Getting a college degree is one of the most daunting tasks in the United States due to the high cost of going to college. Although education is important it isn’t affordable for many Americans out there. The income of most people isn’t good enough to pay the higher education costs of college.
That is why many people turn to student loans to get their college degree.
You may be wondering how do student loans work? You borrow money from the government or bank to pay for your college education. There are many different student loans you can get, and we will show you how they work.
The process of applying for a student loan and getting it can be confusing and it is not a simple process. Therefore, if you are planning to apply for a student loan then you need to understand the process of how it works.
In a country like the U.S, where the government isn’t offering enough grants to cover the college cost for students. This leaves many college students in need to borrow a loan to pay for school.
According to the Student Debt Relief website:
- Number of borrower’s student loans: 44.7 Million
- Student loan debt still remaining: $1.569 Trillion
- Money borrowed each year to go to college: $105.5 Billion
- The percent of college graduates with debt: 71%
What are Student Loans?
Students loan is another name of borrowing money for educational purposes. Just like any other loan, a student loan has:
- A fixed repay time period
- Interest will be charged over the life of the loan
- additional fees may be added if you are late with payments
Student loans are specifically used to pay college fees and it is very common in countries like the US where education is expensive. Students loans help students to pay for their education which includes living expenses, book, tuition, and other supplies required for education.
There are also two kinds of student loans available known as Federal Loan and Private Loan. Both of these loans work on different policies so you need to understand them fully.
How do Student Loans Work?
Students loans are highly beneficial for students who are looking for tuition money to get their college degree. They are unique because they are designed only for the students who are in search of a funding option.
Getting a student loan through the Federal Government is much cheaper than going to a bank to get a private loan. You will want to go to the U.S. Department of Education’s Federal Direct Loan program for more information on loans for college.
How do you Qualify for Student Loans?
To qualify for a student loan, you need to submit your application to FAFSA by filling out the apply for aid. When you go to the website you see a blue square button that says Start Here.
To get a general idea on how you can qualify for a student loan then read below.
Here are the requirements which are required from you in order to qualify for a student loan:
- You must hold a social security number.
- If you are male, then you need to register with the selective service to make yourself eligible for loans.
- You should be a citizen of the USA. Citizens with green cards can qualify for a student loan.
- A high school diploma (or its equivalent) is needed.
- Your school should be eligible and accredited. Cannot apply for a loan if you are enrolled in an unaccredited school.
- The student will also need to fill out and submit an application of your financial needs to FAFSA.
- You should be able to maintain a GPA of 2.0.
What does a Student Loan Pay For?
Student loans only cover the cost of anything to do with school. That means a student loan can cover the cost of tuition, books, attendance, room, fees, and boarding.
If you are on a private loan, then it pays for a vast variety of expenses which can encounter during the coursework. Thus, a student loan takes care of the following for you:
- Computer supplies
- Lab expenses
- Parking passes and fees
And any other such supply which is involved with your education.
Where can I Apply for Student Loans?
If you are planning to apply for a federal student loan, then you need to do some form filling first. The form for checking out your eligibility for a federal loan is available at FAFSA.
After filling out and submitting your form on this website, you will get a financial aid offer from your respective college. This financial aid offer contains federal student loans.
Other than FAFSA, you also need to contact the financial aid department of your school and they will guide you about the rules and regulations of FAFSA.
What is the Difference between Federal and Private Loans?
Federal loans are those granted by the U.S federal government. Federal loans are better than the private loans in the sense that they come with a lower interest rate as compared to private loans.
Moreover, the repayment option of federal loan is also much more flexible as compared to private loans.
Federal loans also don’t require any credit check as well. But the biggest advantage of federal loans is that you don’t need to repay it until you complete your degree.
To apply for a federal student loan, you need to keep applying for it each year.
There is a web portal which is known as FASA where you can determine your eligibility for applying for a student loan.
On the other hand, the policies of private loan are different for each private institution. Therefore, before applying for this loan, it is your duty to carefully go through the terms and conditions of the specific loan granting body.
When looking at options the federal loans are the better choice because you don’t need to worry about any drastic modifications in the interest rates.
You can read how to get a private student loan to learn more.
How do I Know if my Student Loan is Federal or Private?
If your loan is from the US government and contains a fixed interest rate, then your loan is the federal loan. However, if you are seeking the help of a private organization like banks, then your loan falls under the category of private loans.
How Much can you Borrow for Student Loans?
The amount of loan you can borrow depends entirely on the loan provider. The limitations for private and federal loans are different from each other.
Generally, an undergraduate can borrow a loan of around $12,500 per year which can go up to $57,500 in total. Similarly, a graduate student can apply for a loan of up to $20,500 annually which can go up to $138,500 in total.
