Students can either borrow a federal or private loan. This is money that they have to pay back, and it’s the best option if one cannot find free money, which is available in the form of scholarships or grants. Private loans are given by financial institutions such as banks, while the government provides federal loans.
Federal Student Loans
Federal loans for students are available in three types. Students receive them via the Federal Direct Loan Program and are all given by the government. They include:
Direct Subsidized Loans
These loans are not given according to financial need at hand. But, they are easy for students to get because no cosigner or excellent credit score is needed. However, it’s the school that determines how much a student can borrow based on cost and other financial aid the student may be receiving.
Direct PLUS loans
Direct PLUS loans should come second after a student fails to get subsidized loans. They are given based on credit score. However, they are still cheaper and easier to use than private loans.
Private Loans for student
After a student has explored federal, grants and scholarships, but the money is still not enough, he or she should go for private loan options. The loans are given to financial institutions, including banks. The student must have a cosigner who can be a parent or anyone who is creditworthy.
If a student cannot find a loan on their own, a parent can borrow a loan on their behalf. However, the loans are only given to creditworthy parents.
Steps of Applying a Student Loan (Both Federal and Private Loans)
When looking for a student loan, there are several application processes. But each process depends on the type one wants to borrow.
Applying for a federal loan for students
Application of a federal loan for students starts by filling and submitting online the FAFSA or Free Application for Federal Student Aid. This step is compulsory for any student who wants to be considered for a federal student loan.
Applying for a private student loan
Banks and other financial institutions give private loans for students. Here are steps on how to apply for this loan.
- Visit the lending company’s website and check details such as application repayment options and how flexible they are.
- Fill the application form and select repayment options and interest rate.
- As an applicant, one should get a cosigner to improve chances of getting a loan.
- The lender checks the borrower’s credit score along with that of the cosigner before responding.
- The whole process should not take more than 15 minutes to get a decision from the lender.
How Does A Student Accept A Federal Or A Private Student Loan?
A student should accept the federal loan by replying to the offer sent to them. Sometimes students are taken through counseling to help them understand loan obligations. Besides, the applicant must sign an MPN or Master Promissory Note.
A student accepts a private loan after it’s approved. The process of accepting a loan goes through the steps below:
- The student has to select a repayment option and interest rate for the loan.
- The student and their cosigner must accept the loan terms and submit their signature electronically. This creates a legal agreement, which means the student is committed to repaying the loan plus the interest.
- The school is asked to certify the eligibility of the student, including verifying their enrollment and loan amount requested.
Repayment of Federal and Private Student Loans
Students are given six months of grace period before a student can start making repayments. However, there is an option for students to make interest payments within the grace period and later make principal plus interest.
As a college student, it is wise to borrow wisely. The best way to get started is to use savings or get free money such as grants, scholarships or work-studies that are not required to be paid. The other option should be federal loans, and private student loans should come as the last option. It is always a good idea for a student to consider that they are likely to earn after school. The loan should not be more than what a student can afford to repay.