When it comes to financing your higher education, mastering the process of how to apply for student loans is essential. In this comprehensive guide, we’ll burst through the complexities, providing you with a step-by-step roadmap to navigate the student loan application process effectively.
1. Introduction
There are two types of student loans: federal student loans and private student loans. Federally funded loans are better, as they typically come with much lower interest rates. In addition, the interest is often paid by the government while a student is in school. This makes these loans an attractive way to pay for school for many students. Federal loans can often be seen as a ‘safe’ path to student loans, considering that they are reliable and more affordable compared to private loans. Some of these loans are based on a student’s financial need, which is determined through the information that is provided on a student’s Free Application for Federal Student Aid (FAFSA).
1.1 Scholarships and grants vs student loans
Student loans are a popular method that plenty of students use to help pay for college. When it comes to paying for college, scholarships and grants are best given to be able to pay tuition. Even if the money is not enough to cover the total tuition cost, the fact that there is free money for school is an advantage for the student. If the scholarship is renewable, this can provide more money each year to pay fees. The difference with student loans is the student will be required to repay the funds with interest. Student loans are helpful to students because most students do not have the money to pay for college.
College costs are very high, and even if a student and their families have saved money for college, there usually is not enough to cover the totality of the cost. Another reason student loans are a good way to pay for school is because the repayment schedule can be deferred until after graduation. During a student’s college education, they may work part-time jobs to ease some of the financial burdens.
1.2 Importance of Student Loans
It is rare to find a student who has the financial resources to pay for their college education without some form of financial aid. The increasing costs of college tuition and housing often far exceed the rate of inflation. The past twenty years have seen college costs increase an average of seven percent annually. The average tuition cost for the 1999-2000 academic year was $3,247 for public colleges. Private college tuition averaged around $13,000. Room and board rates at universities averaged $4,200. High college costs often force students to attend two-year colleges and/or take out large loans from parents and other sponsors. But with the help of student loans, many students can continue their education and earn a higher income in the future. Student loans enable thousands of students in both public and private colleges and universities. It allows almost seventy percent of full-time students to attend college part-time.
Paying for college is often an overwhelming responsibility. High college costs lead many high school graduates to think they may have to enter the workforce rather than continue their education. Some students do not realize that many options are available to support their college education. This report will discuss the importance of student loans, the different types, and how to apply for them.
1,.3 Types of Student Loans
- Low, fixed interest rates: Federal student loans have fixed interest rates, meaning that the rates will not go up over time.
- No payments while enrolled in at least half-time: You usually don’t have to start repaying your federal student loans until after you leave college or drop below half-time enrollment. Then you have between 10 to 25 years to repay your loan, depending on the repayment plan you choose.
- Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school. If you are eligible for a subsidized loan, the government will pay the interest on the loan while you are enrolled in school at least half-time, for the first six months after you leave school, and during a period of deferment
- Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan. With unsubsidized loans, you are responsible for paying the interest on the loan during all periods. If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue and be capitalized, meaning the interest will be added to the principal amount of your loan.
Federal student loans are an investment in your future. You should not be afraid to take out federal student loans, but you should be smart about it. Federal student loans offer many benefits compared to other options you may consider when paying for college:
2. Preparing for the Application
Research the best options for you. It is a good idea to look at various lenders as well as investigate private and government student loans. You can find excellent informative resources regarding Stafford Loans and Perkins Loans at a public library or on the internet. See what loans or benefits your state may offer, through government as well as non-government resources. If there are loans available through your school, be sure to investigate them as well. Learn about the various options and what benefits each type of loan has to offer. What is important is to be prepared and to get the best loan possible. Taking out a student loan is a long-term investment and will have lasting effects. Always remember you want to get the best loan possible. Always investigate the anticipated changes each year in the interest rate, or possible legislation of new laws affecting education loans.
2.1. Free Application for Federal Student Aid (FAFSA)
Understand what role FAFSA plays. Many student loans as well as other forms of financial aid derive from the Free Application for Federal Student Aid (FAFSA). To be eligible for a Stafford Loan, Perkins Loan, Pell Grant, or other forms of aid, they first derive from your FAFSA. All students with a social security number are eligible to fill out a FAFSA starting January 1st of each year.
