Close your eyes, and think back to the days of yore, when a summer job scooping ice cream could buy you an entire year of college tuition, with spare money to take your sweetheart to the drive-in.
Revel in that bliss for a moment, then open your eyes and remember when you are.
In these, the enlightened days of the 21st century, a summer job simply won't cut it if you're trying to save for college.
Tuition is more expensive than ever, even counting for inflation. Since 1980, tuition has increased by about 260%, double the increases seen in other areas.
About 70% of bachelor's degree holders carry student loan debt, to the tune of $1.2 trillion nationally.
So if you (or your student) are looking into higher education, you're going to need to apply for student loans.
Now, to the actual business of student loans. How do you apply for them? How much do you need to borrow? Do you need to borrow at all? Let's answer a few of those questions (and some other ones too). Keep reading for more.
Avoiding Student Debt
The easiest way to keep student debt away is to simply never apply for student loans in the first place. You can't owe what you've never borrowed, after all.
This is easier said than done, and you may not be able to eliminate a debt load entirely. College is simply too expensive.
However, there are a few ways to avoid accruing student loan debt, or at least to limit the amount you have to borrow.
So how can you limit your student debt? Let's look at a few solutions.
When people think of higher education, they typically envision the hallowed halls and vine-draped walls of some fancy northeastern institution.
However, Community and 2-year colleges offer the same education at a fraction of the cost. Many of these 2-year colleges are also opening up 4-year Bachelor of Science programs, at the same low rates as their 2-year degrees.
So while these institutions may not have quite the same academia-soaked, tweed-jacket-with-the-elbow-patches appeal as a 4-year university, they are a great option for a comparable education without the debt.
People don't often look hard at scholarship money because they assume that if they were not valedictorian of their high school class, there's simply no point. Not true!
Scholarships are awarded for all kinds of things.
Some are academically based, but many are more contest-oriented. Perhaps an essay contest, a creative project submission, or even the number of Instagram likes you can garner for your prom picture.
Some scholarships are school specific, major-specific, or both.
Others may be available to members of certain student organizations, faith groups, or earners of certain non-scholastic honors, such as the Gold Star Award or Eagle Scout.
These types of awards may take some intense Googling, though, so start early!
Grants are similar to scholarships, in that they are money that doesn't need to be paid back, but they are not typically earned for academics or via a contest.
Instead, grants are awarded based on certain eligibility criteria, typically financial.
The most famous of these is the Pell Grant. This is a federal grant program that offers lower-income students the opportunity to pursue an education without having to apply for student loans.
Grants may also be awarded to students in certain majors if they agree to certain terms.
For instance, the TEACH Grant gives money to Education students who agree to teach in a low-income area for four years following the completion of their degree.
Using some or all of these methods, you may be able to limit or even eliminate the need to borrow money with student loans. However, with the cost of college still rising, borrowing money may not be completely unavoidable.
So how do you apply for student loans? Let's take a look.
FAFSA stands for Free Application for Federal Student Aid, and it is the first step for any student wanting to apply for student loans or any other kind of financial aid.
You'll need to fill out this form to receive most scholarships, and any federal grants or loans.
Let's take a look at what it is, what it isn't, and what you need to know.
What is a FAFSA
FAFSA is the first step before you apply for student loans, grants, scholarships, or any other kind of financial aid.
Many colleges won't even accept your application if you haven't filled this one out.
Now, the FAFSA doesn't guarantee financial aid. It is exactly what its name implies: an application.
You'll answer questions about your financial situation and the financial situation of your parents (if you're under 24).
Once you've filled out the form, the system will calculate how much (if any) federal grant money and loan money you qualify for, as well as send you information to the college or colleges of your choice.
Once schools have this information, they can put together their own aid packages for you.
How to Fill It Out
The FAFSA can be filled out as a physical form if you're into that sort of thing, but most students fill it out online.
You'll need to make sure you have the required information in front of you, and about 30 to 60 minutes to get everything filled out.
You'll need the following information:
Yours and your parents Social Security Number
Drivers License number, if you have one
Alien Registration number, if you have one
Federal tax info for you, your spouse if you are married, and your parents if you are a dependent student
Income Records (untaxed income, child support, etc)
Cash records (bank accounts, your wallet, etc)
Having this information ready to go will expedite your process. You can save your FAFSA and return to it later, but it's best to get it done all at once.
