How to Get a Student Loan

How to get a student loan will walk you through the process of identifying the loans you qualify for and choosing the ones that make the most financial sense for you.
You'll learn the differences between federal and private loans, subsidized and unsubsidized loans and the loans students can get versus the ones their parents may take out. You'll also discover important resources for comparison shopping between lenders.
Disclaimer

The content of this page is intended for general informational purposes only and is not a substitute for professional financial advice. Contact your loan administrator or financial aid counselor for more information.

Introduction
- Average student debt comes to $20,000 for undergraduates, as very few students (or their parents) can afford college without some form of help. Almost 90% of students seeking student loans choose a lender recommended by their college or university, but that may not be the best choice, considering many schools receive hefty kickbacks from these preferred lenders.
- If you are preparing to start school and know you must rely on student loans to close the gap between what you can afford and the cost of your education, it's crucial to make informed choices. The loans you take out today will be with you for years to come, and if interest rates soar, your student loan debt could compromise your professional choices, your lifestyle and important financial decisions in your future.
- Continue reading to learn how to comparison shop for student loans, the differences between federal and private student loans and the pros and cons of having a parent co-sign.
Step 1: How Much Do You Need?
- Before you go any further, assess exactly how much money you think you will need to cover education costs.
1. If you are going to graduate school, you will likely be responsible for housing and food costs, while as an undergraduate, these costs may be factored into tuition.
2. If you're still comparing acceptance offers between several schools, consider Kiplinger's list of 100 best values among public colleges to see if you might get a great education for a better price.
3. Take the time to make a budget listing all your expenses: tuition, food, housing, medical, supplies (those textbooks aren't cheap!), travel, and miscellaneous.
4. Use the College Board's chart to enter information on aid awards you've received to calculate what costs aren't met and what is the best aid deal.
5. Talk with your family to find out exactly how much they may be able to contribute to your education costs.
6. If you are headed into the military, be sure you determine what your aid options are.
7. Finalize any fellowships, grants, work study or scholarships that will offset your education costs with your school. Research scholarships you may qualify for but don't know about at Scholarships.com.
8. Once you have a final budget and know about any contributions you will receive, calculate the amount you will need to borrow using FinAid.org's "How Much to Borrow" calculator.
9. FinAid.org recommends borrowing "125% of the difference between your net college costs and the amount of income and savings you can devote to paying those costs, rounded up to the nearest $1,000."
10. You should also consult FinAid.org's student loan advisor which will calculate average starting salaries for your chosen field so you can see what kind of loan payments you can afford. In general, you'll want loan payments to equal no more than 10-15% of your income.
Step 2: What Loans are Available?
- Amidst all the excitement of being accepted into college or graduate school, you'll want to take the time to research how you will finance your education. It could mean the difference between crippling debt and manageable debt.
Understanding Federal Loans
- Federal loans are your best bet because they are often subsidized by the government (meaning interest will not accrue while you are in school), can be locked in after graduation at comparatively lower rates and offer much more flexibility in terms of repayment.
- Student Loans:
  - Stafford loan: There are two types of Stafford Loans, those financed through a private lender, usually a bank or credit union ("FFELP loans"), and those financed directly through the U.S. government ("Direct loans").
- - Stafford loans are granted either subsidized (the government will pay interest while you're in school) or unsubsidized (you will be responsible for interest payments while in school, though you should be able to defer these until graduation). To receive subsidized loans, students must demonstrate financial need. The general breakdown according to FinAid.org is: "About 2/3 of subsidized Stafford loans are awarded to students with family AGI of under $50,000, 1/4 to students with family AGI of $50,000 to $100,000, and a little less than 10% to students with family AGI over $100,000." All students are eligible for unsubsidized Stafford loans. ("AGI" stands for "Adjusted Gross Income" and is your family's annual gross income minus any exemptions allowed by the government when filing your federal income tax return.)
- - What you can borrow with a Stafford loan: Stafford Loans allow dependent undergraduates to borrow up to $3,500 their freshman year, $4,500 their sophomore year and $5,500 for each remaining year. Graduate students can borrow $20,500 per year, although only $8,500 of that is subsidized. There are also cumulative limits of $23,000 for an undergraduate education and a $65,500 combined limit for undergraduate and graduate.
