Everything You Wanted to Know About Student Loans
Q: How do I apply for student loans?
A: When you submit your FAFSA, you are essentially submitting an application for several different types of financial aid including federal students loans. If you qualify and your school determines that you have financial need, you may be offered loan money. These will appear on your financial aid award letter.
Q: What is the maximum amount I can borrow?
A: The amount of federal student loans you can borrow depends on several factors; your financial need, amount of other aid and your year in college. In general, college freshman may borrow up to $5,550 in Direct Subsidized and Unsubsidized loans and $5,550 in Perkins loans. This amount increases by $1,000 each year the student is in school capping at $7,500 in the junior and senior year.
Q: How much loan money should I take out?
A: This is a personal decision that should only be made after you have considered the following questions:
- What is your financial need?
- How much loan money were you offered?
- What is the expected salary for someone in your desired field and how much can you (comfortably) afford to pay back?
To estimate how much you might have to repay, use the Department of Education's repayment loan calculator. You can get a sense of how much you might make in your chosen career field (Adjusted Gross Income) by searching here.
Q: What is the difference between and unsubsidized and a subsidized loan?
A: No interest is accumulating on a subsidized loan while you're still in school full time. An unsubsidized loan starts accruing interest immediately. Subsidized loans are 'cheaper' because you'll end up paying back less money in the long run.
Q: I’ve been offered federal student loans, now what do I do?
A: Your school will give you specific information on how to accept or reduce the amount of your loans. In general you should complete the Master Promissory Note and complete Entrance Loan Counseling.
Q: Do I have to wait until I graduate to start paying back my loans?
A: Absolutely not! In fact, I strongly encourage you to start repaying your loans while you’re still in school if at all possible. Even if you can only afford to pay $25.00 a month, doing so will reduce the amount of interest you will pay in the future. If you have taken out both a subsidized and unsubsidized loan, begin by repaying the unsubsidized loan. It is the more "expensive" loan and starting the repayment process early will have a greater impact here.
Q: What about the Parent Plus loan?
A: Some students will see that they have been offered a Parent Plus Loan on their financial aid award letter. Although this is a federal loan program, it is different from student loans for several reasons:
1. There is a separate application process. Parents must go to the Department of Education’s Student Loan website and formally apply for the loan if you want to be considered.
2. It is not guaranteed. It is credit based meaning if your parents credit score is less than desirable, they may not qualify. If the parent is denied for a Parent Plus loan, they should contact the financial aid office because the student may be eligible for up to an additional $4,000 in unsubsidized loan money.
3. The parent is responsible for the debt. As the name suggests, the parents assume responsibility for this loan, rather than the student. Parents must complete the application and are financially responsible for repayment of the debt.
4. There are several different repayment options. In the past, repayment of the Parent Plus loan began 90 days after disbursement. Parents now have the option to wait until their child has finished college. Remember that because the loan is unsubsidized, the interest will begin accruing immediately at a rate of 6.31%.
Q: Who is my student loan provider?
The Department of Education generally assigns a loan service provider to manage your student loans.
To figure out who your loan service provider is:
- Visit the National Student Loan Data System
- Click Financial Aid Review
- Accept the Terms and Conditions
- Log in with your FSA ID
You'll see a detailed summary of all of your student loan information. Click on each individual loan to display the contact information for your student loan service provider.
Other Things to Consider
- If you receive refund checks and any portion of your financial aid package is a loan, your refund is a loan! Think about this before making a purchase or spend this money. Would you take out a loan to buy a pair of shoes or get a manicure? Probably not.
- Create a budget to determine exactly how much you will need to live off of each semester. Accept only this amount and no more.
- Even though they may be offered to you, you are NOT required to accept any loans. If you have created a budget and discovered that you don’t need the money being offered, you can choose to deny or reduce the loan amounts. Pay attention to deadlines.
- If you must take out loans, make sure you understand the terms of the loans including fees, repayment schedules, disbursement dates and interest rates. It can be overwhelming so if you don’t understand something, find someone who does and ask them to explain it to you.
Visit www.fafsalady.com to download your free 2017-2018 FAFSA Cheat Sheet and avoid making common FAFSA errors.