So you or someone you care about has received notification that they will be attending college. Congratulations! The next step is to figure out how we are going to pay for it.
According to the College Board, the annual tuition and fees for students attending public, four-year institutions in their state cost an average of $10,560. This indicates that higher education is beneficial but also expensive. When you factor in room and board as well as textbook costs, that sum becomes significantly higher. It is even expensive for schools that are located in other states or are private.
Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors, says that the first step in figuring out how to pay for college is to explore all of the potential options for free money, including grants, scholarships, and payment plans. This is the first step in figuring out how to figure out how to pay for college. However, if you’ve done everything and your calculations still don’t add up, you might have little choice but to apply for student loans.
Student loans are frequently considered “good debt,” which is a term used to describe debt that has a high return on investment value. They also occur frequently: More than sixty percent of the nation’s college seniors graduated with some kind of student debt in 2019, as reported by The Institute on College Access and Success. The average amount that borrowers were responsible for paying was $28,950.
This article will teach you how to apply for a student loan that meets your needs and how to eventually repay that loan.
First, calculate how much you’ll need for the project.
To get started, you should complete some homework. However, you shouldn’t just CTRL+F the website of the college you’re interested in to find a dollar amount because doing so will probably offer you the sticker price. You really need to be aware of the “net price,” which is the amount remaining after deductions for any grants or scholarships you might be eligible for.
To find out the answer to this question, you might make use of a net price calculator. Find out the particular costs of attending your school by searching for it on the Education Department’s website here. You can also enter your information into the cost calculator on this page provided by the College Board to view figures based on national averages. A visit to websites such as TuitionFit, Edmit, MeritMore, College Raptor, and MyinTuition, which all provide forecasts based on financial assistance data and the user’s own self-reporting, could also prove to be beneficial. (Some of them are free, while others need payment.)
Although using these calculators might provide you with a rough estimate of the total cost of your college education, it is important to keep in mind that everyone’s circumstances are unique. Because of this, the next step for you will be to complete the Free Application for Federal Student Aid (FAFSA).
If they have a Social Security number and a high school graduation, non-citizens and American citizens alike may be eligible for financial assistance from the federal government (or General Education Development certificate or homeschool equivalent). You will need to have already registered for the draft (if you are a male) and be accepted into or enrolled in a recognized college program in order to be eligible. You’ll also need to demonstrate that you’re making consistent headway toward earning your degree.
You will need your Social Security Number or Alien Registration Number, as well as your family’s tax records, bank statements, investment records, and verification of untaxed income, in order to submit the FAFSA application. A Federal Student Aid account is required in addition to the FAFSA (called an FSA ID). To get the process started, go to fafsa.gov.
The Free Application for Federal Student Aid (FAFSA) is available beginning every year on October 1 and has an extended period during which applicants can be eligible for financial aid. It is currently accepting applications for the school year 2021-2022 and will remain open until June 30, 2022. On the other hand, a large number of governments and schools dole out financial assistance on a first-come, first-served basis. They can also be working under their own time constraints. Because of this, you are strongly encouraged to fill out the FASFA application as soon as you possibly can each fall.
After you have submitted your FAFSA, you will then be sent something that is known as a student aid report. Your estimated family contribution will be displayed on the student assistance report, as will an indication of whether or not you are eligible for a federal Pell Grant.
An award notification letter will normally be sent to you after you have been admitted to a college. In this letter, you will be informed of the grants, scholarships, and federal loans for which you have been determined to be eligible. (Here is additional information about how to earn free money for college; click here to read it.) Additionally, it will provide you with information on how to accept or confirm the financial help that you have been awarded.
Step 2: Pick a Path to Follow
Student financial aid can be broken down into two primary categories: government and private. Private student loans are those that are provided by banks or other financial institutions, as opposed to federal student loans, which are provided by the government and supervised by the United States Department of Education.
Mayotte highly suggests that consumers continue with the federal loan program rather than going the path of choosing the private way since the government provides more chances for assistance to borrowers in the event that borrowers find themselves struggling with payments. (More on this to come.) In addition, the interest rates on federal student loans are typically cheaper than those on private student loans, and you can qualify for one of these loans regardless of your current financial situation or credit history.
Let’s begin with loans offered by the federal government. Different kinds of direct loans are available, such as subsidized direct loans, unsubsidized direct loans, PLUS direct loans, and direct consolidation direct loans.
Undergraduate students who can demonstrate a financial need are eligible for direct subsidized loans. The peculiarity that the Department of Education will pay the interest on these loans while you are a student and for the first six months after you graduate from college is one of the most interesting aspects of this program.
This is not the same as direct unsubsidized loans, which are not contingent on a student’s having a financial need and are available to undergraduates as well as graduate and professional students. When you take out a loan that is direct and unsubsidized, you are immediately responsible for paying the interest on the loan.