- - Perkins loan: This loan is one of the most recommended because you lock in a 5% interest rate and schools pay the interest while you're in school. The repayment term is 10 years. Undergraduates can receive up to $4,000 per year and graduate students can get up to $6,000. The cumulative limits are $20,000 for undergraduate loans and $40,000 for undergraduate and graduate loans combined.
- - Students receive Perkins loans based on financial need, and the loans will come directly from their schools.
- - For teachers, some volunteers, and public service professionals, your Perkins loan may be forgiven over time. See Mahalo's guide, How to Apply for Loan Forgiveness to get a clearer sense of how to qualify.
- Loans for Parents:
  - PLUS loan: The Parent Loan for Undergraduate Students, or PLUS, allows parents to borrow from the federal government to pay for their children's college educations. Graduate students are also now allowed to take out PLUS loans for their continuing education, thus if you are a parent, you should refer to the PLUS as the "Parent PLUS" (as opposed to the Grad PLUS).
- - Use FinAid.org's comparison chart to see the differences between Stafford and PLUS loans and what you will owe on both over time.
- - PLUS Loans have a fixed interest rate of 8.5%. They are unsubsidized, meaning someone is responsible to make interest payments while the student is in school. PLUS loans also charge fees of 4%, deducted from each disbursement check.
Understanding Private Loans
- Private loans often make up the difference between what your federal loans cover and the total cost of your education.
1. Despite the current controversy swirling around private loans, they are a necessary evil for many students, closing the gap between other forms of financial aid, government loans and the cost of school.
2. Students qualify for private loans mostly based on their credit score.
3. Though more expensive than federal loans, private education loans are generally less expensive than credit card debt.
4. Though it may seem like there are a million private loan offers out there, in truth several banks distribute the majority of private loans. Your school may provide a "preferred lender" list, but this does not mean these lenders are bona fide best choices.
5. Do your research carefully to make sure you get terms that will be reasonable upon graduation, though universities are beginning to revise their preferred lender lists and methodology.
6. Be sure you have truly exhausted all other federal loan offers and scholarships before turning to private loans, whose rates are usually variable and thus susceptible to market conditions, unlike the fixed rate loans you can get from the government.
7. "One in five student borrowers passes up a less expensive federal student loan in favor of a private loan, whether because it is faster to apply, easier to apply (online vs. hefty paperwork), or because students simply aren't made aware of all their loan options. Do not become that one in five!
8. Now that graduate students can take out PLUS loans, they are advised to do so as an alternative to private loans whose interest rates are based on your credit score.
Step 3: Shop Around
- Students are shopping for student loans like they search for flights on Orbitz.
1. To avoid remaining in the dark about the finer points of your student loans, you'll want to gather as much information before applying as possible.
2. Your school's financial aid office is still the right place to ask for advice at the start of your research.
3. Then you should also do your own research to scout out the best rates available.
4. Read through the Project on Student Debt's tips to comparison shopping for loans.
5. Then use these online resources to compare specific, current lender offers:
  - FinAid's Private Student Loan Comparison Chart
    Simple Tuition: Compare Student Loans
6. In general, you are looking for a rate that is as close to the prime rate or LIBOR benchmark as possible. (LIBOR stands for London Interbank Offered Rate, and is a daily reference rate based on interest charged by banks on the wholesale money market.)
7. Also research non-profit lending agencies in your state and the state you plan to attend school in to find any deals. Some states will offer lower rates to try to keep students in-state for college.
8. Be sure to compare any discount offers on federal loans carefully.
9. Use FinAid.org's loan calculators to determine what your monthly payments will be for the types of loans you've chosen at the rates available.
What to Ask
- Many students state in retrospect that they really weren't sure what they were getting into when they signed on the dotted line. Be sure you determine exactly what the terms of your loan will be before committing to a lender.
1. The Project on Student Debt provides a list of questions that you should ask private lenders:
  1. What is the lowest interest rate and fee combination I can get? Will that rate last the duration of the loan?
  2. If the interest rate is variable, is there an upper limit?
  3. When will I be required to start making payments?
  4. What happens to my loans if I go to graduate school after college?
  5. What are the penalties for late payments?
  6. What are my options for deferring or reducing my payments if I am suffering an economic hardship?
  7. See the entire list for more questions to ask of potential lenders.
2. Just like when shopping for a credit card, if you discover a low rate on a private loan, try to find another lender willing to beat that rate. Just be sure to get the deal in writing.
