Meeting your roommate. Decorating your dorm room. Strategically avoiding 8 a.m. classes.
These can be the fun parts of starting college. The not-so-thrilling part? Figuring out how to finance your education.
The stress doesn’t just come from assessing how much you’re going to need. It can start with determining how to begin.
You may be able to apply for scholarships or grants, which you wouldn’t typically have to repay after college. If these options don’t fully fund your tuition and other costs, such as room, board, and books, then you can search for additional financial aid.
What are your main options? Paying out of pocket or applying for student loans.
The two major types of student loans are federal and private student loans. We’ll cover their main differences, then answer the big question: how do I apply for a student loan?
Federal Student Loans vs. Private Student Loans
Federal student loans are provided by the federal government. Private student loans are issued by institutions such as banks, some schools, and other private lenders.
Federal and private student loans differ in several ways. For federal student loans, repayment terms and loan forgiveness options are usually pretty consistent across the board. For private student loans, terms differ depending on the lender, so it might be helpful to research companies before they apply.
As you may know, all student loans accrue interest that you have to pay in addition to the original amount of the loan itself.
All new federal student loans have fixed interest rates, which are determined by the type of loan you apply for and the disbursement date, or the date the government gives you the money.
While some private student loans also have fixed interest rates, others have rates that vary over time. With variable rates, the starting rate depends on factors such as your credit score, income, and employment history, and it can change as the economy fluctuates.
Your choice between federal and private student loans may also determine when you start paying back your loans.
If you have a federal student loan, you shouldn’t have to start paying it back until you graduate, leave college altogether, or reduce your course load below half-time. Many federal loans offer a six-month grace period after you leave school or cut back to below half-time, meaning you don’t have to make student loan payments during this time.
Certain private lenders allow you to wait to make payments on your private student loans just as you would with federal loans, but others require you to start paying them while you’re still in school full-time. This varies depending on the provider, so it’s important to check the specifics before taking out a loan.
To sum it up, when it comes to interest rates and repayment plans, private student loans tend to vary more than federal ones. Public student loans entail consistent rules about payments across the board, overseen by the office of Federal Student Aid. With private loans, however, the lender you choose could determine your interest rate and repayment options.
Which Type of Loan Should You Apply for First?
You may decide that you only want to apply for federal student loans, or only for private ones. What if you want to apply for both, though? What order do you go in?
No two borrowers are the same, so do what is best for you and your specific situation. But you may want to start with federal student loans.
Federal student loans tend to be more flexible in regards to repayment options and loan forgiveness, and sometimes even offer lower interest rates than private ones do.
When you complete the FAFSA®, the Student Aid Report (SAR) will display your Expected Family Contribution (EFC) based on your submitted financial records. Subtract the EFC from the cost of enrollment, and that’s how much financial aid you can receive—which includes grants and work-study, if you qualify. If your federal aid package doesn’t cover that total amount, you may choose to start looking for private student loans.
How Does the Application Process Differ Between Federal and Private Student Loans?
We’ll dive into an overview of how to apply for student loans, broken down by federal and private loans. But you should know that there are two main differences in the processes: where to apply and when to apply.
Let’s start with the “where.”
For federal student loans, you’ll fill out the Free Application for Federal Student Aid , better known as the FAFSA®. If you filled out the FAFSA® the previous year, you’ll fill out the Renewal FAFSA® .
Applying for a private student loan? You’ll apply directly on the lender’s website or in a branch location. Check each individual lender for their terms while contemplating a private student loan.
Now for the “when.” Let this be your first lesson in becoming a college student—you don’t want to procrastinate only to miss your due dates!
Each state has a different FAFSA® deadline , so it’s crucial to check your state’s rules before applying. Also, some states offer aid on a first-come, first-served basis, so procrastinating may not be in your best interest. Jumping on the FAFSA® early could make a difference in how much aid you receive.
While private student loans are known for being more stringent with their terms and requirements, they can actually be more flexible when it comes to application timing. There’s no universal private student loan deadline. That’s one reason you may prefer to apply for federal student loans before private ones—to see how much federal financial aid you receive first, then, if needed, you can fill in the gaps with private loans.
Now that we’ve answered the “where” and “when,” it’s time for the Big Kahuna: the “how.” How do you apply for federal and private student loans?
Applying for Federal Student Loans
Choosing Which Type of Federal Student Loan You Want
There are four types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans for graduate and professional students, and Direct PLUS Loans for parents.
Direct Subsidized Loans are available for undergraduate students. These loans are for students in financial need, and you don’t have to pay the interest until six months after you’ve graduated, left school, or dropped below half-time enrollment. These six months are referred to as the “grace period.” Interest still accrues while you’re in school, but the government covers interest while you’re enrolled and during the grace period.
Direct Unsubsidized Loans are also for undergraduate students, but they aren’t disbursed based on your financial situation. The government doesn’t cover the cost of interest while you’re in school, so interest will accumulate throughout your time in college. You have the option to pay off the interest while you’re still a student, or you can wait until you start repaying your loans after the grace period—just keep in mind that unlike with Subsidized Loans, you’re responsible for paying the interest from this time period, not the government.
The third type of federal student loan is a Direct PLUS Loan for graduate or professional students . The student takes out the loan, which is unsubsidized.
The fourth type is the Direct PLUS Loan for parents . This loan is for the parents of undergraduate students, so the parents would apply for and are held responsible for paying back the loan. Direct PLUS Loans for parents are also unsubsidized.