You can put off making the payment, but Mayotte advises students to take care of the interest as it accumulates in the event that they choose to do so. Because of this, it will not be capitalized and will not be added to your principal. The current interest rate for direct loans, both subsidized and unsubsidized, is 2.75 percent per year for borrowers who are undergraduates. It is 4.30 percent for borrowers who are graduate students or professionals.
There are borrowing limits for direct subsidized and unsubsidized loans, which are also called Stafford loans. These limits are determined by your year in school as well as whether or not you are considered an independent or dependent student by FAFSA. You can find a complete breakdown by grade here, but generally speaking, the limits for federal loans that can be taken out by undergraduate students each year range from $5,500 to $12,500.
It is important to take note that there will be a one-time loan fee of 1.057% for any direct subsidized or unsubsidized loans that are given for the first time after October 1, 2020.
Direct PLUS loans are available to both parents and graduate or professional students who are enrolled full-time. These require only a basic credit check, but Mayotte argues that in order to be rejected for one, you “would have to have some fairly heavy-hitting past delinquencies.” Both the interest rate, which is presently 5.3%, and the origination fee, which is currently 4.2%, are higher for these loans. The difference between the total cost of attendance and any other forms of financial help is the maximum amount of the PLUS loan that you are eligible to receive.
When you have exhausted all of the alternatives available to you through federal loans, you may consider looking into private lenders. These loans are significantly less regulated than traditional mortgages and are provided by financial institutions such as Sallie Mae, SoFi, and Earnest. Because they are based on your credit score and do not necessarily have borrowing limitations, they can be risky for a student who borrows more money than they would eventually be able to pay back.
As a result, proceed with caution. Many industry professionals advise students to steer clear of taking out any private loans at all costs; however, if you find yourself in a position where you have no choice but to do so, it is important to shop around and compare the various lenders’ interest rates, fees, and other terms before making a final decision.
Step 3: Investigate your alternatives.
There is no requirement to take out a student loan. There is also the option of utilizing a home equity loan or home equity line of credit (HELOC) in order to finance your education. There is a possibility that interest rates will improve, but the fact that your home will serve as collateral makes this method precarious. When you do this, you are essentially shifting the responsibility from one lender to another.
Investigating the availability of tuition payment plans at your institution is another another strategy for controlling college costs. These can make it possible for families to spread out their payments over a period of time rather than making them all at once at the beginning.
It’s also possible that you have unique circumstances that warrant a rule exception for you.
For instance, the federal government offers financial aid in the form of scholarships and grants to students who are enlisting in the armed forces and to students whose parents or guardians were killed in action after 9/11 in Afghanistan or Iraq. During their time in active duty, service personnel who have student loans, whether they are federal or private, will not be subject to interest rates that are higher than 6%. Delaying the payment of certain government direct loans is an option for borrowers.
Students who are in the country illegally are not eligible for federal student loans; nevertheless, they may be eligible for in-state tuition or private student loans. There is a possibility that your eligibility will be affected by your criminal past.
Step 4: Complete the necessary documentation.
After you have completed the Free Application for Federal Student Aid (FAFSA), you will not be required to submit a separate loan application in order to obtain federal loans. However, there is further paperwork that must be completed with the United States Department of Education. When you apply for a federal student loan, you will be required to go through the entrance counseling process, which will educate you on the fundamentals of borrowing money. It should take approximately a half an hour to complete.
A master promissory note, in which you make a formal commitment to repaying your loan plus any interest that may accrue, will also need to be signed by you.
It is highly likely that a credit check will be required of you if you intend to apply for a private student loan. According to the National Foundation for Credit Counseling, “in the upper 600s” or a score that is higher is what your lender is most likely searching for in a borrower’s credit score. Your ability to borrow money at favorable conditions and interest rates is directly proportional to the quality of your credit score.
It’s possible that you’ll need a co-signer if you have poor credit or no credit history at all. “you want to make sure the co-signer has a strong financial history,” says Steve Muszynski, CEO and creator of Splash Financial. “They might be a parent, a family, or a friend,” says Muszynski. This trust must be reciprocal on both ends: A co-signer for a student loan, much like a co-signer for any other loan, is someone who agrees to share responsibility for the debt in the event that the borrower is unable to repay the loan.
If you need to get ready for a credit check or an application for a loan and get an idea of where you stand, you may want to download your credit report and look over your credit history for any serious problems. This can help you get an idea of where you stand. (Because of the pandemic, you are now eligible to receive one free copy of your credit report every week on
Pay it back is the fifth step.
Borrowers are being encouraged by Mayotte to make preparations in advance for their initial payment.
“You shouldn’t let anything take you by surprise,” she advises. Even if you are taking out a loan for the very first time in your very first year of school, you should be doing so with an expectation of how much money you will ultimately have to take out in student loans.
