School loans are considered “financial aid” but differ greatly from
scholarships and grants because loans need to be paid back. There are
three major types of loans, Federal Student Loans, Federal Loans for
parents, and Private Loans. This article focuses on the most common
type of school loan, the Federal Student Loans.
As the name
implies these loans are given directly to the student by the
government. Within this main category there are two types of loans;
subsidized, which means that the interest is paid by the government
while the student is in school, and unsubsidized, which means that the
student must pay the interest. However, with unsubsidized loans there
is the option to have the interest payments put on hold and added to
the total loan until the student is done with school and in a better
position to make payments. Subsidized loans are reserved for students
who demonstrate a financial need: usually low family income.
Loan
amounts are decided based on the students needs, and the students
access to family resources, scholarships, grants and other forms of
financial aid. Nearly all full-time students are eligible for at least
some amount of loan. Both the subsidized and unsubsidized loans offer a
six-month grace period to allow the student to find a job in their
field and become more financially stable before payments are due. If a
borrower becomes a part-time student there is a three-month grace
period before payments are due. With Federal Student Loans there is a
limited amount that a student can borrow each year.
There are two
ways that a student may receive Federal Student Loans; Federal Direct
Students Loans (FDLP) or Federal Family Education Loans. FDLP loans
start with funds from the U.S. Treasury, these funds are then sent
through the U.S. Department of Education and then distributed to the
college or university. The school then uses it to pay school expenses
and the remainder is available for the student to withdraw. Federal
Family Education Loans (FFEL or FFELP) are funded by private banking
organizations. The advantage of FFELP loans is that students have
payment options available to them that are similar to the options
available when taking out a home loan or consumer loan.
Students
can apply for Federal student loans online. Most universities and
colleges provide computers in their financial aid office where students
can apply with the help of people who use the system constantly.
Applying online is done through a program called Free Application for
Federal Student Aid or FAFSA. By applying online you will automatically
be considered for any type of aid including grants, which do not have
to be paid back. Applying online can help you find out how much help
you will be receiving as much as seven days faster, which will make it
easier to secure other funds if necessary.
If a student has
turned in a FAFSA application in the past, they can use something
called a renewal FAFSA that automatically inserts information that does
not change such as name and the school you are attending. This makes
the process even faster. Students are also able to sign their
application by using a pin number given to them by FAFSA, so there is
absolutely no paperwork to be sent through the mail.
So you're thinking about college. Maybe you're just out of high
school getting out in the world for the first time, or maybe you're an
adult considering college for the first time or even grad school. When
I decided to go back to school to finish my B.A., my main question was
how I would fund it. Of course, I had a job, but it's difficult to both
work full-time and go to school full-time. My only option was student
loans, at least at the beginning.Now, student loans are not the
only way to fund college. There are scholarships you may be eligible
for; some of you may be lucky enough to have parents that can assist in
stemming the costs you might incur; or you might have been diligent
about saving for just an occasion. Many of us aren't that fortunate and
the costs of paying for tuition, books and other school related fees on
top of rent, utilities and other living expenses can be a little
overwhelming to deal with. When all else fails, student loans are a
good option, but there are some key issues you need to know before
going this route.
Federal student loans are designed to assist
students in paying for tuition and other expenses. Additionally, they
have many advantages over other loans. One advantage is that student
loans do not need to be paid back until you're done with school. This
takes away much of the stress of taking out a loan and not knowing
whether you'll be able to pay it back or not. Even when you do enter
repayment, there are several repayment options that student loans allow
you to choose from that can be changed with some restrictions based on
what might suit your financial situation. Another advantage student
loans have over other loans is that the rates and terms are much more
lenient. First of all, the interest rates for student loans are
variable, much lower than other loans and at the moment there is a cap
on the maximum interest you will pay. Secondly, depending on the
repayment plan you choose, you can also take as much as 30 years to pay
back your loans. Additionally, if your financial situation takes a
nose-dive, you may also be eligible to defer repayment on your student
loans up to three years and depending on what you do after school, some
of the loan may be forgiven.
One of the first decisions you have to make is how much you will need to take out in student loans.
Here are the key issues you should consider when making this decision:
1 - What are your living expenses?
This
question involves making a budget that includes all the expenses you
incur on a monthly basis. Included in this should be rent, utilities,
car payments, insurance, gas, food, child care if needed, other loan
payments and any expense that you think you might need on a monthly
basis. You'll then need to multiple your monthly budget by the number
of months in the school year, usually nine, and then add in the costs
of tuition and other college related fees. This will give you a good
idea of the total financing you'll need for the year.
2 - Are you going to work?
This
is a critical factor in deciding how much you'll need and working will
allow you to take out much less in student loans decreasing your debt
when you are finished. Additionally, for undergraduates, unless you
take out private loans, student loan funding is limited and may not
always cover all your expenses depending on the college you decide to
go to. You might also qualify for work-study, which also gives you
valuable work experience. Unless you're planning on only going to
school part-time, I don't suggest working full-time. Your main goal in
going to college is to get a good education and working full-time
detracts from this opportunity.
So you've figured out your approximate expenses for the school year. Here's what you need to do in order to get student loans:
File a Free Application for Financial Student Aid
Filing
the FAFSA should not be put off. While the deadline for student loans
isn't terribly strict, most schools have a February 15th deadline to
qualify for grants and other types of non-loan aid such as work-study,
which may significantly decrease the amount of debt you owe when you're
finished with school. I suggest getting an application for the next
year as soon as they become available. This is usually right around the
end of the year. Fill it out right after you get your tax documents,
usually around the end of January. Your financial information on your
form needs to match what you file with your tax return and sometimes
your school's financial aid office will need a signed copy of your tax
return as well if anything is questionable, so be sure to make a copy
after you sign it. One thing you don't want to do on the form is
provide inaccurate information. This could prevent you from getting any
aid at all in the present and in the future.
Soon after you send
it in, the Department of Education will send out your student aid
report (SAR) with all the information you provided as well as the
information the school takes into consideration. If they ask for
additional information, don't wait to send it to them. Doing so could
prevent you from getting aid of any type. How much you'll be able to
take out will depend on your information, the school and the budget
they assume for the academic year.
Student loans are like any
other loan. You need to be cautious of how much you borrow and how much
you'll need to pay back. Weigh the costs and the benefits just as you
would any loan, but don't let it keep you from returning to college or
just starting out. The cost of not going is always much greater.
