I Want to Take Out a Student Loan

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Learn about student loan types.

It’s important to know about the main types of student loans so you choose the ones that are right for you. You don’t need to memorize them all–just take note of the ones that you think will be the most useful to you.

  • Stafford Loans are the most common type of federal loan applied for, and they are capped at a certain amount per year, based on whether you are dependent on or independent of your parents and what year you are in school. (See the annual limits here.) There are two types of Stafford Loans: subsidized and unsubsidized loans.
    Subsidized loans are awarded based on financial need. The interest on these loans will not accrue while you are in school at least part-time or during future “deferment” periods, when you will be out of school but your loan payments will be suspended. Unsubsidized loans are not based on financial need, and the interest begins to accrue from the moment the government disburses the loan. For undergraduates, a subsidized Stafford Loan has a lower interest rate than an unsubsidized one.
  • Perkins Loans are for students with extreme financial need. Interest rates for Perkins Loans are a standard 5%, and the loan is limited to $5,500 per year in aid.
  • PLUS Loans are issued to parents of students. Parents can borrow a PLUS loan to supplement costs not covered by other forms of financial aid.
  • consolidation loan combines one or several loans into a single loan package. According to the nonprofit American Student Assistance (ASA), interest rates on consolidation loans are calculated by doing a weighted average of the rates of each individual loan being combined and rounding up to the nearest one-eighth percent. The interest rate is capped at 8.25%.
  • Institutional loans are offered by the school you’re attending. Unlike a scholarship, this money must be repaid to the school once you graduate.
  • Private loans are sometimes called “alternative loans” because they differ from government-funded Stafford, Perkins and PLUS loans. Unlike government loans, whose interest rates don’t vary and which have standard repayment schedules, the interest rates of private student loans can change over the life of the loan, and repayment schedules are not standardized. For this reason, private loans tend to be a greater financial burden for students who take them on. We recommend that they be used only when other sources of financial aid have been exhausted.

Fill Out Your FAFSA.

The Free Application for Federal Student Aid (FAFSA) is used to assess whether you are eligible for federal student loans and other forms of financial aid, and if so, what amount.

The online form will walk you through the whole process, but a few things you’ll need to fill out a FAFSA are:

  • Your Social Security Number
  • Your W-2 and tax return paperwork from the previous year
  • Your parent’s W-2 and tax return paperwork from the previous year (if you are still legally their dependent)

Submitting this form online is recommended, as it’s the fastest method available to apply. However, you can also mail in the paper document. The deadline to submit a FAFSA for the upcoming school year is June 30, but we recommend you send your FAFSA as soon as the government begins accepting them in January. The government gives each college a maximum amount to award for each type of loan (i.e. $500,000 in Stafford Loans), and funds are awarded on a first-come, first-serve basis.  The earlier you send in your FAFSA, the more likely it is that your school will decide your award amount while it still has ample funds.

Figure out the total cost of the schools you’re applying to.

There are many costs associated with attending college. Sometimes the figure displayed on the institution’s “cost of attendance” web page does not accurately depict how much that school will cost. Factor these items into your total cost of attendance:

  • Tuition: Determine how many units or credits you plan on taking for the entire academic year and how much that will cost in tuition. If you know you will want to take courses over the summer or between quarters, account for these added expenses as well.
  • Additional fees and charges: Schools can charge additional student fees separate from academic tuition fees. Examples include student union fees, health fees, etc. The charges and amounts vary from school to school, so ask your admissions and records office what you should expect to pay in terms of these fees.
  • Housing (optional):  If you live in the dorms or rent an apartment of your own, housing can be a major expense.
  • Books and Supplies: Required textbooks and school supplies add up fast. General education textbooks can range from $50 to $200 each. Estimate how much you’ll need for books and supplies by budgeting about $150 per class for mandatory textbooks and supplies.
  • Transportation: If you commute to school, you’ll have to pay for gas and possibly car insurance or for public transportation. Decide how you’ll get around while in school and come up with a transportation budget.
  • Miscellaneous: Estimate how much you’ll need for personal care products, clothing and food. This area can typically be cut down to the bare essentials, which will make college living more affordable.

Perform this breakdown for all the schools you’re considering so you have a realistic snapshot of how schools stack up against each other financially. Keep these numbers for step 4.

Figure out how much your family will be expected to contribute and how much you’ll need in loans.