Once you've finished, you'll sign your FAFSA with a PIN (Personal Identification Number) which can be used to retrieve the FAFSA if you need to look it over.
Mistakes to Avoid
Now, don't panic. If you submit your FAFSA and then realize you've made a mistake, you can amend it, but the process is a bit arduous, so let's look at a few dos and don'ts off the FAFSA process.
DON'T assume you are an independent student just because you are independent of your parents. Even if you are on your own, paying your own bills, you may not be considered independent by the FAFSA system.
DO submit early. The quicker you get your FAFSA in, the quicker schools will be to get your aid package together, and the more likely you will be able to negotiate a better deal.This will also get the ball rolling as you start to apply for student loans. So the sooner, the better.
DON'T guess at your information. Make sure you are filling each section out carefully and checking the accuracy as you go.
DO fill out the entire form and submit. Some families wrongly believe they won't qualify for aid, and so skip the application. As a result, over $2 billion in financial aid went unclaimed in 2016.
Types of Loans
Once you've filled out your FAFSA, look over student aid packages from your chosen colleges.
Take a look at what grants and scholarships are already paying for your schooling. Whatever is left over will either need to come out of pocket or be covered by a loan.
Unless you are independently wealthy, this is where you'll need to apply for student loans.
Before you can apply for student loans, you need to know which kind you'll need.
There are two types, Federal and Private. Most people use a combination of the two to cover all of the expenses for college.
Let's take a look at the two types of student loans.
There are three types of Federal loans, and what kind you qualify for depends on your enrollment status and financial need, among other factors. Let's take a look.
Direct Subsidized and Unsubsidized Loans
You might have heard these referred to as Stafford loans. Either term is correct, and they are used interchangeably.
Direct loans are available to all undergraduate students regardless of financial need. However, if you demonstrate financial need, you may be eligible for a subsidized loan.
The federal government pays the interest on subsidized loans while you are in school and during the first six months after you graduate.
PLUS loans are for graduate students, and unlike direct loans, they do carry a credit score requirement.
However, if you already have other student loans, you can use them to build your credit in preparation for a PLUS loan.
Perkins loans are specifically for undergraduate and graduate students that demonstrate exceptional financial need.
Private loans are similar to federal loans, in that they can still finance your education, but there are some key differences.
Unlike federal loans, a private loan is furnished a private entity, typically a bank or credit union.
This provides a significant amount of flexibility, in terms of borrowing limits and what you may put the money toward.
Interest rates may be higher, and a credit rating requirement may apply to these types of loans, but you have the ability to shop around, as different institutions treat their student loans differently.
You may be able to take advantage of a banks consolidation program to keep your monthly payments low, and while most financial institutions do ask for a minimum payment while you are still in school, you can usually defer full payments until after you are out of school.
How To Apply for Student Loans
The process to apply for student loans isn't complicated, but it differs depending on what kind of loan you are after.
If you are going to apply for student loans through the federal government, your FAFSA is your application.
The FAFSA will determine how much you are eligible to borrow and what kind of loan you are eligible for.
If you want or need to apply for student loans from a private entity or bank, the process will depend on their requirements.
You'll need to fill out an application with the bank or credit union, and may need a co-signer if you don't have established credit.
Take the time to shop around when looking at private loans. There's no necessity to go with your home bank simply because your parents have been with them forever.
Take the time to find who can give you the best rates and payment plan. Your future self will thank you.
Interest is a percentage that accrues while the loan is active. This is how lenders make their money.
Interest rate issues have been thrown around quite a bit recently. There is also a lot of confusion about how rates are set when it comes to federal loans vs private loans.
So let's break down the interest rate process.
Interest Rate Increase
The federal government set interest rates on federal student loans.
Rates are set based on an auction of 10-year notes by the Treasury Department, and in 2017, they went up by a few points.
Undergraduates should expect to pay 4.45 percent, while graduate students are looking at a rate of 6 percent on direct loans and 7 percent on PLUS loans.
Private loans are, as we said, more flexible. This includes their interest rates.
Unlike federal loans, private lenders can set their own rates. They do tend to be slightly higher than federal rates, but often their flexibility and lending limits can make up for this.
Apply Your Knowledge
When it comes to time to apply for student loans, it's important to consider every aspect.
From what school you will be going to, to your job prospects after school, you'll need to make sure to look at every angle as you decide what kind of loan is best for your situation.
If you are looking into private student loans, we would love to help you find the perfect package for your educational goals. Contact us today!