When it comes to paying for college, the loan process can be confusing. There are a lot of options, but they are far from equal.
It’s important to make sure you understand how to apply for each type of loan, and that your student focuses on low-cost loans before taking on more expensive debt.
As you may know, focusing on federal loans will help keep costs down. There are subsidized loans and unsubsidized loans, and understanding the difference between the two is key.
As a parent, you can also take out Parent PLUS loans to help fund your child’s education.
After federal loans have been exhausted, if you still find your child is in need of additional aid, private loans are an option.
It’s important to know how they work and apply for the right ones. If your child needs to choose a private student loan, they’ll know what to research and how to compare loans to get the best offer.
Applying for Direct Federal Student Loans
If your child needs loans to pay for college, they should start by applying for federal Direct Loans. This portion of the loan process is actually quite simple.
- Complete the Free Application for Federal Student Aid (FAFSA)—or renewal FAFSA, for returning students.
- All students who submit a FAFSA are eligible for federal direct student loans, regardless of family need or income level.
- The school will send a financial aid letter letting your child know if they qualify for subsidized and/or unsubsidized Federal Direct Loans, and how much of each.
- Once your student has chosen, they should contact the appropriate financial aid office (or log in to your student’s portal) to accept the aid and loans.
- Fill out any required paperwork and make sure they are sent by the stated deadlines.
The financial aid letter will let you know what Direct Subsidized Loans and Direct Unsubsidized Loans your student qualifies for. However, the Master Promissory Note (MPN) and other paperwork will be required before the money is sent.
Applying for Federal Parent PLUS Loans
Applying for a Parent PLUS loan starts the same as applying for other federal loans—with the FAFSA. Afterwards, however, you as a parent, need to proceed with your own FSA ID and take some additional steps.
- Make sure the FAFSA has been completed and submitted.
- All parents are eligible to apply for a Parent PLUS loan. Most parents are approved, except for those that have an adverse credit history.
- Sign into StudentLoans.gov with your own FSA ID. Don’t use your child’s ID—the PLUS options won’t be available.
- Follow the directions for the PLUS loan.
- Once you’ve received approval, fill out the required Master Promissory Note (MPN). The funds are then eligible to be released to the school.
Both parents may apply separately for federal PLUS loans. However, they will each need to do so under their own FSA ID. Leftover funds may be distributed to either the parent or the student, whichever the parent requests.
The Loan Process for Private Loans
Applying for private loans is a bit more complex because each bank has their own requirements. Fortunately, the loan process doesn’t have to be time consuming if you’re prepared. Here are the basic steps:
- Gather your personal information. This includes the borrower’s Social Security number, phone number, current and previous addresses, income statements, and the value of current assets.
- Determine how much you want to borrow. This will require you to know the cost of the school, along with the financial aid package and scholarships you’re child has been offered so far.
- Compare lenders and choose who to apply with. Your child’s school may send you a list of preferred lenders but always research all your options and use other resources to compare various private loans.
- Apply with one or more private lenders. Generally this is easy to do online, and all information should be 100 percent factual.
- If the loans are taken out in your child’s name, make sure they have a cosigner (students almost always need one due to lack of credit history.)
- Once the application is submitted, the lender will review it and let you know whether the borrower is approved, and how much they are approved to borrow.
- Compare the total cost of all the loans you applied for before deciding which one to take. Use the Road2College Loan Calculator to compare up to five loans at once. Just enter in the basic loan information and the calculator provides the total cost of the loan and what your monthly payments will be. Then compare across loans to make an informed decision.
The lender will provide loan documents along with their approval. These documents will let you know the interest rates, repayment terms, and other costs associated with the loan.
Once you choose the appropriate loan, the borrower can sign the loan documents. If the student is getting the loan, they will also need to complete a Private Loan Self-Certification Form for each loan. The form is available from the school’s financial office. The money will be sent to the school, and the balance will be sent to the borrower.
Because private loans require creditworthiness and specific income requirements, it’s likely that your child will require a cosigner. It may be helpful to look for private loans that have a release clause for the cosigner. This will remove the extra party from the loan after a certain number of payments are made on time.
Choosing the Best Loan Offer
As your child moves through the loan process, they’ll be making choices about the best loan offers. Federal loans are the best deal—the interest rate is fixed, and the repayment terms are very flexible. When choosing a private loan remember that terms and conditions vary significantly, so it’s important to consider every detail.
|Interest Rate||Interest Rate & Other Discounts||Repayment Options (Monthly)||Cosigner Release|
|2.99% – 10.66% (Fixed)|
0.95% – 11.18% (Variable)
|$250 principal balance reduction benefit and 0.25% discount with autopay||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|2.94% - 12.99% (Fixed)|
0.94% - 11.98% (Variable)
|Auto-Pay (0.25%)||Flat Payment (In-School), Full (principal & interest), Deferred, & Interest-only||Yes||CHECK RATE|
|3.74% - 10.74% (Fixed)|
3.79% - 9.35% (Variable)
|Auto-Pay (0.25%)||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|3.50% - 12.60% (Fixed)|
1.13% - 11.23% (Variable)
|0.25 percentage point deduction for auto debit||Pay now or later: Make interest payments, pay a fixed $25 payment, or defer payments until after school.||Yes||CHECK RATE|
|3.23% - 10.83% (Fixed)|
1.03% - 10.24% (Variable)
|Full (principal & interest), Deferred, Interest-only, Immediate-Repayment||Yes||CHECK RATE|
|As low as 3.99% (Fixed)|
As low as 1.49% (Variable)
|Autopay (0.25%)||Full payments (Principal and Interest)||Yes||CHECK RATE|
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