Her rule of thumb was that if you had to borrow $10,000 during your first year of college, you should plan on needing to borrow approximately $50,000 over the course of your academic career. You should also expect that you will be responsible for making payments of approximately $125 per month for the next ten years for every $10,000 that you take out as a loan.
She advises that you should not wait until you receive your first post-graduation and post-grace period bill before making a decision on how you will go about paying back the debt.
Investigate your choices for making repayment if you believe that the required installments will be too high for you to manage. The terms of private loans are typically less flexible than those of federal loans. Because of this, Mayotte’s group suggests addressing the private ones first if you have a combination of both public and private obligations.
There are a ton of different ways that federal loans can be repaid, and the federal government even provides a loan simulator tool that can assist you in determining which method will be most beneficial to you given your employment circumstances, location, salary, projected income growth, tax filing status, and other factors. You have the option of deciding whether you would rather pay off your loan quickly or prioritize making payments that are lower on a monthly basis.
Mayotte recommends drawing up a spending plan and calculating how much money you have available to spend by saying, “You really should be making a budget.” To pay the least amount possible over the course of time is the goal of the game.
One of the most common options is called income-based repayment, and it links the amount of your monthly student loan payments to your wages. You can be forced to make a monthly payment of up to 20% of your discretionary income, or you might not have to make any monthly payments at all.
Any remaining debt will be discharged after either 20 or 25 years, depending on the income-contingent repayment program for which you are eligible. Bear in mind, however, that despite the fact that these plans might reduce the amount that you pay each month, they might actually result in an increase in the total amount that you pay over the course of the loan. This is because the amount that you owe each month might not be sufficient to make a dent in the principal of the loan.
You might also want to think about direct loan consolidation if you have more than one loan servicer. Although this will allow you to consolidate multiple federal loans into a single loan, it will not result in a reduction in your overall interest rate.
The federal government gives borrowers the option to place their student loans into deferral or postpone their payments if they are having problems paying back their loans due to financial hardship. During a period of forbearance, interest will continue to accumulate; during a period of deferral, interest will continue to accrue on the majority of loans, but there are some loans that are exempt.
Because of this, the Department of Education strongly recommends that borrowers investigate all of their available alternatives to deferment and forbearance before making use of these two options. For the vast majority of borrowers, the option of enrolling in a plan that is income-driven to reduce their monthly payment to a more manageable level is preferable to either forbearance or postponement of their student loan obligations. (If you are currently enrolled in one of these plans but are still having trouble paying off your debt, you should check with your lender to see if they may lower your payment if you update your financial information.)
Forbearance options are typically available from private loan businesses as well; however, these options may come with a cost or be less generous than those offered by the federal government. Should you decide to refinance your loans, working with a company such as Muszynski’s Splash Financial or Credible will assist you in comparing different interest rates and, with any luck, lowering your overall financing costs.
In the end, it is in your best interest to take all precaution possible to prevent falling behind on payments. Not only does it put you on the road to delinquency, which can have repercussions for your credit score, but it also increases the likelihood that your loan will go into default. If you default on your student loans, you will face a long range of consequences, some of which include being ineligible for additional financial assistance, being denied access to deferments, and being unable to obtain a transcript of your academic record. Your tax refunds may be reduced by an amount determined by the government. You run the risk of having to defend yourself in court.
You should seek assistance from your servicer, a financial advisor, a student loan counselor, or a group like Mayotte’s as soon as possible, rather than waiting until it reaches that stage.
“If you’re having trouble, you should always give us a call,” Mayotte says further. It is quite unlikely that we will be unable to find a solution for you, particularly with regard to federal student loans.
It is a well-known fact that the epidemic has caused some of the conventional recommendations on student loans to be revised. As one illustration, the CARES Act, followed by an executive order from President Donald Trump, has resulted in a temporary halt to the disbursement of any and all federally owned student loans. Borrowers are not obliged to make monthly payments, and interest will not accumulate on the balance until at least December 31 because the loans are currently in an automatic administrative forbearance status. (Note: The fact that you are not obligated to pay does not mean that you should choose not to.) It is possible that you should take advantage of this chance and pay down your principal in a straightforward manner. It is dependent upon your own personal financial circumstances.)
You shouldn’t just focus on paying off your student loans; you need also stay up with what’s going on in the political scene in the United States. It could have an effect on the amount of student debt you have.
The pandemic recovery plan that will be implemented by President-elect Joe Biden includes a commitment to forgive $10,000 in student loan debt for each and every borrower. Separately, he has stated that he intends to modify income-driven repayment programs in such a way that borrowers won’t be required to begin paying back their loans until they earn a salary of at least $25,000. In addition, Biden wants to alter the Public Service Loan Forgiveness program, which now cancels out debt for certain employees of the government once they have made a total of 120 on-time payments.
In spite of the fact that these things could happen, you should nevertheless exercise extreme caution with regard to your debts.
When it comes to borrowing money, Mayotte advises people to “Never borrow more than you need, and never borrow anticipating forgiveness.”