2023-09-02 00:28:28
If you are about to enter university in the United States or are wondering which one you would like to apply to, you are probably weighing options. to finance your education. If you need to borrow money to pursue your dreams, you’re far from alone.
According to the Federal Reserve, 30% of all American adults say they have taken on at least some debt to pay for their education. The borrowers collectively owe $1.77 trillion in student loans, including federal and private loans.
Applying for a loan is almost to a point where it’s a requirement,” said Dana Kelly of the National Association of Student Aid Administrators.
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If you are a senior in high school or a student from a university, you’ll want to apply for federal student loans in December through the Free Application for Federal Student Aid, also known as the FAFSA, for the 2024-2025 school year. For private student loans, you can request them whenever you need them.
When taking out student loans, it’s beneficial to have an idea of what career field you want to study in, calculate how much you need to borrow, and understand the basics of interest on loans. If this seems like too much, don’t worry: we’ll break it down for you. This is what you need to know.
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WHERE DO I BEGIN?
The first step is to fill out the FAFSA. You will need to answer questions about your family’s financial contribution and other questions that will help determine if you qualify for receive financial aid federal or state, and what loans you can apply for. You will need to complete the application each year.
Cathy Mueller, executive director of Mapping Your Future, a nonprofit organization that helps people access higher education, rrecommends exhausting all possible financing options to reduce the amount you need to borrow.
If you want to apply for scholarships to finance your college education, you can check the scholarship search directory on the website of the College Board, a nonprofit organization that connects students with college opportunities.
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As you fill out the FAFSA, Mueller recommends that you estimate how much you’ll need to borrow for your entire college career, but also be realistic about what you’ll be able to repay.
One tool that can help is Mapping Your Future’s Debt/Salary Wizard, an interactive calculator that helps you determine how much you can borrow based on your estimated future earnings.
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WHAT ARE THE MOST IMPORTANT DATES TO KNOW?
In previous years, the FAFSA opened on October 1. This year 2023, the government makes important changes and the application will be available in December, although the exact date has not been announced yet. The FAFSA is usually closed the following June.
Once the application is open, you need to check your state’s deadline to apply financial help state. Since financial aid is awarded on a first-come, first-served basis, you must submit yours as soon as possible to qualify for both federal and state grants.
For private student loans, the schedule is different. Private lenders require you have proof of enrollment, so experts recommend that you apply a couple of months before your tuition payment is due.
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WHAT IS THE DIFFERENCE BETWEEN FEDERAL STUDENT LOANS AND PRIVATE LOANS?
Federal student loans are backed by the government, and private loans come from banks, credit unions, or other private institutions.
In general, federal student loans offer lower interest rates and greater opportunities for affordable repayment plans, such as Public Service Loan Forgiveness or different repayment plans based on your income.
Kelly recommends that students try to use only federal student loansalthough there are limits to what is provided.
Most likely, private loans will cost a student more during the life of the loan,” he said.
Private loans have a different set of requirements and application processes.
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WHAT IF I RECEIVE MORE MONEY THAN I NEED?
It is recommended that you calculate the amount you will need to cover your education before you accept a student loan. There is a possibility that they will offer you a larger loan than you need. If this happens to you, Mueller recommends that you pay back any money you don’t need, as it’s ultimately a loan and you will have to repay that amount with interest.
If you find that you want to pay back some of the student loan money, contact your school’s financial aid office to start the process.
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WHAT ARE SUBSIDIZED AND UNSUBSIDIZED STUDENT LOANS?
There are several different federal student loan options: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.
The most common are direct subsidized and unsubsidized loans, which are received by the person who is studying their university degree.
The government covers the interest on subsidized loans, which are granted to students with an economic necessity demonstrated.
Subsidized loans cover your interest while you’re in college at least half-time, for six months after you graduate, and if you qualify for a deferment, allowing you to temporarily stop making payments. Unsubsidized loans are available to most students, but they are responsible for paying the interest.
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WHAT SHOULD I KNOW ABOUT STUDENT LOAN INTEREST RATES?
Student loans must be repaid with interest, which is extra money you pay to receive credit. The interest on your student loan depends on your type of loan and when it was first available for you to use.
If your credit was disbursed after July 1, 2023, but before July 1, 2024, you will have a fixed interest rate of 5.5%.
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WHAT SHOULD I DO BEFORE I SIGN MY STUDENT LOAN AGREEMENT?
Before you accept a student loan offer — whether it’s federal or private — make sure you understand the details, stressed Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit nonprofit that offers free help to students applying for loans. Details include when interest accrues, whether it is compounded, and whether there are late fees.
If reading the details on your own feels overwhelming, Mayotte recommends talking to a financial aid advisor, either at your college or elsewhere.
If you do meet with a counselor, a good practice is to come with prepared questions about repayment schedules for when you should start repaying your loan.
Good questions to ask yourself or a consultant, according to Kelly, include:
1. If I borrow this amount as a freshman, will the rate be fixed for my four years, or do I anticipate needing to borrow more each year?
2. Do my chances of getting scholarships increase so that the amount I need to borrow decreases?
If you are applying for federal student loans, you are required to complete an entrance counseling course. Kelly recommends that you pay close attention to this process and don’t rush it.
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WHAT IF I HAVE QUESTIONS ABOUT MY STUDENT LOAN?
If you have specific questions about your student loans, there are many resources available. You can visit the Federal Student Aid website or contact the help desk from your university, or to non-profit or community organizations like Mapping Your Future.
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WHAT ARE SOME TIPS FOR MANAGING MY STUDENT LOANS?
Mueller recommends that you keep track of how much you borrow each year so that you have an idea of how much you will owe at the end of your college career and how much your monthly payments will be.
He also advises that if you work during college, consider paying part of the interest that accrues each year.
You are not required to make those interest-only payments. But if you do, you’ll save money in the long run,” Mueller said.
Interest payments while you’re still in college are generally low, but they compound once you graduate or leave school, which means the principal on your loan increases and you’ll have to pay interest on the interest, he explained.
(With information from
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