Loans for Students – How and Where to Apply
Education is a must for a person looking forward to having a more stable and prosperous financial future. Many people don’t have all the money they need to pay for college. For this reason applying for a loan should be the step to take in order to have access to higher levels of education. According to the NCES (National Center for Education Statistics), in 2012, 85% of students attending 4-year institutions were receiving financial aid. In 2-year institutions, the number was 78%. That being said, if you don’t have funds available to pay for college, you are not alone. Also, if you are in need of funds to pay for university, there are many types of loans available for students.
Understanding Student Loans
The purpose of student loans is to help students pay for expenses related to education. These costs include tuition, room and board, textbooks, etc. Student loans are different from other types of loans since they have a grace period. While other loans require the borrower to make payments starting from the next month after the loan has been taken, student loans can be started to pay a few years after you have had access to the funds. This is so to give students time to focus on their studies and find a job as soon as they graduate to pay the money back. This is true for federal student loans but may not apply to all private student loans.
Features of Student Loans
As said before, student loans are different in many aspects when compared to traditional loans. In the case of student loans, there are two main types of loans each one with its own features. These are federal and private student loans. It’s important to note that most loans in the U.S. are federal student loans.
Features of federal student loans include:
- Possibility of subsidy
- Payment flexibility depending on income
- Possibility of loan forgiveness if the user pursues public service careers
- Option to delay payments
- Fixed and relatively inexpensive interest rates
- open source of government funding
- Long grace period
- No collateral nor credit check required
Features of private student loans include:
- Option to defer payments
- Most of them have variable rates
- Funded by private institutions (banks, credit unions, etc.)
- In some cases, the possibility of having lower rates if monthly payment is set automatically
Student Loan Options
Again, student loan options fall under any of the two above mentioned categories. Private Loan options for students are given only when the institution considers you have the ability to pay it back. Federal loan options are, generally, not as strict as private ones. Federal student loan options include:
Federal Direct Loans – Offered by the U.S. Department of Education, there are four subtypes of Federal Direct Loans available:
• Direct Subsidized Loans – These are available for undergraduate students who demonstrate the need for financial aid to attend college.
• Direct Unsubsidized Loans – These are available for undergraduate, graduate, and professional students and there is no need to show a need for financial aid to apply for them.
• Direct PLUS Loans – These are available for parents of undergraduate students as well as graduate and professional students and are meant to cover education-related expenses that can’t be covered via any other type of financial aid program.
• Direct Consolidation Loans – These types of loans allow students to consolidate all their student loans in a single, unified loan.
Federal Perkins Loan Program – Financial aid from this program is available for undergraduate and graduate students. Students must show great financial needs to apply for one of them. This program is backed-up by the school – which in this case assumes the role of the lender.
Private student loan options are classified according to the lender and include:
Credit Union Student Loans – Student loans offered by credit unions. They usually charge lower interest rates than banks and are less strict in regards to co-signer terms. You have to become a member of the credit union in order to have access to one of them.
Bank Student Loans – Student loans offered by banks. They are generally very meticulous about your and your co-signer’s credit check and financial capability to pay the loan back.
Also, Personal Loans are very common among university students since they need money to pay for every day expenses such as food, clothes, transportation, utilities, rent, etc.
Use of Loans
As its name suggests, these loans are for education purposes. Its uses include:
- Room and board
- Other supplies
- Other fees
What they should not be used for:
- Utility Bills
- Leisure activities
*There are other assistance options in existence in case you need a loan to pay for expenses that don’t fall under the purposes of a student loan.
Eligibility of Student Loans
Basic criteria to apply for a federal student loan includes:
- Demonstrate financial need
- US citizen or eligible non-citizen
- Have a Social Security Number
- Maintain good grades in your studies
- Register for Selective Service (males must register between ages 18 and 25)
- Be enrolled at least half-time in university or college
- Have a high school diploma or equivalent
Basic criteria to apply for a private student loan includes:
- Being enrolled as a student in a college or university
- U.S. citizen, permanent resident alien, or international student who can be considered a temporary resident alien
- Show financial capability to repay the loan
- Co-signer that shows financial ability to pay the loan
- Good credit score
How to Apply for Student Loans
In case you want to apply for a federal student loan, the first step is to fill and submit the FAFSA. This should be done in a timely manner. Then, compile your documents including your Social Security number, your parents’ Social Security numbers, driver’s license in case you have one, an alien registration number if you are not a U.S. citizen, and financial info regarding your saving and investment accounts. To apply for a private student loan, you need to show an identification, financial information (saving and investment accounts) for both you and a co-signer (in the majority of cases is required), Social Security number, contact information, school info, and the amount you need.
FAQs of Student Loans
Should I Apply for a Federal or a Private Student Loan?
Your first choice should be to apply for a federal student loan. They have more benefits than private ones. Interest rates are lower, grace periods are longer, etc. As a rule of thumb, apply for a private student loan only if you aren’t eligible for a federal one.
Can I cancel a Federal Student Loan?
There are some specific circumstances in which you can cancel a federal student loan. They depend on the type of federal student loan you applied for. However, in general, you will be able to cancel it in any of this cases:
- School closed down
- Disability discharge
- Bankruptcy discharge
- Death discharge
Should I consolidate?
There are pros and cons to this approach. The main benefit you get is that you can extend your repayment period. However, this also means that you will end up paying more interests than before.
Can I start paying back the loan before the grace period?
Yes. In fact, the U.S. Department of Education encourages this.