Guide to Student Loans

How to Research and Obtain the Best Student Loans for You

Guide to Student Loans
December 31, 2013

You're ready for college, but you and your parents can't afford to pay for all of it. What are your options, and where do you go to research them?

Aside from financial aid officers at your school of choice, the Federal Student Aid website (from the US Department of Education) is an excellent place to start. Helpful reference documents can be retrieved here. You can also call the FSAIC (Federal Student Aid Information Center) at 1-800-433-3243 if you do not have access to the online data.

Any student loan strategy begins with the Free Application for Federal Student Aid (FAFSA) available at Your FAFSA form is used to determine your family's ability to pay (known as the expected family contribution, or EFC) based on information on your family's assets and income, among other factors. Your financial need is defined as your school's costs minus the EFC. A new FAFSA submission is required each year.

Fill out the FAFSA form as early as possible in the new calendar year, as this is the basis for virtually all loans and most scholarship and financial assistance programs. Aid is often limited and granted on a first-come, first-served basis. Financial estimates are acceptable if you do not have all the information in time to avoid delays.

Your general strategy for college funds should be to follow these steps in order:

  • Look for anything that doesn't have to be repaid, including:
    • Scholarships. Don't forget to search for unusual scholarships specific to your school or status. Many free references are available online — you should not have to pay for this information.

    • Federal Grant programs. Pell Grants, Federal Supplemental Grants, TEACH grants and Iraq/Afghanistan Service Grants are available to those meeting certain requirements.

    • State assistance programs. Check the website of the Department of Higher Education (or similar organization) in your state.

    • Work-study programs that allow you to earn money while in school.
  • Investigate Federal loans. Federal Loans usually offer better interest rates and payback terms than private loans. However, they are often limited and rarely cover the full cost of college. The Federal Loan types are:
    • Direct Loans - The preferred option if you can get them, with low fixed interest rates (currently 3.86% for undergraduates and 5.41% for graduate students). They can be subsidized (interest paid by the government during school and a post-graduation grace period) or unsubsidized (you pay the accrued interest). Current yearly limits are $3,500 to $5,500 (increasing for later school years), with lifetime caps. When the funds come from banks or other private institutions instead of from US DOE/treasury funds, this is called a Stafford loan.

    • Direct PLUS Loans - Available to parents of undergraduates as well as graduate/professional students. These are not dependent on need, and you can borrow the full cost of attendance (subtracting any other financial aid received). Interest rates are higher (currently 6.41%), and the rate adjusts every July based on an index.

    • Perkins Loans - Loans acquired through your school using federal funds. Currently 5% fixed rate with $5,500-$8,000 yearly maximum and lifetime caps. Not all schools participate, and funds are limited.

  • If you have exhausted all of the other possibilities, seek private loans. This is the usually the last resort due to higher interest rates and stricter terms.

The full cost of attending college may require you to obtain a combination of scholarships, grants, loans and a part-time job. It’s not easy, of course, but nothing worthwhile ever is. So start looking into your preferred schools and funding options as early as possible, perhaps during your junior year of high school. And submit your FAFSA form for the year early, too. All this preparation and diligence will enhance your prospects for success.

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