December 8, 2020 | 7 min read
If you’re applying to college, there is a chance you’ll also be applying for a student loan. In fact, 55% of people under 30 who went to college took on student loans or other debt to help pay for it, according to the Federal Reserve.
Student loans may be common, but there’s plenty to know about what options are available and how to apply. This article will detail some basics to help you apply for student loans.
Student loans are installment loans, similar to mortgages or car loans. You begin with a starting balance, and you agree to pay it back with interest over time. And there are two types of student loans: federal and private.
Federal student loans are provided by the government via the Federal Direct Loan Program, and the lender is the U.S. Department of Education. Private student loans are typically made by banks or other financial institutions, but Capital One doesn’t currently offer them.
If you’re planning to apply for a student loan, it may help to know a little more about each type of student loan before making such a big decision.
There are four kinds of direct federal student loans:
You may have also heard about Perkins Loans, but they are no longer an option. Under federal law, schools stopped making new Perkins Loans in 2017. The Department of Education has more information about federal student loans on its website.
If federal financial aid isn’t an option, then you may want to consider private student loans from a bank or credit union. Sometimes state agencies or schools offer loans, too.
Private student loans can be taken out by students, but they often require a co-signer, such as a parent. That’s because lenders may want extra assurances the loan will be repaid.
Federal loans may be a better student loan option than private loans for a variety of reasons.
Federal loans are typically less expensive than private loans. And federal loans may include benefits that private loans don’t. That includes things like deferred payments, better interest rates, help paying interest, debt consolidation options and loan forgiveness. Private loans may also have additional fees.
Before private student loans can be disbursed, borrowers must fill out a self-certification form to confirm they know all their options. The form is required by law. And it directly encourages borrowers to “pursue the availability of free or lower-cost financial aid.” Your school’s financial aid office and your lender should be able to provide more details if you need the form.
To apply for a federal student loan, you must first fill out the Free Application for Federal Student Aid (FAFSA®). Deadlines to submit the FAFSA form usually fall at the end of June. But remember, financial aid is sometimes provided on a first-come, first-served basis, so applying earlier is better.
Once your school has your FAFSA form, it will send you a financial aid offer. That may include a federal loan and directions about what to do next, including entrance counseling and directions about officially agreeing to the loan.
Getting in touch with your school’s financial aid office can be helpful to learn more about the process.
One more thing to keep in mind: You must reapply for federal student aid every school year.
PLUS loans can function a little differently. They can sometimes require additional steps to complete the process. Once you fill out your Direct PLUS Loan application, the school you select will use that information to check whether you’re eligible.
Applying for a private student loan can be similar to the process of applying for a car loan or a personal loan. But remember, sometimes a co-signer is required.
While federal student loans might be based on financial need, private loans are different. They’re based on credit history. Having a co-signer who has good credit may increase your chances for approval. It may also help get you a better interest rate.
There are numerous variables to consider when shopping for a private loan—interest rates, loan protection, payment plans and lender reputations. Comparing loan offers and talking to an expert can help you figure out what’s best for you.
Like most things, the coronavirus affected student loans and student aid. The Department of Education says it’s monitoring the situation. You can find the latest information about student loans and COVID-19 on the agency’s website.
Student loans are just like any other type of loan: It’s a good idea to do as much research as possible to find the right loan for you. Consulting with a qualified financial professional is also a helpful step.
And don’t forget, student loans may not be your only option. Financial aid in the form of things like grants, scholarships and work-study programs may also be available. Student-friendly credit cards may also be right for college students.
If you do end up with federal or private student loans, you can learn more from Capital One about how to pay off student loans.