The following is a list of common questions that students and parents often have about getting financial aid and student loans.
It is not meant to be comprehensive, and it rather contains what I would consider to be some of the most critical and prevalent questions that both students and parents have about paying for college.
- What is financial aid?
- What are student loans?
- What are federal student loans?
- What are private student loans?
- How can I apply for student loans?
- What is the FAFSA?
- What are grants?
- What are scholarships?
- What is work-study?
- Can I get a student loan without a cosigner?
- Can I get a student loan with bad credit, or no credit?
- Do my parents have to cosign for all of my student loans?
- Can student loans be discharged via bankruptcy?
- Can I get a student loan when I’m attending class on a part-time basis?
- What interest rate should I expect to pay for my student loan?
- What is student loan forgiveness?
- How much money should I expect to receive from my student loan?
- What are the best student loans?
- How can I check my credit score and report?
- What are uncertified student loans?
- Should I consolidate my student loans?
- What is cost of attendance?
- What is expected family contribution?
- What is financial need?
- What is the SAR?
- What is a rate index?
- What is student loan default?
- What is FFELP?
- What is SAFRA?
- What is deferment?
- What is forbearance?
Financial aid is a term that is used to describe the financial awards that students receive in order to pay for college.
A typical financial aid award package can include a number of different types of aid, including grants, scholarships, student loans, and work-study programs. This aid can be provided by the government, postsecondary institutions, or by other private organizations, and must be applied for accordingly.
Student loans are education loans that can help finance a student’s postsecondary education. They are unlike other popular forms of financial aid such as grants and scholarships in that they have to be paid back at some point.
There are many different kinds of student loans, including federal student loans, private student loans, parent loans, consolidation loans, and peer-to-peer education loans.
What are federal student loans?
Federal student loans are education loans that are provided by the Department of Education. They carry relatively low interest rates that are fixed, and have more repayment benefits than private student loans.
Their primary disadvantage is their capped loan amounts, which may fall short in covering a student’s full cost of attendance. Most federal education loans need to be applied for via the FAFSA.
What are private student loans?
Private student loans are education loans that are provided by independent private lenders. They carry higher interest rates than federal student loans that are adjustable, and generally come with fewer repayment benefits.
Their primary advantage over federal student loans has to do with their available loan amounts, which can often be up to the cost of attendance. To apply for a private student loan you must complete a separate application that is provided by the private lender who is making the loan.
How can I apply for student loans?
This will depend on the type of student loan you are applying for. To apply for federal student loans you must submit a FAFSA, although PLUS Loans will require a separate application.
To apply for private student loans you must complete the application that is provided by the private lender. You can apply for a federal consolidation loan at loanconsolidation.ed.gov, and you can apply for peer-to-peer education loans at websites such as fynanz.com, and greennote.com.
The FAFSA, or Free Application for Federal Student Aid, is the government’s universal application for federal student aid. You must complete the FAFSA each year that you want to be considered for such aid, which includes a multitude of federal grants, and student loans.
The earliest you can submit a FAFSA is January 1, the latest you can submit one is June 30. You can complete the online version of the FAFSA at fafsa.ed.gov, or if you choose to complete the written version you can get a copy by calling the phone number 1-800-4-FED-AID.
Grants refer to a kind of financial aid that doesn’t have to be paid back. The most popular grant is the Federal Pell Grant, although there are other federal grants available each year as well.
You can apply for a federal grant via the FAFSA, although not all grants are provided by the federal government. Other education grants may be provided by other types of organizations, and for these awards you typically must complete an independent application that is separate from the FAFSA.
Scholarships are financial aid award instruments that do not have to be paid back, and in this respect they are very similar to grants. Most scholarships however are not awarded by the federal government, and are instead provided by independent third-party organizations that can include colleges, businesses, towns, non-profit organizations, civic organizations, and even athletic teams.
How you go about applying for a scholarship will depend on the actual award you are applying for, as each scholarship will have its own application process.
Work-study programs are setup to benefit students who are willing to fill part-time employment positions that may help them pay for their college expenses. There are two major kinds of work-study programs—federal work-study, or FWS, and non-FWS.
Federal Work-Study is awarded by the Department of Education and is based on financial need, while non-FWS is not based on financial need, and is awarded by the postsecondary institution. Completing the FAFSA is required to be considered for Federal Work-Study, while a simple inquiry to the college is required for inclusion in a non-FWS program.