There are no charges or fees associated with filing a FAFSA, and it is the beginning step in receiving financial assistance for your education. It is important for one to understand that filing a FAFSA does not mean you are obligated to accept any loan, it simply means you are creating eligibility for the loans and other financial aid offers.
Keep in mind every student is eligible for a Stafford Loan, yet in order to qualify for a Perkins Loan, you must complete your FAFSA before the funding runs out. Always try to file your FAFSA close to January 1st and remember that it is an annual process. When filed close to January 1st, the FAFSA can guarantee the most aid possible and your eligibility for various loans and other forms of financial assistance. Always remember to keep your PIN in a safe place and never lose it. This PIN will be used to sign your FAFSA, and if lost, you can request a new PIN from the FAFSA website.
2.2 Researching Loan Options
Private sector loans are best in comparison to federal loans but are not attached to any kind of subsidy and generally charge a variable rate of interest. Variable rate usually starts at a level lower than the fixed rate loan. It is a good option for students certain in their ability to repay the loan quickly and want to minimize the amount repaid.
Next, there are federal loans. The most famous federal loan is the Stafford loan which is funded by the US government providing very low interest rates. Stafford loans are available to all students and have two forms: Subsidized, based on financial need where the government pays interest while the student is in school, in the six-month grace period, or any deferment period. And, unsubsidized loans, students do not have to demonstrate financial need to obtain money, and interest is charged from the moment the loan is paid out.
Finally, when considering getting a federal loan can take advantage of the federal direct loan program, where the Department of Education is the lender, loan money is guaranteed no matter what the credit of the borrower is, students deal directly with the school and will efficiently receive the loan and there are opportunities to have loan converted to a grant if the student works in public services job. The only consideration is whether it is better to seek the loan from the school where the rates are the same but fees and repayment can differ from the direct loan program.
2.3 Determining Eligibility
Determining eligibility for a student loan is an important aspect of getting a loan. There are a few decisions you must make before you can determine what type of loan you are eligible for. Following is a list of the questions you should ask yourself and the order in which you should ask them.
The first thing you should determine is how much money you will need for school. Student loans should be used specifically for education and education-related expenses. Education expenses include tuition, fees, books, supplies, miscellaneous equipment, board and room, transportation, and dependent childcare expenses. If you are going to borrow a loan to pay for education expenses, it is a good idea to ask your school for an expense budget to help you determine the total amount of your education expenses. Once you have determined your total education expenses, subtract any funds you will receive from grants, scholarships, work-study, savings, and any other types of education funds. The difference between your education expenses and the funds you have available is the amount you should borrow in a student loan.
The next decision you need to make is to decide whether you want a federal loan or a private loan. This decision is based on the amount you need to borrow.
We strongly recommend that you first complete a Free Application for Federal Student Aid (FAFSA). By doing so, you will better determine if you are eligible for federal student loans. Federal student loans have many benefits that are not typically found in private loans. And best of all, federal student loans are generally less expensive than most private education loans.
Keep in mind that Perkins Loans have the most benefits for students with exceptional financial need. The Federal Stafford Loan is the most popular low-interest federal loan which has guaranteed government insurance and a six-month grace period after graduation before repayment begins. You may also be eligible for the unsubsidized Federal Stafford Loan, for which you do not have to demonstrate financial need. If you determine that you need more funds to borrow after Stafford Loans, try the PLUS Loan, but keep in mind that this loan requires a credit check.
Any one of these federal loans will be a better choice than most private education loans. However, if you are not eligible for a federal loan, there are many private education loans available. It is easier to research a private education loan because they are not all offered through the government like federal loans. You may do an internet search for a private education loan or ask your school for information about them. No matter which loan you choose, be sure to borrow only what you need. Remember, a loan is money that you must repay and you do not want to be in more debt than you need.
2.4 Gathering Required Documents
If you decide to apply for a federal student loan, you will have to gather some documents to prove your eligibility. Save time by knowing what to have on hand.
A copy of your social security card. You should know your social security number by heart, but your card can serve as verification when you are filling out the FAFSA on the web. If you have lost your card, ask your parents for help; it will be the same number that’s printed on their card. Proof of citizenship. U.S. citizens and eligible non-citizens (such as permanent residents) are eligible for federal student aid. You might need to provide an original or certified copy of a document to prove your citizenship status, such as a passport or a birth certificate. Federal Work-Study is only available to U.S. citizens.
