credit unions, and online lending institutions all offer private student loans.
They come with fewer protections than federal loans, and each lender sets its own terms. However, borrowers with solid credit histories and long credit histories, like parents and graduate students, may be qualified for private loans with low-interest rates.
They may be a more affordable option for some borrowers than federal PLUS loans. However, federal PLUS loans may still be a better option than private loans if you want to keep your access to federal benefits like income-driven repayment plans and Public Service Loan Forgiveness. Private student loans, as opposed to federal student loans, can have fixed or variable interest rates.
Loans for undergraduate studies
Private student loans for undergraduates frequently have flexible repayment terms and may even provide borrowers with a principal reduction once they graduate. In contrast to federal student loans, undergraduate private student loans frequently require a co-signer.
A co-signer is a responsible adult who agrees to assume full responsibility for your student loans if you default. Private lenders almost always require co-signers because undergraduates haven’t had time to build a credit history.
The interest rates on undergraduate private student loans are typically higher than those on graduate private student loans. They also typically have lower loan amounts.
Student loans for graduates
Lenders of private student loans might provide distinct student loan options for graduate school, law school, medical school, business school, and other types of education. Compared to undergraduate loans, graduate or professional student loans are less likely to need a co-signer. They frequently have bigger loan amounts, longer repayment terms, and cheaper interest rates.
Private graduate student loans frequently also include features designed specifically for graduate school. For instance, some lenders provide lengthy grace periods, in-school deferment periods, and additional deferment while students complete a residency.
How to Apply for Private Student Loans
If you have reached the annual borrowing limits for federal student loans, or if you are ineligible for or do not want to take out PLUS loans, you can apply for private student loans.
1. Understand the Credit Requirements for Private Student Loans
Contrary to the majority of federal student loans, which don’t require a credit check, private student loan lenders frequently have eligibility requirements, such as a minimum credit score, a minimum required income and a track record of timely loan repayment. This is to ensure that you’ll make the loan repayments on time.
You must have a credit score in the good to the excellent range to be eligible for a loan. Typically, lenders demand a credit score of at least 650. Additionally, borrowers must demonstrate that they have the financial means to make their loan payments.
2. Examine Offers from Different Lenders
To find the best loan for you, shop around at a few different companies. Private loan interest rates, repayment terms, and benefits can differ greatly from lender to lender.
Take into account the following elements when comparing loans:
- Types of interest rates: Private student loans may have fixed or variable interest rates, whereas federal loan interest rates are always fixed, meaning they never change. Although variable-rate loans may initially have lower rates than fixed rates, they may change over time.
- Repayment options: Private student loans might not have a grace period, which is a period after graduation when you are exempt from making payments. You might also be required to make payments while you are still in school. Make sure you are aware of the total amount due at all times as well as the deadlines for making principal and interest payments.
- Loan terms: The repayment terms for private loans typically range from five to twenty years. Typically, loans with shorter terms have lower interest rates. Longer loan terms will lower your monthly payment, but you’ll end up paying more in interest.
- Co-signer release: If you have a co-signer on your loan, you may be able to request a co-signer release from your lender after making a certain number of on-time payments. This can shield your co-credit signer’s from damage if you are unable to make payments.
- Discounts: Some lenders provide interest rate breaks, like those for automatic payments and loyalty.
- Benefits: Some lenders provide extras like career counseling or a principal balance reduction for finishing school on time.
3. Think About Using a Co-signer
You might not yet have a solid credit history as a college student, and you might not meet the lender’s minimum income or credit requirements. If that is the case, you can still be approved if you cosign for the loan.
A parent, relative, or friend with good credit who co-signs for your loan assumes responsibility for it in the event that you don’t make your payments as agreed. You are more likely to be approved for a loan than you would be if you applied alone because the co-signer is responsible for repaying the loan if you default
There are no hard-and-fast guidelines for selecting the loan option that is most suitable for you. Your finances, preferences, and risk tolerance will ultimately determine which option is best for you. Federal student loan application, however, ought to be your first port of call as a general rule.
Every type of borrower is eligible for federal student loan application. They are the only source for loan forgiveness programs, and they provide distinctive repayment options and longer deferment periods than private lenders. Undergraduates can access loan funds without a co-signer because they also have no minimum credit score requirement. The general rule is that before taking out private loans, borrowers should repay all of their federal student loans.
The best candidates for private student loan application are those who lack citizenship eligibility for federal student loans or who need to borrow significantly more than what is allowed by federal student loans. For borrowers with excellent credit, private student loans might also be a good choice because some lenders have lower starting interest rates than the federal government.