What do I need to know before applying for student loans?
Written by Dustin Limburg of Student Choice
As someone who works with colleges, students and financial aid, I get asked that question a lot. In fact, it’s probably one of the most important, but least understood aspects of going to college. So today, I want to take a few minutes to give you some basics that you should know before applying for a student loan to pay for college.
Fill out your FAFSA – the Free Application for Federal Student Aid should always be filled out as early as possible. And even if you haven’t filled it out yet, it’s not too late to get yours finished. Even if you think you won’t qualify, fill out the FAFSA because most grants and federal loans will require you to have a completed application on file.
And speaking of the FREE application… NEVER pay to submit your application. There are many services that would gladly take your money to fill out this free form on your behalf. That’s because lots of people are scared of or intimidated by the “FAFSA horror stories” that talk about how difficult it is. Well, it’s not. These companies are looking to make money off your fear of the FAFSA. All the information is about you, your family, and their financial situation. If you come prepared by collecting tax and financial information first, you can make it through the process with ease!
Just remember, in most cases financial aid is given on a first-come first-served basis. Applying early means you’ll have the best shot at the most financial aid possible. Even if you’re a little late this time, plan to apply as early as January 1st of the next academic year to increase your chances of receiving aid. Lots more great information and resources for helping you prepare can be found at www.fafsa.ed.gov.
Apply for scholarships and grants first – Look for “free money” first. High school counselors and college financial aid offices are great resources for information about scholarships and grants. You can even check out our scholarships and grants page (with scholarship search engine and resources), our recent post, or check your local library for options. Any money you don’t have to pay back after graduation is good!
Ever wonder if your scholarship essay is good enough? We can help. Our FREE ScholarHelp service is your one-stop resource for expert opinions and review on everything financial aid. From essay review to award letter help, FAFSA, repayment and everything between, ScholarHelp puts financial aid experts at your fingertips! Visit www.studentchoice.org/scholarhelp for more information.
Apply for federal loans – After applying for scholarships and grants, get your federal student loans. Federal Direct loans are often the least expensive and most borrower-friendly, so they should be considered before applying for alternative funding. There are a few different types of Direct loans, so be sure to research carefully and compare your options. As always, filling out and submitting the FAFSA and other forms as soon as possible is the best way to increase your chances at receiving funding. More information about Federal Direct student loans can be found at https://studentaid.ed.gov/ and http://www.direct.ed.gov/student.html.
Evaluate alternative loan options – Most students will need additional funding, so after you’ve exhausted federal loan options consider a private loan like those offered by Student Choice partner credit unions. It’s important to compare loan details to make sure you’re getting the best deal on your student loan. Some important things to look into include:
- Membership – Some lenders require membership for a student to be eligible for certain benefits. Make sure to check out membership eligibility before applying.
- Credit Scores – Expect to have your credit score checked when applying for a private student loan. Some students may not have enough credit history to qualify for a loan and may need a co-borrower. Even if you do qualify alone, having a co-borrower may help you get a better rate.
- Interest Rates, fees and repayment – Interest rates and fees vary greatly between lenders. Always compare rates and fees on your loan. Look for a loan with zero origination or prepayment fees, low interest rates and flexible repayment options. Also make sure to compare the index (Prime versus LIBOR) when comparing loans and interest rates so you’re comparing apples to apples. The index is an important part of the interest rate calculation.
- Choosing your lender – When it comes to choosing your lender, consider a credit union. Since credit unions are here for one reason only – to serve their members – they offer more competitive student loan options and can help save you money. Student loans are a long-term relationship and it is important to choose a lender carefully.
You can read more about how to choose student loans and the financial aid process by visiting the Student Choice website, by contacting a partner credit union, or following this blog for more articles every week!