A driver’s license. When you fill out the FAFSA on the web, you have the option of signing electronically with a PIN, instead of printing, signing, and mailing a signature page. If you don’t have a PIN, the FAFSA site will prompt you to apply for one and the process will be much easier if you have a valid driver’s license number. (If you’re a dependent, one of your parents will need a PIN too.)
3. Applying for Student Loans
Before you begin: Apply for federal aid. The federal government is the largest source of financial aid for U.S. citizens attending colleges or universities. To apply for federal financial aid, you must complete and submit the Free Application for Federal Student Aid, or FAFSA.
Step 1: Apply for a PIN Your first step in applying for a federal student loan is to obtain a PIN. PIN stands for Personal Identification Number and it serves as your electronic signature. You will use your PIN to access your personal information on the FAFSA website, apply for federal student aid, and access your federal student aid records. The PIN never expires; once you have one, you will use it for all of the above activities throughout your student career. If you are a dependent student, your parents must obtain a PIN so you can electronically sign your FAFSA.
To obtain a PIN, visit the PIN website. Here you will be able to either request a PIN by mail or obtain one immediately by providing your name, date of birth, social security number, and contact information. You can only request a PIN by mail if your information can be verified with the Social Security Administration. If your PIN needs to be mailed to you, it will arrive in about three weeks at the address you provided. Be sure to keep your PIN in a safe location; you will be using it frequently until after you graduate.
3.1 Completing the Application Form
The application form is relatively simple to complete. Using the information you have gathered on your family’s financial circumstances, you can roughly estimate the amount of loan you require. After which you should access the application forms online from Student Finance Direct, or request them to be sent to you in the post. The forms can be completed manually, or online in some regions. It is often more convenient to complete the form online as it is usually processed faster. The sooner you apply the more likely it is that you will receive your funding in time for the start of your course.
Before filling out the form, both you and your parents or partner need to understand that student finance is a partnership between you and the SLC. This means that your parents or partner are required to provide details on their income using evidence. Although they will not be giving you the money, they will be required to provide information on their financial circumstance, much like applying for a mortgage. This information is used to assess your entitlement to the maximum loan or grant. When applying for a student loan or grant, there are packages of financial support available for different types and levels of higher education courses. The course that you are studying may affect the amount of student loan or grant you are eligible to receive. You will be asked to provide details about your course on the application form. This enables the SLC to assess whether you qualify to receive full support. After which, you can then complete the eligibility evidence form.
3.2 Submitting the Application
Before you begin, make sure you have gathered all the necessary documentation to support your application. The necessary documentation includes government-issued identification such as a birth certificate, passport, permanent resident card, or Certificate of Indian Status, Social Insurance Number, and a copy of your most recent province or territory student assistance assessment. The purpose of gathering the necessary documentation is to prevent any delays in processing the loan. You will be required to fill in your Social Insurance Number on the paper loan application, and it is at this time that the National Student Loans Service Center (NSLSC) will use that number to retrieve your documentation and information for their records. If you do need to submit any additional documentation, you may be asked to mail or fax it to the NSLSC. In such cases, always include your name, Social Insurance Number, and address on each page of the documents you are submitting.
For full-time students, no application is necessary for a Canada Student Loan. Upon completion and submission of your provincial or territorial student financial assistance application, your lender will assess your eligibility for both assessments. If you are eligible, you will receive loan agreements to be signed. When you are ready to submit your signed loan agreements, you will need to have either your chequing account at a Canadian financial institution or a recently voided cheque or an account information part of a bank statement from an account that has your name on it and the branch and financial institution number imprinted. Once you have your account and necessary information, you may mail the agreements to the Canada Student Loan Alberta Service Centre. Allow up to three weeks for processing time.
3.3 Tracking the Application Status
Once you have everything you need for your loan application, including the proper references, co-signers, and anything else your lender requires, the rest is a waiting game. It can take several weeks for your application to be reviewed, and during this time, your lender may ask for additional information or confirmation. If you do not hear back from your prospective lender within a reasonable amount of time, contact the financial aid office at your school, where they should be able to tell you whether the loan has been certified, and if not, why it hasn’t. Certified loans have been approved by the borrower and are guaranteed by the lender. Generally, the cause of a delay in certification is directly related to incomplete requirements or missing promissory notes. If you’re looking at your lender’s website to find out about the status of your loan, you’ll often need a PIN to access confidential information about your loan. Your lender will give you a PIN after your loan has been approved or if you’ve found out that it has been denied. Step 4 on this list will discuss in more detail the use of a PIN to effectively manage your student loan information.
