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With the rising cost of higher education, most students can’t afford to go to college unless they take out student loans. They’re almost required at this point and figuring out how you’re going to pay for your tuition over the next 4 years can be daunting. Do you go with College A because it has the program you’re interested in? Or do you go with College B because it’s within your price range? If you’re worried about how you’re going to pay for college, you should learn all about student loans, how they work, and what your options are.
Student loans are generally like any other type of loan. You apply for them, you get approved, and you get your money. It’s a pretty straightforward affair, but the main difference between them and a regular loan is that you can only use your student loan on school related expenses. While it may seem like your school loan can only be used for tuition and books, it can also be used for housing, transportation, meals, school supplies, etc. Just be careful on how much you spend since your loan is based on your cost of attendance.
There are many types of student loans and financial assistance out there, but there are two main categories that they all fall under, Federal and private.
Federal takes up the lion’s share of the student loan market as they are the most accessible and easiest to qualify for. Stafford loans, Perkins loans, and PLUS loans are all funded with government money and are classified as Federal student loans. Regardless of which one you apply for, Federal student loans have low interest rates, favorable payment plans, require no collateral or credit check, and payment can be deferred until after graduation so you can focus on your studies rather than paying them off.
These are the most common type of student loan as they apply to all students and not just those that aren’t getting support from their family or have severe financial needs. The government funds these loans from the Federal Direct Student Loan Program, or the FDSLP. Depending on your household income, you might be eligible to use a Stafford loan to pay for your college courses. Bear in mind that you may not qualify if your parents combined income is over a certain amount.
There are also two types of Stafford loans, subsidized and non-subsidized.
Subsidized Stafford Loans
These are needs based loans, which is based on your household income, that don’t have to be repaid until after you graduate. If you can provide proof of a financial hardship, you’ll most likely be able to qualify. Typically, your family’s household income will have to be less than ~$50,000, but that figure may change now that the Perkins loan program has been decommissioned. Additionally, there are caps to how much you can borrow per year and that amount is based on your year in school, i.e. Freshman, Sophomore, etc.
Unsubsidized Stafford Loans
These loans are more widely available as low familial income is not a requirement. The main difference between a subsidized and an unsubsidized Stafford loan is that you are required to pay all of the interest on an unsubsidized loan, not the government. While that may sound very unappealing, you can often defer payment of said interest until after graduation like a subsidized loan. However, you’re on the hook for all of it.
Another difference between the two is that you’re able to be approved for a higher annual amount than subsidized loans. The standard range is $5,500 – $12,500 per year, but you’re able to approved for more if you’re financially independent and based on your school year. Graduate and Medical students have even higher borrowing limits.
These student loans were very popular before the Perkins Loan Program was shuttered on September 30, 2017. Their popularity was due to them having a 5% fixed interest rate and a longer repayment grace period. This made them more affordable than Stafford loans and because of this, they were typically reserved for students with more severe financial need.
PLUS stands for Parent Loans for Undergraduate Students. Naturally, these loans are for parents who are paying for their children’s tuition. These are pretty standard loans, i.e. credit check, credit review, etc. Unlike the other loan types, repayment starts fairly soon after the initial disbursement so there’s no delay in paying the interest.
PLUS loans have changed recently so you can apply even if you aren’t paying for your kids’ tuition. These are available to graduate students, parents of undergraduates, and professional students.
If you aren’t able to qualify for Federally funded student loans, or be approved for a good interest rate, you may want to turn to the private sector. Places like banks, credit unions, and other private loan providers may fund student loans. To apply for these loans, you’ll have to apply directly to each lending institution so they can review your credit score and history. You may have to have one of your parents cosign the loan if you don’t meet their requirements.
Private student loans can have fixed or variable interest rates so it’s important for you to verify this before signing. Unlike Federally funded loans, you may have to start paying the interest even though you’re still in college which can put you, or your parents, in a financial bind.
Not everyone can qualify for student loans. They are still loans after all and you have to meet certain criteria to be approved for financial assistance while attending college. Criteria may vary from loan provider to loan provider, but the criteria below are fairly standard.
StudentLoans.gov is part of the US Department of Education and any student that’s pursuing higher education, be it undergraduate or graduate work, can apply for government funded student loans. There are three types of student loans you can get from the Department of Education.
Depending on where you live, your state may have passed legislation to give potential students access to loans, funding, or grants as an alternative to Federally funded loans.
For example, Texas has the Texas Hazlewood Act. This act grants Texas veterans a tuition exempt status for (up to) 150 hours of courses at most higher education institutions. They also have the Hinson-Hazlewood College Student Loan Program which is funded by the Texas Higher Education Coordinating Board. Students can apply for low interest loans through the THECB when they’re attending an in-state college or university.
While this may not apply to you, your state may have similar programs in place to make getting student loans or financial assistance while in college a little bit easier.
Banks, credit unions, and online lenders like Discover, Wells Fargo, and Sallie Mae provide private student loans to students and parents alike.