Learn more about private student loans
Make sure you’ve exhausted all other forms of financial aid before applying for student loans by completing the Free Application for Federal Student Aid, or FAFSA. The FAFSA is the sole method to obtain free federal funds, such as work-study and grant programs, which do not require repayment.
Once you’ve used up all of your free money for college expenses, keep in mind that not all student loans are made equal.
Federal student loans are provided by the federal government and typically have lower interest rates along with borrower protections like student loan forgiveness and income-driven repayment plans.
Financial institutions’ private loans don’t have the same advantages. Therefore, it’s usually best to wait to apply for private loans until after you’ve exhausted all available federal loan options.
How to apply for federal student loans
Fill out the FAFSA as soon as you can to find out what kind of federal assistance you qualify for. Usually, the FAFSA opens on October 1st for the upcoming school year. Also, you have until June 30 to submit the FAFSA. However, there are significant changes taking place this year in the federal aid process that are creating delays. Expect the 2024-25 FAFSA to open in December 2023.
You will receive a Student Aid Report detailing the kinds of federal loans that are available to you and the maximum amount that you can borrow after completing the FAFSA.
What type of federal student loans can I get?
There are a few types of federal student loans:
- Direct subsidized loans are for undergraduates with a financial need. If you meet the requirements, any interest that accrues while you’re enrolled in classes won’t be owed by you.
- Federal student loans are primarily in the form of direct unsubsidized loans. Both graduate and undergraduate borrowers can apply for them, but interest is charged while you’re enrolled in classes. At the conclusion of your grace period, the interest is capitalized, or added to your balance.
- Grad PLUS loans are for graduate and professional students. You can borrow up to the cost of attendance with these loans, but in order to be eligible for a grad PLUS loan, you cannot have a credit history that is not favorable.
- Parent PLUS loans are for parents with dependent undergraduate students. Similar to the Grad PLUS loan, a parent’s credit history cannot be adverse to be eligible. They are able to borrow as much as necessary to pay for their student’s college expenses.
How much can I borrow in federal student loans?
If you are eligible, you can take out more than one kind of federal loan. However, the total amount of student loans you can receive is limited depending on the type of loan you take out, your academic year, and whether you are an independent or dependent student. Additionally, there are restrictions on the total amount you can borrow for your entire higher education. Keep in mind that any loans taken out while an undergraduate are included in the total limits for graduate borrowers.
What interest rate can I expect with federal student loans?
Every year, Congress establishes interest rates for all federal student loans; however, these rates are only applicable to newly created loans. Your interest rate is fixed for the term of the loan once you obtain a federal loan.
These are the historical trends in interest rates for federal student loans.
|
Academic year |
Undergraduate |
Graduate |
Parent PLUS, Grad PLUS |
|---|---|---|---|
|
2023-24 |
5.50% |
7.05% |
8.05% |
|
2022-23 |
4.99% |
6.54% |
7.54% |
|
2021-22 |
3.73% |
5.28% |
6.28% |
|
2020-21 |
2.75% |
4.30% |
5.30% |
|
2019-20 |
4.53% |
6.08% |
7.08% |
|
2018-19 |
5.05% |
6.60% |
7.60% |
|
2017-18 |
4.45% |
6.00% |
7.00% |
|
2016-17 |
3.76% |
5.31% |
6.31% |
|
2015-16 |
4.29% |
5.84% |
6.84% |
|
2014-15 |
4.66% |
6.21% |
7.21% |
How to apply for private student loans
Private student loans necessitate a thorough underwriting procedure, in contrast to the majority of federal loans. Lenders seek out borrowers with good credit and a relatively low debt-to-income ratio, or enough extra cash to cover loan payments in addition to other expenses. If those conditions aren’t met, you might require a cosigner in order to be eligible for a private student loan.
Private student loans are provided by state-based organizations, banks, credit unions, and internet businesses. When selecting a lender, it is crucial to evaluate interest rates, costs, and borrower protections due to the abundance of options.
When to use private student loans
Remember to consider federal student loan options first. However, if a student has taken out all available federal loans and still needs money for college, private student loans may be a good option.
A private student loan may have a lower interest rate than a federal one for parents, graduate students, undergrads, or undergrads with a creditworthy co-signer. However, there are still more advantages for borrowers with federal loans, such as flexible repayment plans. Benefits from private lenders do exist, but they are usually not as extensive as those from federal loans.
FAQ
How can a student get a loan for college?
To apply for a federal student loan, complete the Free Application for Federal Student Aid (FAFSA®) and submit it. In order to be qualified for a federal student loan, you MUST complete the FAFSA.
Can I apply for a student loan on my own?
Parents are not always necessary for private student loans, but the borrower or another co-signer must be eligible for the loan. Since it can be challenging for a student to have sufficient income and credit history on their own, a co-signer will probably be required.
Can a college student apply for student loan at any time?
Federal student loans can be applied for as early as the year prior to the start of classes. Given the tight application deadlines for federal loans, it’s a good idea to apply as soon as possible. However, you can apply for private student loans whenever you’d like.
Read More :
https://www.nerdwallet.com/article/loans/student-loans/student-loans-federal-vs-private-loans
https://studentaid.gov/understand-aid/types/loans