Leaving for freshman year of college can be an exciting time for both students and parents alike. What’s less exciting is having to figure out student loans. There’s a lot of information out there about student loans. It can be hard to figure out what loan options will be the best fit for you and your child. Our experts have broken down how to apply for a student loan, so you can help put your child on the road to success.
Not sure how much of a loan your child will require? Check out the Union Community Bank College Savings Calculator now.
How to Apply for a Student Loan
There are two main types of loans that every student and parent should be familiar with – federal loans and private loans.
Federal loans are the first option a student should be considering when looking for loans. The repayment plans offer more flexibility with options like income-based repayment plans, forbearance and deferment, and federal forgiveness programs. Borrowers don’t need a credit check to be considered and some federal loans offer income-driven repayment plans.
There are three types of Federal Loans:
- Direct Subsidized – loans that are made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education
- Direct Unsubsidized – loans made eligible to undergraduate, graduate, and professional degree students, however the student does not have to demonstrate financial need in order to receive the loan
- Direct PLUS Loans – loans made to graduate or professional degree students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid
The first thing you’ll need to do for federal loans, is fill out the Free Application for Federal Student Aid form (FAFSA). The window to file for the 2017-2018 school year opened on October 1, 2016 with a deadline of June 30, 2018. The window for the 2018-2019 school year is October 1, 2017 to June 30, 2019.
When filling out your FAFSA form, an important rule to remember is: the earlier the better. Some financial aid like state grants have limited funding and are offered to eligible students on a first come first serve basis.
Fill out FAFSA every year to continue to receive aid. File even if you don’t think you’ll qualify for aid – the algorithm used for determining eligibility is complicated and you may qualify even if you don’t think you do.
What is needed before filling out your FAFSA application:
- The student’s driver’s license and Social Security number
- The parent’s Social Security numbers and birth dates
- Your family’s latest federal income tax returns
For example, if you’re applying for financial aid for academic year 2017-18, you’ll likely use your family’s 2015 tax return.
- W-2 forms
- Bank statements
- Information on your family’s investments (real estate, money market funds, stocks, etc.)
While federal loans are typically applied for first because of their flexible design, they may not, cover your full financial needs. You may also need to consider private student loans. Private loans typically offer a choice of fixed or variable interest rates. A fixed rate will stay the same – giving you predictable monthly payments. A variable interest rate may be less, however it is subject to change over the term of the loan.
There are a variety of repayment plans available with private student loans. You or your student can even begin to pay off the loan while they are in school with interest only or fixed payments that can lower your total student loan cost.
For a better private loan interest rate, students will typically want to find a creditworthy individual as a cosigner. This is a scenario where a parent or guardian with a good credit score can help their child from becoming overwhelmed by interest rates.
What is needed before starting an application for a private student loan:
- Your address; if you’ve lived at your address less than one year, you’ll need to provide your previous address
- Your Social Security number
- School information including enrollment status, degree, and course of study
- Academic period of enrollment and year in school
- Loan amount you’re requesting
- Other financial aid you expect to receive
- Your employment information (company name and gross income)
- Financial information, including your bank account balances, and your monthly mortgage or rent payments
- Two personal contacts (other than your cosigner)
Other Tuition Options
Once you have explored the federal and personal loan options that are available to your student, there is a way you can help keep those loans manageable. Utilizing the equity in your home may be a good way to keep student loans manageable. Many families will find that the fixed rates for a Home Equity Term Loan will be better than a private student loan rate, making it a preferable loan option.
Tuition Payment Plans
If you want to get out ahead of college loans and save ahead of time, learn more about a 529 plan. This savings investment works like a 401K for tuition where parents or grandparents can contribute to the investment over a number of years. The contributions are then paid directly to the college, tax free.
Want to Plan Ahead?
Now you know how to apply for a student loan, but do you still need some extra help or want to plan ahead? We can help! Visit one of our 14 local branches today and our experts can help you come up with a savings plan for college tuition, help you figure out your borrowing options and help your child start their college experience on the right path.