The Process of College Loan Application for Federal, State, and Private Sources
Take the First Step Towards Financing Your College Education
So few students can even consider a college education without at least applying for one student loan. And in many cases one loan alone is not enough to cover all the costs of attending college. If you are a student going to college or a parent or guardian responsible for college costs, then this guide is for you.
Federal Student Loans- Deciphered
Your federal student loans come in two different varieties and you must understand how each works:
- Direct Federal Loans
- Federal Family Education Loans (FFEL)
The main difference between these two programs is type of lender. The factor that determines which type you will use lies with your choice of college or university. Your college financial aid office either will act as your lender through the Direct Federal Loan program, or they will ask you to choose a guaranteed student loan lender that manages the federal loans for them, the FFEL program. The loans themselves do not change. The key variables may be choice of repayment term and sometimes discounted loan fees.
Applying for Federal Loans
Federal Stafford Loans, Perkins Loans, and Direct Loans require you to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA application is most commonly completed online, but you also have the choice to download and print out a copy that you mail in, or even request that a hard copy be mailed to you. Once you complete a FAFSA the federal government determines, based on the information included regarding household income and other variables, how much you will be awarded in Federal student aid. A corresponding award letter is sent from your college letting you know how much loan assistance you can expect.
The Truth About the FAFSA
The FAFSA is a challenging, 5-page tax-like document that many students and parents muck very unhappily through. There is no short form or more user-friendly version. This is it for right now.
Guess what? Nearly 8 million students fail to file a FAFSA each year. Of these 8 million nearly 2 million are estimated to be low-income and 1 million of those students are missing out on the Pell Grants they would hands down qualify for1—that’s free money, a gift from the government, a no-brainer.
When you fail to file a FAFSA you automatically eliminate yourself from almost every other student aid opportunity. Do you have any idea how many sources require you file a FAFSA?
There's No Good Reason for Failing to Apply
Why do so many fail to file a FAFSA? Surveys have logged a few outstanding reasons: “I missed the deadline,” “My parents and I can pay for college ourselves,” “I don’t need student loans,” and “I wouldn’t qualify.”2 Regardless of the excuses the truth is that 6 million students certainly cannot pay for college themselves. Almost everyone qualifies for some level of federal aid and most need it. As for the deadline…there is no reason to miss it. FAFSA deadlines include federal, state, and college deadlines. Any outside scholarships you apply for may also have a FAFSA requirement and deadline.
FAFSA deadline rule of thumb: apply early, which means your family’s income taxes will have to be done early. Take the earliest deadline of any of the above aid sources for which you are applying and use that as your deadline guide.
If you have problems understanding the FAFSA or require assistance you must ask your high school guidance or career counselor. Many schools now feature a weekend or two in the fall during which they invite parents and students to student loan and FAFSA workshops. This could be your solution.
About Entrance and Exit Counseling
Before you are eligible for loans you will be required to complete entrance counseling. You will also be required to complete exit counseling once you have left school and just prior to beginning loan repayment. You complete these “sessions” online through your lender in about15-20 minutes. They are simply informational questionnaires that prove to your lenders that you understand your basic student loan responsibilities, first for lending and borrowing and then for repayment.
Applying for Credit-Based Student Loans
Parent and Graduate PLUS Loans are credit-based loans, which means your application must go through the typical credit check. The better your credit rating, the more reasonable your interest rate and chances for approval. Many lenders also offer attractive discounts or loan perks that make PLUS loan repayment more manageable. Some colleges will require a FAFSA to be completed for the PLUS loan.
State-funded Student Loans
Did you know your home state might have a student loan program in place that could buy you a better federal student loan deal?
Example:
Michigan extends student residents the Michigan Students First program. Stafford Loan and PLUS Loan borrowers have the opportunity to save with a rare discounted interest rate and no loan origination fees.
How you apply for state-funded student loans:
State student loan programs typically provide you with a list of lenders and participating schools that recognize their program. Use these as a guide to find out if you qualify for even better federal student loan deals. Then, talk to your lender or college financial aid office. Tell them the state loan program in which you are interested.
Private Student Loans
Private lending institutions, such as banks that offer educational loans, make it quick and convenient for you to apply either on the phone or online. Alternative student loans have attracted a lot of criticism from lawmakers that suggest too many students are using these products as first resorts. Always use federal loans first.
When you must apply for a private student loan you will either need to have your own good credit or have a co-signor. The application process is not difficult and there are surprisingly quick turnarounds on these alternative educational loans.
What you must know about private or alternative student loans:
Private loans must always be your last resort. Most feature high interest rates and high and dangerous credit limits with few borrower benefits.
Other Student Loan Applications
Once you have completed Federal FAFSA applications and private lending institutions loan forms, the college you will be attending may have further applications for you to complete. The College Scholarship Services (CSS) profile is a relatively common document many educational institutions ask you to complete.
Remember: make sure you know the deadlines for all student aid applications. The earlier you can file any forms, the better off you’ll be.
Footnotes:
1“Missed Opportunities: Students Who Do Not Apply for Financial Aid,” ACE, October 2004, accessed October 15, 2007, http://www.cherrycommission.org/docs/Resources/Participation/Student_FinancialAidArticle.pdf.
2Missed Opportunities.”