Not-so-fun fact: Direct PLUS Loans require a credit check , unlike Direct Subsidized and Unsubsidized Loans.
Filling out the FAFSA®
Okay, now it’s time to actually fill out your application. Exciting, right?
Remember to check your state’s due date for the FAFSA® and to submit your application before the last minute, if possible.
You can start your FAFSA® application by visiting the Federal Student Aid website and creating an account. Once you’ve filled out the demographics section, you’ll select which schools you want your FAFSA® information sent to. You can list up to 10 colleges on your FAFSA® form. If you want to list more than 10, you just have to follow a couple extra steps.
At that point, you’ll answer a list of questions to determine if you’re considered a dependent who needs to provide parental information. These questions cover your age, marital status, level of degree you’re acquiring, military status, and your own dependents.
You’ll also provide information about whether your parents are living and if you’ve ever been in foster care, legally emancipated from your parents, or declared homeless as a minor.
If the system determines you to be a dependent after responding to those questions, you’ll answer demographic questions about your parents.
Finally, you’ll provide your necessary financial information. This includes your federal income tax returns and tax documents (and/or your parents’ returns and documents, if you’re considered a dependent). This may sound like a lot of work, but the website makes it relatively easy. It includes an IRS Data Retrieval Tool, and once you enter the relevant information, it should be able to pull up you and/or your parents’ tax return(s).
Just a heads up—you won’t submit the most recent tax return. For example, if you’re applying for aid for the 2019-2020 school year, you’ll attach 2017 tax returns.
If you have any untaxed income from that particular calendar year (the year 2017 from our example), you’ll need to provide records for those earnings. If you’re a dependent, this could include your parents’ income, including sources like child support or disability benefits.
Last but not least, you and/or your parents will provide bank statements. These statements should be current at the time you fill out the application, not from the year of the tax documents and untaxed income reports you submitted.
Phew! Don’t worry, those should be all the financial documents. We can move on to less intimidating topics now.
Then you’ll just sign and submit your FAFSA®. See, that wasn’t so scary, was it?
One tip: It’s easy to feel confused about which financial document you should supply for each year. Just verify everything before you click “submit.”
Completing the Necessary Follow-up Steps
Filling out the FAFSA® may be the most laborious part of receiving financial aid, but it isn’t the end.
After receiving your Student Aid Report, you may want to double-check with the schools you listed on the FAFSA® to make sure they received your information, and to ask if they need you to fill out any more documents. Some schools require different documents, so it may be beneficial to contact each one.
Once a school has processed your information, you’ll receive a reward letter from the institution that officially reports how much aid you’ll be receiving. Colleges differ in how long they wait to send out reward letters, so if you’re feeling antsy, you can call to inquire about their reward deadline.
Now for a huge follow-up step: applying for private student loans if scholarships, grants, and federal loans don’t cover everything.
Applying for Private Student Loans
As mentioned above, you can typically apply for private student loans directly on the lenders’ websites. If you’re having trouble deciding where to apply for private loans but have already narrowed down your top schools, you can contact those institutions. Some colleges have “preferred lender” lists.
However, you aren’t necessarily bound by those lender lists. You may still want to research private student loans to find the right interest rates, interest rate types (fixed or variable), payment schedules, and included fees for your specific needs. Remember, private student loans tend to vary in their terms, so a little research can’t hurt.
Make sure you meet the requirements to receive a private student loan. For example, will you be enrolled in school at least half-time?
You should also make sure you’re attending a school that’s eligible for private student loans. If you’re attending a community college or trade school, you may or may not be able to receive a private loan.
Keep in mind that private student loan lenders tend to check things like your credit, income, and job history when you apply. This step will affect everyone differently, but if you’re fresh out of high school, this step could throw you for a loop. What if you’ve never had a job? What if you didn’t even know credit scores were a thing before this moment?
One thing that may help in this predicament is finding a student loan cosigner.
Your options for a cosigner are fairly flexible, but many borrowers choose someone they trust, such as a parent, close relative, or trusted friend.
Cosigners can also come in handy if you aren’t a U.S. citizen. Maybe someone from your host family or study abroad program can cosign for you.
Still, it may be possible to get a private loan without a cosigner if you have low credit and/or income. Just be prepared to possibly pay more in interest!
Other Ways to Finance Your Education
Yes, federal and private student loans are amazing tools for receiving money to pay for college. But they aren’t the only options! Remember, you can always apply for scholarships and grants.
Scholarships are “gift aid”, which means they don’t usually need to be repaid, and are typically merit based. You can search for scholarships based on skill, such as academic, athletic, or music scholarships.
There are also scholarships available for people of certain demographics, such as ones for minorities or for women. You could even find scholarships for people of a certain religion/denomination or for those who’ve engaged in community service.
Grants are gift aid awarded based on your financial need. Some grants are provided by the government (state or federal), while others may be offered by your school or a private company.
There are a number of federal grants out there, including the Federal Pell Grant , and Federal Supplemental Educational Opportunity Grant Program . For a list of private companies offering grants, take a look at this epic list .
In the spirit of complete transparency, we recommend you exhaust all federal aid, grants, and scholarship options before considering SoFi as your private lender.
But if scholarships, grants, and federal student loans don’t cover your cost of attendance, finding a suitable private student loan could be the final step to supplementing your education costs.
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