In the college application process, taking out student loans is an important skill. In most families in America, their personal finances aren’t enough to cover their kids’ college tuition. To pay for college, students turn to loans after exhausting scholarships, grants, and work-study programs.
Several student loan options are available when you start looking for them. Various types of student loans are available, including federal and private loans. There are different eligibility criteria, interest rates, and other terms and conditions for each.
It is not easy to take out a student loan. The process of taking out student loans can be confusing and overwhelming.
- Can you tell me how much money you need to withdraw?
- When calculating the cost of your education, how do you do it?
- What is the process for applying for student loans?
- Is there a difference between a federal student loan and a private student loan?
- Can you apply for more than you need ‘just in case’ or should you only apply for the exact amount you need?
- What is the method of receiving the money?
Make the process of taking out student loans easier with this step-by-step guide.
Step 1 – Calculate How Much Your Education Is Going to Cost
There is a huge difference in tuition fees between colleges. This makes it impossible to make a blanket statement about college costs. For each college you wish to attend, you will need to do separate calculations. It’s the only way to estimate how much your higher education will cost,
You can find a personalized cost estimate for almost every college in the USA using our college match tool. Financial information, GPA, test scores, intended majors, and other factors are considered in our tool.
By using these details, the system determines how much scholarship money you may qualify for from that school, and subtracts that amount from the “sticker price.” The savings can be shocking, and you may soon find that college is more affordable than you had thought.
There is more to education than tuition fees. In addition, you need to factor in the cost of room and board, textbooks, college supplies, transportation, and personal expenses. Subtract this amount from your available funds, including any financial aid packages you’ve received from the school. Borrowing the balance will be the cost of the loan.
After you have calculated the cost of your chosen school, it’s time to find out how to get student loans. Before you can apply for a loan, you’ll need to find out what kind of loan is available.
Step 2 – Explore Available Loans
The majority of student loans fall into two categories: federal student loans and private student loans. Student loans backed by the federal government are called federal student loans. Lenders such as banks and credit unions offer private loans.
It’s best to exhaust all federal loan options before even considering private loans. It is because federal loans have lower interest rates and more flexible repayment terms. In addition, they have several other features and protections that are beneficial to borrowers.
Federal loans
Federal student loans are intended to help students whose families cannot afford to pay for their education. The interest rates on federal loans are generally lower than those on private loans. It is common for these loans to have no financial eligibility requirements. In addition, interest rates are not based on credit history or credit scores.
Private Loans
Private loans should only be considered if your needs exceed those covered by federal loans. There are more rigid terms and conditions attached to private loans, as well as higher interest rates.
Before taking a private loan, it’s advisable to thoroughly research the terms of each private lender. Lenders set their own terms and interest rates. The best lenders are those that offer low interest rates and relatively flexible terms. Your parents’ bank may be a good place to start looking for private student loans.
Step 3 –Apply for Student Loans
How to apply for federal student loans
You will come across the term FAFSA often while searching for financial aid. FAFSA stands for Free Application for Federal Student Aid.
You can apply for all federal financial aid by completing and submitting the FAFSA. Federal student loans are allocated based on the information submitted on this application. Schools that you’ve been accepted into will send you details of your financial aid package along with your acceptance letter. This financial aid award letter will include details of your federal student loan eligibility.
You can choose to accept the entire package or only a part of the package. This will depend on what other sources of income you have access to and how much you need to make up the shortfall.
You will need to submit the FAFSA every year that you’d like to be considered for financial aid. The deadline for the FAFSA application is end of June for that academic year. The best time to submit your FAFSA is in early spring when the applications open. Don’t wait for last minute. Some federal loans have limited funds and these tend to get exhausted quickly.
How to apply for private student loans
The loan application timeline as well as the process is very different for private loans. The process and terms of the loan will vary from one lender to another as well as the type of loan you are applying for. You will have to find out details about each lender’s deadlines, eligibility criteria and application formalities and proceed accordingly.
Here you will find a list of the top student loan lenders along with their requirements and interest rates. You can even apply for a loan directly once you identify a lender that’s the best fit for you.
Step 4 – Accept Your Loan Money
Both, federal loans as well as private loans are paid directly to the college you are enrolled in. If there is any money left over after covering the fees and other costs, the school will refund the excess to you.
Before the funds are transferred you will need to sign a promissory note, promising to pay back the money you owe by the date that you and the lender have agreed on.
Step 5 – Understand How Interest On Student Loans Works
All student loans must be paid back with interest. Student loans are different from other loans in that you get a grace period before repayments start. The grace period is generally six months after graduation. However, interest on your loans starts accruing from the date that the funds are disbursed.
By the time you start making payments on the loan, it will have already accrued a significant amount interest.
A Warning When You Take Out A Student Loan
Many students are tempted to overextend themselves because some loans are relatively easy to obtain. It is common for students to seek admission to more expensive colleges in order to take advantage of easy loan opportunities.
You may be making a big mistake by doing this. It is important to keep in mind that all student loans must be repaid with interest. After you graduate, you will be in more debt if you take out a larger loan amount.
Avoid this temptation by choosing your colleges first and then applying for a loan taking into account the cost of attendance. In the event that you are approved for a higher loan amount, accept only what you need and return the rest. If the loan approved is less than what you need, consider colleges with lower tuition fees or consider saving on rent and board. Do not get into more debt than you need to.