Pursuing higher education often comes with a financial burden, but student loans can provide a valuable resource to help make your educational dreams a reality. If you’re considering taking out student loans, it’s essential to understand the process and make informed decisions. This article contains a step-by-step guide on how to get student loans.
A student loan is a lump sum of money given to a student by the federal government, his\her state government, or a private company that can be used to pay for tuition or other school expenses. They will, however, be required to repay the funds plus interest after graduation.
In addition to scholarships, grants, and work-study programs, many students use student loans to fund their education. If used responsibly, student loans can be a useful tool.
Types of Student Loans
There are two primary types of student loans: federal student loans and private student loans. Here’s a closer look at each type:
Federal Student Loans
This type of loan has a number of benefits, including fixed interest rates. Federal student loans also offer more flexible repayment plans as well as access to loan forgiveness programs under certain conditions.
Your education level and whether you are a dependent or independent student usually determine how much you can borrow each year. Annual undergraduate loan limits can range from $5,500 to $12,500. Loans of up to $20,000 are available to graduate students.
Private Student Loans
Private loans are typically made by banks or other private companies and, due to interest rates, are frequently more expensive than federal loans. Students may also be required to begin repaying loans while still in school. Most students seek private loans only after they have exhausted their federal financial aid options.
Before committing to a private student loan, consider the costs. You must pay a lender fee to the vendor, who may not give you much leeway in choosing a loan repayment plan, and repayment terms differ between vendors.
How to Get a Student Loan
As previously stated, you can obtain either a federal student loan or a private student loan.
As a student, you should always begin with federal loans. They do not require a credit history or a co-signer, and they offer more generous protections to borrowers, such as income-driven repayment and loan forgiveness than private student loans.
Before obtaining a loan, it is critical to consider how the loan will be repaid. That way, you won’t choose an amount or interest rate that will be too high for you to pay back right after graduation.
Getting a Federal Student Loan
Here are the steps you must take to complete this process:
Submit the FAFSA
Submit a Free Application for Federal Student Aid, or FAFSA, to learn how much financial aid, such as grants, scholarships, and work-study, you may be eligible for. It takes about 30 minutes to complete.
Your school of application will use the FAFSA to determine your financial aid. You must cover the difference between aid and attendance costs.
Borrow Subsidized Loans First, then Unsubsidized Loans
The FAFSA is also used to apply for federal student loans. Any school that accepts you will specify the amount you can borrow in your financial aid award letter. Federal loans, both subsidized and unsubsidized, are available.
Subsidized federal loans are available to undergraduate students who demonstrate financial need. While you are in school, the loan interest is covered by the subsidy. Unsubsidized federal loans are not based on financial need and begin accruing interest immediately.
Getting a Private Student Loan
After grants, scholarships, work-study, and federal loans have been exhausted, consider taking out private student loans to cover any remaining costs. If you have good credit or a cosigner with good credit, private student loans are viable options.
Where Can You Apply for a Private Student Loan
Banks, credit unions, state-based agencies, and online lenders all offer student loans. Shop around with various lenders, considering repayment flexibility and forbearance options, as well as interest rates.
Getting Approved for a Private Student Loan
Most private lenders will require good credit and an income sufficient to cover loan payments while also meeting other obligations (in other words, a low debt-to-income ratio). If you do not meet those qualifications, you will need a co-signer who does.
Although private lenders do not technically require a co-signer, you will have difficulty obtaining a student loan without one. According to a 2021 report by MeasureOne, approximately 87% of all new undergraduate private student loans for the 2020-21 academic year had a co-signer.
If you don’t have a co-signer, a few private lenders will give you a loan, but the interest rate will be higher.
What Amount Can You Get from a Student Loan?
Student loans aren’t limitless. The maximum amount you can borrow is determined by factors such as whether the loans are federal or private, as well as the academic year in which you are enrolled.
Undergraduates can borrow up to $12,500 per year, for a total of $57,500 in federal student loans. Graduate students can borrow up to $138,500 in total, or $20,500 per year.
