As tuition costs continue to rise at colleges and universities across the United States, student loans are becoming an increasingly popular way to pay for a higher education. Students who apply for financial aid may receive an offer of student loans as part of their financial aid package, while others may seek loans independently. Both the federal government and private institutions offer student loans.
Once you decide that you do want to fund your college education with a loan, here are ways to go about getting one.
Federal Student Loans
The U.S. government provides two types of loan programs: The William D. Ford Federal Direct Loan Program, also called a direct loan, is the largest federal loan program and the U.S. Department of Education serves as its lender, and the Federal Perkins Loan Program.
The Federal Perkins Loan Program is available to undergraduate and graduate students with "exceptional financial need," according to the U.S. Department of Education. Individual schools serve as lenders for this program and can discuss with students whether they are eligible for the loan program. Depending on their financial need and the type of student loans they are eligible for, undergraduates can receive up to $5,500 per year in Perkins loans and between $5,500 and $12,500 in direct loans. Graduate students can receive up to $8,000 in Perkins loans and $20,000 in direct loans.
The first step in applying for a federal student loan is filling out the Free Application for Federal Student Aid (FAFSA), which is available online.
Here are steps recommended for preparing to fill out a FAFSA:
- Create an FSA ID username and password. This allows applicants to sign into their online FAFSA account as well as sign loan contracts and view other information online. Applicants can get their FSA ID when the fill out the loan application or beforehand.
- Determine your dependent status. If an applicant is still dependent of his parents, additional information will be required on the FAFSA.
- Collect the necessary information. Applicants could need their social security number, a parent's social security number, their driver's license number, federal tax information for them or their parents, and financial information for them and their parents including savings, investments, cash, and assets.
Applicants who are approved for a federal loan will be required to attend entrance counseling, which will provide information about their obligation to repay the loan, and sign a master promissory note stating they agree to the loan's terms. Students who receive federal loans also will need to contact their school's financial aid off to learn about that school's process for handling student loans.
Private Student Loans
While federal student loans make up around 90 percent of all student loans issued, banks and other private lenders offer loans to help students pay for college. Students typically will receive information from private lenders in the summer before they head to college, as lenders look to fill in the gap between a student's financial aid and the cost of tuition.
Private student loans are similar to a mortgage or auto loan. Interest rates will depend the applicant's or the applicant's parents' credit history, and most students will need a co-signer to apply.
Financial experts advise students to shop around for the best rate, as they can vary widely between lenders. When a student finds the best terms and rates, they can contact the lender and begin the student loans process.
Before students take out loans to pay for their education, they should first consider how they will repay the loan after college. Thinking ahead and determining a realistic repayment plan will help applicants make good choices in the type and amount of loan they consider.