After submitting your FAFSA in step 2, you will receive a Student Aid Report (SAR) via e-mail three to five days later, or via standard mail seven to ten days later. The SAR details the information you entered in the application, and also identifies your estimated Expected Family Contribution (EFC).

The EFC, an estimate of how much your family might contribute toward your college education, is used by your school when determining your financial aid package. While it may not exactly be what your family will end up contributing, it provides a rough estimate since the school’s financial aid package will be based on it. Subtract the EFC from the cost of attendance amounts you calculated in step 3. The difference is the amount that, after your family contribution, you’ll cover with student loans or other financial aid like third-party grants or scholarships.

If the EFC is larger than what your family thinks it can afford, don’t worry just yet. You’ll have an opportunity to negotiate with the university financial aid offices later on if the financial aid package at your top school isn’t sufficient.

Compare the financial aid packages of the schools that accepted you.

Shortly after, you will receive acceptance letters from schools, as well as notification of your financial aid packages. Timelines for receiving financial aid packages may vary from school to school, so if you’re still missing a package, contact the school. Some colleges send acceptance letters with financial aid letters together as early as March, while others send acceptances in early April and financial aid award letters in May. Technically, you can accept a school before you’ve been offered financial aid, but we don’t recommend it!

Starting with your top choice school, see how your financial aid package measures up to the total cost of the school. Will your family be able to swing the rest? Financial aid packages that have more grants and scholarships are nice, since those don’t need to be paid back. But ultimately, your decision comes down to this: Are you willing to take on that much debt in order to attend this school?

If the financial aid package at your top choice school is close but not yet quite to what you’d be comfortable with, call the financial aid office to request more aid options or funds. Tell the financial aid officer this school is your top choice and why. Then, explain your financial circumstances and state how much you still need. Ask what additional school scholarships you’re eligible for and whether the school can offer you more in federal loans. And, if those options fail, ask them for a list of school-recommended private lenders.

Make sure you’ve done all you can to maximize your federal loans by contacting your school’s financial aid office before you turn to a private lender.

Accept the student loan.

Once you’ve selected which school you want to attend, you’ll need to officially accept the federal student loan package.

While your federal loan money officially comes from the U.S. Department of Education’s Direct Loan program, you’ll receive your loans (and the Federal Parent PLUS loan) through your college’s financial aid office. Your loan may also come with a “servicer,” which is a third-party company that the government has made responsible for processing your loan payments and acting as a customer service liaison between you and the government.

To accept, log in to the school’s online financial aid system and choose which loans you’d like to accept and at what amount (up to the maximum offered to you.) You’ll also need to sign a promissory note, which acknowledges how much you’ve decided to borrow, how long your repayment term is and other terms and conditions associated with the loan.

Additionally, all first-time federal student loan borrowers are required to go through “Loan Entrance Counseling.” Your school will email you a link to this approximately ten-minute online Department of Education quiz to teach first-time borrowers about basic student loan knowledge and repayment expectations.

If you’ve decided to accept a private loan, which, again, we only recommend as a last resort, speak directly to the lender to learn more about paperwork and documentation you need to sign. (Read our Student Loans 101 to understand why private loans are riskier than federal loans.)

Note the details of your student loan package.

Review the details and terms of your student loan package. Items to be aware of are:

  • Loan type
  • Interest rate
  • Term length
  • First payment due (this will be determined based on your expected date of graduation)
  • Accuracy of basic information (name, address, Social Security number, student I.D. number, etc.)

Keep all student loan-related information and school financial aid packages in an organized folder so you can easily refer to it while the loan is active. Also, mark the date when the first payment is due, even if it’s four years in the future!

Make a budget.

Write a list of your non-negotiable, fixed expenses, such as tuition and fees. Then write down other expenses that you may be able to skimp on if need be, such as housing and books. Subtract the total of your fixed expenses from the amount of the loan. Determine how much you have left over. That is the amount you can spend on flexible items, such as housing, food, etc.

Use our Budgeting Tool to set up a budget for these expenses. For instance, if you know that after paying tuition and fees, you’ll have $1,000 a month for other expenses, you can set aside $500 a month for housing, $100 per month for transportation, $200 a month for food, etc.

Re-apply next year.

In subsequent years (i.e. sophomore year, junior year, etc.) you’ll have to re-apply for financial aid by starting with step 2—filling out a FAFSA.

Every year, re-calculate the costs afresh. Maybe you’ll have decided by your sophomore year that dorms aren’t the thing for you, so you’re moving back home, which would lower your housing costs.