Getting ready to start your college career is a daunting task, especially if you have no previous experience with applying for student loans. Understanding the various steps involved in applying for loans is very important to ensure that the entire process is simple and efficient.
The cost of attending college can be very expensive for most students. According to The College Board, the average cost of attending a public university in the states is $9,410. On the other hand, if you choose to attend a private school, the bill can be much higher, at $32,410.
We sat down with a financial expert and CFA Charterholder Francisco Faraco, to help our readers understand what to expect when applying for a student loan. In this step-by-step guide, we’ll walk you through the various steps involved in applying for student loans so that you can start your college life. Let’s get started!
Table of Contents
Step 1: Understanding Your Options
Federal and private student loans are two types of financial aid that can help you pay for college. These are typically given to students who are attending a university or college. The government provides federal loans through the US Department of Education. On the other hand, private student loans can be obtained from various private businesses, credit unions, and banks.
Federal Student Loans
Federal student loans are typically the best choice for people looking to pay for college. They have lower interest rates and are more flexible than private loans. Before you apply for a federal or private student loan, it is important to understand the differences between these two types of financial aid.
You may be eligible for a direct subsidized loan if you are an undergraduate student. These loans are designed for those with financial needs and are available to any student.
The government covers the interest that you pay while you are in school, and it does so for six months after you graduate. On the other hand, unsubsidized loans are typically the borrower’s responsibility, even when you are still in school.
The grace period on federal student loans is six months after you graduate. This allows you to get a job and pay off your loans without making payments.
Federal student loans have various perks for paying off your loans, such as the ability to participate in income-driven repayment plans. These plans can lower your monthly bill by up to 90%.
Private Student Loan
Private student loans can be a safe option if you need more financial aid than the government offers. These types of loans are available from various financial institutions and banks. Your interest rates and repayment plans can vary from lender to lender.
If you are an undergraduate student, you will most likely need a cosigner for private student loans. A cosigner is someone who has a stable income and good credit, and they act as a financial intermediary for the lender. Having a cosigner makes you more likely to be approved for a loan.
Step 2: The Financial Information Needed
Before you start applying for student loans, ensure you have the necessary information and paperwork that must be submitted.
You should have a paper tax return, which will allow you to track your income and expenses. You will need your parents and your tax returns if you file taxes. If you have an adjusted gross income, this will show up on your tax return.
You will also need to provide details about your assets, such as your bank account balances and Social Security number. You should also include a list of schools that you are interested in.
If you have received any financial aid, such as scholarships or grants, you will need to provide the amount of aid you received.
Step 3: Complete the FAFSA
To qualify for financial aid, you must complete the Free Application For Federal Student Aid. This is the government’s tool to determine which students will most likely receive grants and scholarships. It’s free to do this, but it’s important to submit it as soon as possible.
You can complete the application online. After you have completed it, you will need to create a Federal Student ID to access your application. Once you receive the Student Aid Report, a summary of your financial situation, it will give you an estimate of how much money you’re expected to spend on education.
Step 4: CSS Profile Submission
You may also be eligible for institutional financial aid from your school. According to FINRA Brokercheck Francisco Faraco, you must complete the CSS profile to be considered for this type of aid. After creating an account, select the schools you’re interested in and provide all the necessary details about yourself and your family. You’ll be charged a $25 fee for each report, and the College Board has a guide on completing the profile.
Step 5: A Financial Aid Award Letter
After you’ve been accepted into college, your school will send you a financial aid letter detailing what kinds of aid you’re eligible to receive. It will also include the total cost of attendance and the types of grants and scholarships you’ve received. You’ll need to sign it and return it to the financial aid office.
If you’re not eligible for federal student aid, private student loans are a great tool to get the funds you need to continue your education. These loans are typically offered through a credit check, and their interest rates and eligibility will vary by lender. In addition to your credit score, other factors such as your income and the type of degree that you’re pursuing can also affect the rate you pay.
We hope this guide helps young students on their journey to higher education. Francisco J. Faraco is a CFA Charterholder and teaching assistant at the University of Chicago. For more information on student loans in the US, check the various resources available in the US Department of Education relating to loans, forgiveness, and grants.
About The Author
Adam S. holds over 12 years of experience providing financial consultancy services to individuals and organizations. He has helped numerous students receive the funds they need to pursue higher education.