However, just because you have the ability to borrow that amount of money does not mean you should. Calculate how much you should borrow for college based on your projected future earnings and aim to keep your student debt below that amount to keep higher education affordable.
How Do Students Pay Back Their Loans
Students typically have a variety of options for repaying their loans. Among these alternatives are:
Income Based Repayment Plan
In this case, the student or borrower pays 15% of their monthly income for up to 25 years.
For up to ten years, the recipient makes a fixed monthly payment. Payments vary according to loan amount and interest rate.
A student makes monthly payments that begin low and gradually increase every two years over the course of ten years.
The borrower makes very small monthly payments over the course of 25 years.
Revised Pay as You Earn Repayment
You pay 10% of your monthly income for the next 20-25 years.
Income Contingent Repayment
This payment method entails students making very low monthly payments adjusted to a low-income work for over 25 years.
Federal student loans typically allow for a six-month grace period after graduation before requiring repayment. When the grace period ends, you must begin making payments on a monthly and timely basis. A fixed rate of interest is added to your payment each month.
Loan consolidation is typically used when you have multiple federal loans to repay to various lenders after graduation. This could be a great way out;
The process of obtaining a new loan or credit card in order to pay off existing loans or credit cards is known as loan consolidation. By combining multiple debts into a single, larger loan, you may be able to obtain more favorable payoff terms, such as a lower interest rate, lower monthly payments, or both.
Debt consolidation, in addition to the possibility of lower interest rates and smaller monthly payments, can be a way to simplify your financial life after graduation, with fewer bills to pay each month and fewer due dates to remember.
Aside from that, the concept of loan forgiveness for former students still exists.
Student Loan Forgiveness
Borrowers who receive student loan forgiveness are not required to repay any or all of their federal student loan debt. These borrowers borrowed money to pay for their postsecondary education. Some loans may be forgiven, but only those in public service, education, or the military are eligible.
Situations Where Students Can Access Loan Forgiveness
Here are some scenarios in which some borrowers may be eligible for student loans.
Loan Forgiveness for Public Service and Teachers
For public servants and teachers who work in high-need areas for a set period of time, this option forgives remaining loans.
Closed School Discharge
Loan forgiveness is frequently available to students whose schools close before they finish their degrees.
Total and Permanent Disability Discharge
This option forgives all loans for students with permanent disabilities.
Death or Bankruptcy
Both of these events result in loan forgiveness, though in the case of bankruptcy, you must apply for it separately.
Missing a Payment
If you miss a payment, your loan may go into default. Before a loan is considered defaulted, federal loans allow nine months of missed payments, whereas some private loans only allow one missed payment.
Loan default can harm your credit score and allow the federal government to use your tax refund to repay your debt.
Student Loan Forbearance
Student loan forbearance allows you to temporarily suspend or reduce your student loan payments for a period of 12 months or less during times of financial stress. When the forbearance period expires, you will be responsible for any accrued interest.
Frequently Asked Questions
How Do I Apply for Student Loans?
To apply for student loans, you’ll need to complete the Free Application for Federal Student Aid (FAFSA) form. The FAFSA is available online and collects information about your financial situation to determine your eligibility for federal student aid, including loans. Private student loans may have a separate application process through the lender’s website.
When Should I Submit the FAFSA?
It’s important to submit the FAFSA as early as possible to maximize your financial aid options. The application becomes available on October 1st each year, and it’s recommended to submit it as soon as possible to meet any priority deadlines set by your school or state for aid consideration.
Can I Get Student Loans Without a Cosigner?
Federal student loans do not typically require a cosigner, as they are based on your financial need and not your credit history. However, private student loans may require a cosigner, especially if you have limited credit history or a low credit score.
How Much Can I Borrow with Student Loans?
The amount you can borrow through student loans depends on various factors, including your dependency status, grade level, and financial need. The maximum loan limits are set by the federal government and vary for each academic year. It’s important to borrow only what you need to cover your educational expenses and avoid excessive debt.