Am I A Candidate For Student Loans?

By Rhiannon Winner on September 13, 2016

Pretty much everyone is a candidate for student loans, although the kind that you can obtain and whom they are provided by varies from person to person.

The trick is finding the best one for you based on your amount of financial need and what kind of education you’re pursuing.

This article will walk you through the kinds of loans available, who is providing them, who is eligible to receive them, and what you should look for when choosing a loan.

Image via pixabay.com

The William D Ford Federal Direct Loan Program 

The majority of students will get their loans through this program. The direct loan program, run by the U.S. Department of Education (DoE), offers a few different types of loans. In each case, the DoE is your lender.

Direct Subsidized Loans 

These are more dependent on personal circumstances than some other kinds of loans. They are only available to undergraduate students (full-time and part-time alike) who can demonstrate financial need.

If you believe you are able to prove you’re in need, you must first complete the Free Application for Federal Student Aid (FAFSA) here. Your college will break down how much you’ll be receiving in scholarships (if any), how much you’ll be expected to pay, and how much you can accept in direct subsidized loans. You are not allowed to take out more in loans than the school determines you’ll need.

Direct Unsubsidized Loans

These loans are open to any undergraduate, graduate, or professional school student (full-time or part-time), regardless of their ability to demonstrate financial need. As with direct subsidized loans, you must complete the FAFSA, and your college determines the amount you’re allowed to take out.

A key difference between unsubsidized and subsidized loans, besides the demonstrated need aspect, is that you are always responsible for paying interest with a direct unsubsidized loan. With a subsidized loan, you do not need to pay interest:

  • while you’re in school at least half-time,
  • for the first six months after you leave school (referred to as a grace period*), and
  • during a period of deferment* (a postponement of loan payments)

according to the government’s website on student aid.

Direct PLUS Loans 

These target a different audience than the previous loans we’ve discussed. They are available to graduate and professional school students, but also to parents of undergraduates. You can take out up to the cost of attendance in loans, although if you’re already receiving aid from the school, you may only take out enough to make up the difference between that aid and the total cost.

Whether or not you’re eligible for this loan depends largely on your credit history. If all is well after the DoE performs a credit check you’ll be given the loan. If you have what the DoE calls an adverse credit history you may still be eligible, but you must either prove there’s extenuating circumstances that justify it or have an “endorser” sign on. An endorser is someone who has a satisfactory credit history and agrees to pay back the loan if you should fail to do so. Again, you must complete the FAFSA.

Federal Perkins Loan Program

Any undergraduate, graduate, or professional school student who can demonstrate “exceptional” financial need is eligible for this loan. Only some colleges participate, so if you’re considering pursuing this loan, first ask your college’s financial aid office if it’s an option. Assuming that it is, know that your lender is your college itself (in other words, the government helps set you up with the Perkins Loan, but you’re taking from and then paying back the college, not the DoE).

The interest rate is fixed at 5 percent, which is pretty good as far as loans go. However, how much you’re allowed to take out in loans depends on how much your college is willing to offer. Especially if you go to a smaller school without stellar funding, you may not be able to cover your expenses in full.

Private Student Loans

Ideally, you should seek out other kinds of loans before resorting to private student loans. Predatory lending practices make it easy for unsuspecting students and parents or guardians to sign onto a bad loan that’ll haunt them long into the future.

pexels.com

Private loans can work out for you, so you shouldn’t rule them out completely, but you need to be careful when selecting one. Interests rates can soar as high as 11 percent in addition to various fees, while federal loans are capped at far lower, albeit sometimes flexible, rates. You can use verified sites like AllTuition or Certified Private Loans to compare options.

CollegeBoard has a list of questions you should keep in mind when choosing your private loan (although these suggestions are equally helpful when considering other types of loans). They suggest that you figure out:

•How much will this loan cost in total?
•What will my monthly payments be?
•Is the interest rate fixed or variable?
•Can I get a lower interest rate?
•What fees do I have to pay?

401(K) Loans

Parents or guardians with a 401(k) can take out a loan for just about anything. Generally speaking, you can take out up to 50 percent of your savings. It’s the fastest way to get loans, since you don’t have to go through either the government or a bank, but it can come with a hefty price tag. You must pay back the loan within five years, and interest rates are often quite high since they’re based on your tax bracket.

Another important thing to keep in mind is that your loan will be paid back through automatic deductions on your paycheck. Although 401(k) loans are useful for getting money quickly and without the hassle of being approved by other institutions, they’ll make it harder for a parent or guardian to save up enough for retirement, and if the unexpected happens and they lose a job or something of that sort, the loan will need to be paid back in full almost immediately. 401(k) loans should be used when you have no other options.

Bear in mind that every college has unique protocols, and you may have to jump through a few more hoops before you can use your loan. It would be a good idea to complete any steps required by your lender, and then make an appointment with your college’s financial aid office to determine if there are any additional steps you’ll need to complete.

Follow Uloop

Apply to Write for Uloop News

Join the Uloop News Team

Discuss This Article

Back to Top

Log In

Contact Us

Upload An Image

Please select an image to upload
Note: must be in .png, .gif or .jpg format
OR
Provide URL where image can be downloaded
Note: must be in .png, .gif or .jpg format

By clicking this button,
you agree to the terms of use

By clicking "Create Alert" I agree to the Uloop Terms of Use.

Image not available.

Add a Photo

Please select a photo to upload
Note: must be in .png, .gif or .jpg format