The maximum amount you can borrow also depends upon your school year and whether you are an independent or dependent student. Moreover, the borrowed amount also depends upon the type of loan.
If we talk about deferral loan, then there are three kinds of deferral loans known as direct subsidized, direct unsubsidized and direct PLUS loan.
The first one that is subsidized loan is for the undergraduates and there is an annual as well as aggregate loan limit on direct subsidized loans. On the other hand, if your parents cannot afford the direct PLUS loan then you can apply for unsubsidized loans.
Direct PLUS loans are for graduates and professionals. There are no borrowing limits on this loan type.
The direct subsidized and unsubsidized loans range between $5,500 and $12,500 annually. These figures are for undergraduate students.
Similarly, if you are graduate then can take an amount of $20,500 per year under the direct unsubsidized loans.
On the other hand, if we talk about the private loan borrow limit then the cost differs with each lender. Generally, the total borrow amount can not exceed the amount of total cost of attendance.
Following are the exact figures of student loan limits you can consult before applying for a loan:
- $5,500 annually for undergraduate (first-year only)
- $6,500 annually for undergraduate (second year only)
- $7,500 annually for undergraduate (third year and above)
- Total undergraduate loan borrow limit: $31,000
The above case is under the circumstances when you are also receiving some kind of financial support from your parents. However, if there isn’t any support from your parents or any family member, then the loan limits go as follows:
- $9,500 annually for undergraduate (first-year only)
- $10,500 annually for undergraduate (second-year only)
- $12,500 annually for undergraduate (third-year and above)
- $20,500 annually for graduates and professionals
- Total undergraduate loan borrow limit: $57,500
- Total graduate loan borrow limit: $138,500
Can you be Denied a Student Loan and Why?
You can be denied a student loan due to any of the following reasons:
- Involvement in any kind of drug offense and you are convicted for it
- A student is not able to maintain good academic progress during college
- You are a non-U. S citizen living in the country
How does Student Loan Work for Parents?
There is also a special type of loan which works only for your parents. It is known as the Parent PLUS loan. This loan also comes under the category of federal loans and it is available for the parents of undergraduate dependent students.
If you are also a dependent undergraduate then your parents can avail the Direct PLUS loan to help to pay the fee of their children for college. This loan comes with a fixed interest rate like any other federal loans available. Moreover, direct PLUS loan also offers a flexible loan limit.
To obtain a student loan, parents need to follow these steps:
- Parents should complete the Master Promissory Note and then forward the loan request.
- Parents (not YOU) should request for the loan.
- The FSA ID which is used for FAFSA must be used with the request form.
Moreover, only your biological or stepparent is eligible to apply for this loan.
Do Parents have to Co-Sign on Student Loans?
You are responsible for your student loan and there is no role of your parent in this process. That is why your parents cannot cosign on these student loans. This is the case of a federal student loan.
On the other hand, if you are applying for a private student loan, then you need a cosigner which will be your parent in this case. If your parents are ready to cosign, then your chances of obtaining the loan become easy and you may also get the loan at a lower interest rate.
In this case, the credit history of both you and your parent are checked.
Can you get a Student Loan Without a Job?
There is nothing to be worried about if you don’t have a job and you still wish to apply for a student loan. Many lenders consider several criteria in order to offer you a student loan.
However, that is only the case with private loan lenders. Your lender will look for any of the following conditions even if you don’t have a job:
- Your credit history as well the credit history of your parent.
- Lenders will also look for any source of income (there are many alternative options of showing a source of income)
In case of federal loan, you can fill out your form on FAFSA and see if they accept your application without a job.
Is it Easy to Get a Student Loan?
Getting a student loan vary from person to person. There are certain requirements which need to be filled in order to get a student loan. In the case of federal loans, if you fulfill the requirements like the ones we mentioned above, then you can get the loan.
In the case of private loan, you need to show a stable financial history in the form of credit history.
If you fulfill the basic requirements for a student loan, then you easily get the student loan to finance your studies.
Can I use a Student Loan with Bad Credit?
It totally depends upon the type of student loan. If we take into consideration the federal loans, then bad credit or credit history doesn’t affect it at all.
However, private student loans highly depend upon your credit history as well as the credit history of your cosigner.
Which Banks Offer Student Loans
The private loans depend entirely on your credit history. The terms and conditions of various private student loans may differ from each other.
Following are the best banks which offer student loans:
- Wells Fargo
- Sallie Mae
- Citizens Bank
- Sun trust
- College Ave
Going through this you should have a good view of the loan process for college. The key is to fill out the FAFSA form no matter your income level. You want to keep with federal loans before going to get any private loans.