Two-thirds of American college students seek some sort of financial aid, according to CollegeBoard.com. Although some students are fortunate enough to receive grants and scholarships, the lion’s share of financial aid comes in the form of loans. In this article, we’ll take a closer look at vital steps you should take for getting a student loan, particularly FAFSA (Free Application for Federal Student Aid).
Pros & Cons of Student Loans
A loan designed to help students pay for college comes either from a government institution, such as the U.S. federal government, or it comes from a private organization, such as a bank. These loans have to be repaid; the government offers a fixed interest rate while a private firm’s interest rate on these loans is variable. Even with favorable repayment terms and interest rates for government loans to students, many college graduates still find themselves struggling to repay loans years after their education has been completed. Furthermore, defaulting on a loan you used to pay for college will impact your credit history for many years to come. Understanding these disadvantages to loans, you want to avoid borrowing too much money from the government or a private organization.
In 2007 and 2008, the average graduating senior was saddled with nearly $24,000 in student loan debt. That’s a significant amount of money for someone who hasn’t even begun his or her career yet. To avoid these disadvantages of student loans, use loan as sparingly as possible. Before applying for a loan, consider ways you can reduce the cost of your college education. For example, consider an online university. The schools offering an online education are often less expensive than traditional schools. Online education has improved tremendously over the last few years and will continue to grow as a way for people to earn college degrees in the future. Other ways to save money include taking advantage of any grant money and scholarships that may be available to you. To gain access to these types of funds, however, you’ll need to take the time to do some research.
Fill out a FAFSA
If you can qualify for a government loan, pursue a FAFSA loan first , before considering a loan from a private institution. Because the government is essentially a non-profit organization, its interest rates and repayment plans are more flexible than those of private institutions. Therefore, your first step should be to go to the FAFSA.ed.gov website to fill out a Federal Application for Student Aid form. The two most common types of federal loans are the Perkins Loan and the Stafford Loan. The Perkins Loan is designed specifically for the neediest of college students. If your family cannot assist you financially with college or if your income falls below the poverty line, you may qualify for a Perkins Loan. The more common type of government loan is the Stafford Loan. This loan is open to more students but has a slightly higher fixed interest rate. Students can choose to begin repaying the loan after college rather than while they are still in school; they can also apply for their loan’s interest to be subsidized if they can prove their neediness. To receive a Perkins or Stafford Loan, students must be part-time or full-time college students. Students also must be U.S. citizens, U.S. nationals or have permanent resident status. Finally, students must have a clean criminal record. Only if you do not meet these requirements should you apply for a private loan.
Find a Cosigner
The federal loans mentioned above — FAFSA and the Perkins loan — do not require that the student has a good credit history or any credit at all, but they do typically require a cosigner. A cosigner, usually a parent or another relative, has established good credit and agrees to be responsible for the debt if the student fails to repay the loan. Asking someone to cosign on your loan is a big request. Keep in mind that if you do not pay the loan back, you can adversely impact your cosigner’s credit. Poor credit may mean that your cosigner won’t be able to make any major purchases for many years, such as purchasing a home, a car, a boat or taking out a loan themselves for personal use or business. If you have no one available or willing to cosign for you, it’s still possible to apply for the loan on your own, but you will need to show a relatively good credit history. Following these three steps are important first moves towards getting your college education funded. Remember to try to finance as much as your education as you can without having to rely upon high-interest loans.