How to Apply for Student Loans for College

If you need to take out loans to attend college, then you’re not alone. 44.7 million Americans are currently dealing with student loan debt. Referring to money that must be paid back with interest, loans include federal student loans from the government, private loans issued by banks and other institutions, and loans taken out by parents to help their children attend school.

While you might not be able to avoid taking out student loans for college, there are some steps you can take to ensure you’re making the smartest possible financial decisions. After exhausting your options for scholarships, grants, and other free forms of college financing, do your homework to find out which loan options are best for you and your family.

How Student Loans Work 

Student loans are a type of money you borrow for your education. While some people borrow the entire cost of their degree, including room, board, and fees, others take out loans for only a portion of the total. In most cases, students have to start paying their loans back with interest after they stop attending school.

Once you apply for a student loan and are approved, you will receive funding in the form of a check sent to you or your college’s financial aid office. The school will process loan money it receives for tuition and room and board, assuming the student lives on campus. If funds are left after these expenses have been paid, the college will send the student a check for the remaining amount.

Students should be careful about how they use leftover student loan funding. According to the Office of Federal Student Aid, student loan money has to be used for expenses related to the cost of earning a degree. Along with tuition, fees, room, and board, acceptable educational expenses include:

• Books
• Computers
• Study supplies
• Transportation to and from college
• Childcare costs

Students should avoid using their loan money for purchases that aren’t connected to their education. These include vacations, clothing, eating in restaurants, and purchasing a new home.

What Happens If You Don’t Repay Your Student Loans?

Most student loans have a grace period of around six months, meaning that students don’t have to start making payments immediately upon graduating. However, if you don’t begin repaying your loan by the due date, the lending organization will label you as delinquent. Along with facing late fees, delinquent borrowers may wind up in default. Not only can being in default damage your credit score, but it may also result in the government or a collections agency garnishing your wages and intercepting income tax refunds until the debt is paid.

Types of Student Loans: Federal vs. Private

If you need student loans for college, you should know that there are multiple options at your disposal. While most loans come from the U.S. Department of Education’s Federal Direct Loan program, some students seek out aid from private sources, including banks, colleges, and financial institutions. When in doubt, consider federal loan sources first because the repayment options tend to be more favorable. 

Here are some of the federal options available to those looking to apply for student loans:

Direct Subsidized Loans  

One of the best federal loan options, direct subsidized loans get their name because the U.S. Department of Education pays the interest while a student is enrolled at least half time in college, for a six-month period after they leave school, and during periods of deferment. This need-based loan has an annual value of $3,500-$5,500 and boasts a fixed interest rate. For the 2019-2010 academic year, direct subsidized loans had an interest rate of 4.53%.

Direct Unsubsidized Loans 

Another federal loan option, direct unsubsidized loans are larger in size than subsidized loans. While dependent students can borrow between $5,500-$7,500 a year, independent students can take out between $9,500-$12,500. Colleges determine how much a student can borrow based on tuition prices and other forms of available financial aid. 

While borrowers are responsible for paying interest on Direct Unsubsidized Loans during all periods, the option does boast a fixed interest rate (4.53% for the 2019-2020 academic year). Both undergraduate and graduate students can take out Direct Unsubsidized Loans regardless of demonstrated financial need.

Parent PLUS Loans 

Available to the parents of dependent undergraduate students, Parent PLUS Loans are an option for individuals who want to help their children pay for college without subjecting them to hefty loan payments. Unlike Direct Subsidized and Unsubsidized Loans, this option takes credit score into account. As a result, parents with adverse credit histories may struggle to secure funding. Additionally, this loan option has a higher interest rate. For the 2019-2020 academic year, the loan came with a fixed rate of 7.08%.

Private Student Loans 

If federal loan funding doesn’t cover the cost of your degree, you may decide to borrow from private lenders. Available from an array of sources, including SallieMay, CollegeAvenue, Discover, and CommonBond, these loans may include both fixed and variable interest options. The latter type increases or decreases based on economic factors. Some private loans require a cosigner, and rates often depend on both borrower and cosigner credit scores.

Before choosing a private company, it pays to do your homework. One important factor to consider is whether or not the lender offers borrower protections, such as deferment and forbearance. These options allow you to refrain from paying loans in times of hardship. Additionally, some private loans let you choose your loan term, so you can pay off your debt faster and with less total interest.

How to Apply for Student Loans 

Wondering how to apply for student loans for college? Follow these steps to qualify for financial aid.

How to Apply for Federal Student Loans

1. Start by filling out and filing the FAFSA (Free Application for Federal Student Aid). This form is required for all federal student loans, including Stafford Loans and Perkins Loans. Students must complete the FAFSA when they first apply for college and submit a Renewal FAFSA if they’re returning to school after an absence.

2. After you submit your FAFSA, you can expect to receive an award letter from your college’s financial aid office. This document will include information on what loans are available to you, including Direct Subsidized and Unsubsidized options.

3. Once you’ve had a chance to review your financial aid offer, you will need to contact the school to accept or reject any loans you recieved.

4. The final step in the student loan application process is signing the paperwork, including a Master Promissory Note. This document confirms that you will repay your loans, along with any accrued fees and interest.

How to Apply for Private Student Loans

For private loans, you apply directly with the financial provider. Be sure to shop for best rates and payment terms, and see if your school has a preferred private loan provider.

When borrowing money for college, you should always exhaust your federal loan options before turning to private funding. While the interest rates on federal loans are determined by Congress, private lenders can set their own fees and charge more to borrowers with poor credit. If you do need to turn to private sources, be sure to borrow only what you need. The interest rate on student loans are high across the board, and you want to avoid dealing with expensive monthly payments down the line when you’re trying to buy a home or make other purchases. 

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