3. With federal or private loans, be sure to ask what your repayment options are, if your loans qualify for loan forgiveness, what the grace period will be before repayment begins and what your options are if you can't pay. (Can you defer loan payments? What about forbearance?)
4. Be sure to take into the account that even if private banks are offering lower rates, only federal loans have fixed rates, which may protect you from soaring interest rates over time.
5. The Project on Student Debt warns:
- - "Beware of private loans in disguise: some schools put their own name on private loans, or the loans may have other brand names that make them look safer than they really are. Lenders often offer both federal and private loans, so make sure you know what you're getting before you sign on the line."
Step 4: How to Apply
- Make sure you meet all the deadlines for applying for financial aid and student loan funds.
Applying for Federal Loans
1. Fill out the FAFSA, the federal government's Free Application for Federal Student Aid.
2. Federal deadlines for completed FAFSAs are: for the 2007-2008 schoolyear, web applications are due by midnight Central Daylight time, June 30, 2008. For the 2008-2009 schoolyear, submit your FAFSA by midnight Central Daylight time, June 30, 2009. Note that state deadlines for FAFSAs are often earlier than federal deadlines.
3. Even if you are applying for an unsubsidized Stafford loan (which all students are eligible for), you still need to fill out a FAFSA.
4. Use FinAid.org's lender code database to fill out the lender code section on your application. You'll also need your school's code, so be sure to ask your financial aid office what it is.
5. Check with your school to determine if you have applied for all the financial aid available to you (many schools factor Perkins loans into financial aid packages, for example) and have provided all necessary information (this may include your parents' most recent tax return and other financial documents).
Applying for Private Education Loans
1. Obtain a copy of your credit report, as this is the primary basis for your eligibility.
2. In general, borrowers with a FICO (FICO is the most commonly used measure of credit risk in the U.S., developed by the Fair Isaac Corporation) score of 650 or below will generally not qualify.
3. If a student has little or no credit history, a private lender might require a co-signer, which is usually a parent or legal guardian. Remember that co-signers are ultimately responsible for loan repayment if something should happen to the borrower.
4. Even if a borrower may qualify for a private loan on his or her own, href="http://www.finaid.org/loans/pri... recommends borrowing with a co-signer anyway because a parent will almost definitely have a better credit score, which will lower your interest rate.
Keep Track of All Records
- Staying on top of your student loans will require a bit of organization.
1. Now that you've completed your FAFSA, be sure to keep your PIN accessible but private.
2. Keep a file for all your promissory notes, applications and loan contracts. If there is ever a dispute about your interest rate or repayment terms, you will have the necessary documentation.
3. Once your loans are disbursed, hang on to statements of interest you've paid for tax purposes, as it is most often deductible.
Step 5: Keep Current on Loan Industry News
- To stay in the loan loop, read news about changes in the student loan industry. Knowing this information may help you save money.
1. Check out our guide, How to Reduce Student Loan Debt to learn how to change your repayment plan or consolidate to lower your payments.
2. See How to Defer Student Loans, How to Apply for Loan Forgiveness, and How to Consolidate Student Loans for a more in-depth look at some of the choices you can make about your loans once you graduate.
3. Students at schools such as New York University and the University of Pennsylvania have received payments from their schools as a result of their recommendations of Citibank as a preferred lender (Citibank was giving the schools a percentage of their profits in turn). More schools are said to be doing the same, as inquiries are pending.
4. It could be worth checking in with your school's financial aid department to see if you qualify for any retroactive benefits or payouts such as that from the Citibank case.
5. Use non-profit Student Loan Borrowers Assistance's list of resources to find information about different lenders or to contact legal or financial advisers who can help you with your student loan concerns.
6. The New York Times also has a "Times Topic" about student loans that functions like a database of all the current student loan news. Check it regularly to keep up to date on student loan information.
Resources for How to Get a Student Loan
Student Loan Comparison Shopping
Loan Calculators
- FinAid.org: Loan Calculator
- FinAid.org: Student Loan Advisor - Undergraduate Students
- FinAid.org: Stafford vs. PLUS Loan Comparison Chart