3.4 Addressing Additional Requests
As a student loan borrower or potential borrower, you may receive additional forms and requests from your school, your servicer, or the U.S. Department of Education. You must read all the materials you receive and follow up on all requests. You risk losing your loan money if you do not respond to these requests. If you do not understand what has been requested, contact your school or your loan servicer for clarification. If you receive a TEACH Grant Initial or Subsequent Counseling and you don’t believe that you meet the requirements to receive a TEACH Grant, there may be a “conversion” option available for you to turn the grant into a Direct Unsubsidized or Subsidized Loan. Remember, you can always contact your school’s financial aid office or your loan servicer with questions about forms that you receive and options that may be available to you. Missing out on student loan aid because you did not understand a form can be a frustrating experience, but it can usually be avoided if you stay on top of your student loan requirements.
4. Managing Student Loans
Unfortunately, the process of student loan application doesn’t end when you receive your first cheque. You will have to systematically re-apply for each academic year. As well, throughout your university career, you may find it necessary to change lending institutions or alter the details of your loan. This could involve an increase to your loan (depending on your institution’s fee schedule), or a simple change of your banking information. Be aware that in some cases you may be required to begin a brand new loan if you transfer to a new school within Canada. All these changes can be done through a form that can be obtained from your financial aid office or the lending institution.
It is a good idea to keep records of all correspondence with your lending institution or NSLSC. Record the names of employees with whom you speak and the dates and details of your conversations. This could save you much grief in case of errors on their part. Do not hesitate to confirm information that you are unclear about. Concerning your government loan, you may check the status of your loan at any time by registering at the Canada Student Loans website. Step-by-step instructions are provided for you to access your account and find out the details of your loan. Similarly, registration at the National Student Loans Service is an option through which you can keep up to date with your loans.
4.1 Understanding Loan Repayment Terms
1. Federal student loans have a built-in grace period of six months and are the best value when it comes to providing the lowest interest rates and best repayment terms. The interest rates on federal loans are fixed, meaning that they remain constant over the life of the loan and are usually lower than the interest rates on private student loans. Private student loans are credit-based and may have variable interest rates where your interest rate and payments can change over time. Federal student loans also provide deferment options and loan forgiveness for certain individuals.
2. Because there can be different repayment terms for each loan, it is very important to keep your debt levels in mind. Federal Perkins loans have a fixed interest rate of 5% and must begin repayment within 9 months of the time the student graduates or drops below half-time enrollment. The standard repayment period is ten years but can vary based on other conditions. Federal Subsidized and Unsubsidized Stafford loans for students have a standard repayment period of up to ten years but can extend up to thirty years based on the amount of the loan.
3. With various loan amounts and differences in interest rates, the best way to estimate your monthly payment amount for federal loans is to utilize the loan calculator provided on [Link] This is based on the type of loans borrowed and the amount of loans borrowed and will give you an accurate estimate based on your exact situation. Remember that the longer it takes to repay your loan, the more interest that is added on, so try to shoot for the soonest payoff option, assuming your financial situation allows it. Always make your loan payments on time. Defaulting on a loan has very severe consequences and can impact your credit rating for the rest of your life.
4.2 Creating a Repayment Plan
To apply for student loan repayment, there are three methods to choose from. They are Standard, Graduated, and Income Contingent (Income contingent might not be available for all loans). This is a prepared step-by-step process to help you establish the best repayment method for your loan. Consider the example, using the $15,000 loan with 8% interest, the expense to be paid in 10 years. This will put the Standard payment for these loan terms to about $182 a month.
Now weigh this against the Graduated payment plan where payments are structured to start out low and increase every 2 years. This method will take debts from the recent student to the low-income worker. Finally, deciding the Standard payment on years 1-4 is too high, going with the Income contingent method somewhat merges the first 2 methods by adjusting payment to income made with a loan forgiveness option after 25 years. With the repayment method set to a specific plan, changing methods is possible so re-evaluating the method of repayment can be done with a change in job status or a life-altering event. Making sure to communicate these changes to the loan holder will prevent possible non-payment. Non-payment will lead to both principal and interest being increased by a 19% collection cost.
4.3 Exploring Loan Forgiveness Programs
Loan forgiveness programs can work better than loan repayment programs, particularly in the case of students entering low-paying public service careers. Under the Higher Education Opportunity Act, signed into law in August 2008, Congress created a new Temporary Loan Forgiveness program for holders of Direct Loans working in public service jobs. This program forgives the remaining balance on Direct Loans after 10 years of qualifying employment in public service; only payments made under an income-based or income-contingent repayment plan will count toward the 120 payments required for forgiveness. Subsidized and unsubsidized Stafford Loans, PLUS loans to students or parents, and consolidation loans are eligible for forgiveness under this program.
A public service job is defined as employment in government (federal, state, local, or tribal), a non-profit organization under Section 501(c)(3) of the Internal Revenue Code, or other non-profit or government organizations that provide specified public services. Employment with labor unions, partisan political organizations, or religious organizations to promote religious beliefs isn’t considered employment in public service. Temporary forgiveness programs are enacted as a way to ease the financial burden of high student loan debt, and often these programs can lead to permanent forgiveness programs in the future. Always check [Link] for the most recent information available on loan forgiveness programs.
5. Reception of a financial aid award letter
After submitting your application, you will receive a financial aid award letter outlining the types and amounts of aid you are eligible to receive. Review this letter carefully and make sure you understand the terms and conditions of each loan offered. If you choose to accept the loans, you will need to complete any additional requirements, such as entrance counseling or signing a promissory note. Remember to stay organized throughout the process and keep track of important deadlines to ensure a smooth application experience.
5. What interest rate can I expect with federal student loans?
Understanding interest rates is a crucial step in the process of understanding how to apply for student loans. Below you will find a comprehensive table providing information on the different types of federal student loans and their associated interest rates.
| Federal Student Loan Type | Interest Rate (Fixed) | Interest Rate (Variable) |
|---|---|---|
| Direct Subsidized Loans | 3.73% (Undergraduate) | N/A |
| Direct Unsubsidized Loans | 3.73% (Undergraduate) | 3.73% + Index* |
| Direct Unsubsidized Loans | 5.28% (Graduate/Professional) | 5.28% + Index* |
| Direct PLUS Loans (Parent and Graduate/Professional) | 6.28% | 6.28% + Index* |
*The variable interest rates are based on the 10-year Treasury Note Index and can change annually.
It’s important to note that federal student loan interest rates are set by the government and are subject to change each academic year. These rates are current as of the 2021-2022 academic year and may vary in subsequent years. Additionally, fixed interest rates remain constant for the life of the loan, while variable interest rates may change annually. Be sure to check with the U.S. Department of Education or your loan servicer for the most up-to-date interest rate information.
Reviewing Your Student Aid Report (SAR)
After submitting the FAFSA, you will receive a Student Aid Report (SAR). Take the time to review it carefully to ensure all the information is accurate. If any corrections are needed, follow the instructions provided.
Evaluating Loan Offers
Once your FAFSA is processed, colleges you’ve applied to will send you financial aid offers. These offers will detail the types and amounts of aid available, including student loans. Burst through these offers and compare them to make informed decisions.
Accept or Decline Loans
You have the option to accept or decline the loans offered to you. If you choose to accept, follow the provided instructions to complete the loan process, which may involve signing a Master Promissory Note (MPN).
Exploring Private Loans (If Necessary)
If federal aid doesn’t cover your educational expenses, exploring private loans might be necessary. Conduct thorough research and compare private lenders, considering interest rates and repayment terms. Burst into action by thoroughly reading the fine print to understand your obligations.
Staying Informed
Throughout your academic journey, staying informed about your loans is crucial. Maintain records of your borrowing, including loan types, amounts, and repayment schedules. Burst into action by making on-time payments to avoid any complications down the road.
Conclusion on How to Apply for Student Loans
Mastering the art of applying for student loans is a crucial step on your path to higher education. With a clear understanding of your options, a well-executed FAFSA application, and informed decisions about federal and private loans, you’ll be well-prepared to finance your educational aspirations. Remember, education is an investment in your future, and mastering the student loan application process is a vital part of that journey.