Can I get a student loan without a cosigner?
Yes, you can get student loans without a cosigner, and this will depend on the type of student loan you are applying for. If you are applying for a federal student loan you won’t have to provide a cosigner, as these loans aren’t based on credit.
If you are applying for a private student loan you don’t necessarily have to apply with a cosigner, although it will be required to get an approval if you have no credit, or bad credit. Most students who apply for private student loans do so with a cosigner, as this can help quicken the application process, increase approval rates, and reduce loan costs.
Can I get a student loan with bad credit, or no credit?
Yes, although this will once again depend heavily on the type of student loan you are applying for. Federal student loans aren’t based on credit and can therefore be acquired without the need of good credit.
Private student loans are based on credit, and will therefore require that either you, or your cosigner have good credit in order to get an approval. By applying with a creditworthy cosigner that can satisfy the particular private lender’s approval guidelines you should be able to get a private education loan regardless of your bad credit.
Do my parents have to cosign for all my student loans?
No, federal student loans do not require a cosigner at any time, as they are not based on credit. Private student loans will require that you provide a creditworthy cosigner in order to get an approval if you don’t have the proper credentials in terms of credit in place.
This cosigner doesn’t necessarily have to be one of your parents, although it seems like most student borrowers choose their parents when they need a cosigner most of the time. Parent loans such as the PLUS Loan will require that one of your parents actually apply for the loan, and not necessarily cosign, although this won’t be a requirement once you become a graduate student.
Can student loans be discharged via bankruptcy?
Yes, although it is very difficult to do. As the bankruptcy laws currently stand, you have to prove “undue hardship” to a court, and this can be subject for heavy interpretation depending on the specific court you file bankruptcy at.
Unless the bankruptcy laws are rewritten, you will have to prove that paying back your student loans would cause you to be unable to maintain a minimal standard of living. Most students are not capable of proving this to a court, and thus cannot discharge their student loan debt when they file for bankruptcy.
Can I get a student loan when I am attending class on a part time basis?
Yes, the amount of money you will receive from your student loan will simply be proportioned to account for your current enrollment status. This will hold true for most federal student loans, while your eligibility for private student loans will depend on the actual lender’s policies, although most private lenders should not have a problem with the fact that you are going to school on a part time basis.
So for example, if you were eligible to receive 5,000 dollars via a private student loan when you were attending class on a full time basis, attending class on a half time basis would simply decrease that amount by a fifty percent, and thus make you eligible to receive 2,500 dollars.
What interest rate should I expect to pay for my student loan?
This will depend on the specific student loan you have.
- Stafford Loans—4.5% fixed (undergraduate), 6.8% fixed (graduate)
- Perkins Loan—5.0% fixed
- PLUS Loans—7.9% fixed
- Private Student Loans—LIBOR or T-bill + margin
Private education loans will therefore be more expensive than most federal student loans, and will come with an adjustable interest rate that will be contingent on the borrower’s credit history.
What is student loan forgiveness?
Student loan forgiveness refers to a process by which a particular student loan debt is cancelled out or eliminated, and thus does not have to be paid back. It usually goes into effect once the borrower has faced certain kinds of extenuating circumstances that include health issues, disability, closed school, death, and bankruptcy. A borrower’s student loan may also be forgiven if they choose to work in certain career-related programs upon graduation.
How much money should I expect to receive from my student loan?
This will depend on the specific type of student loan you are applying for. Most federal student loans have loan amounts that are capped with regard to your degree progression, and can therefore provide you with more financing as you move along each year in your degree program.
The amount of money you can get via a private student loan will depend on the strength of your application, although most lenders will be able to provide you with a loan for up to the cost of attendance minus any financial aid if you can satisfy their lending guidelines in terms of credit.
What are the best student loans?
The best student loans are federal student loans, as these types of education loans cost less than private student loans, have more repayment benefits, and can be eliminated or forgiven via an easier mechanism. The primary disadvantage to getting federal student loans is that their loan amounts are capped, and you therefore may have trouble paying for your entire cost of attendance via federal loans.
Regardless, they are very good loans to have, with the Subsidized Stafford Loan, and the Perkins Loan serving as the best two education loans available to students.
How can I check my credit score and report?
There are many ways to do this, but if you want to obtain your credit report for free you should visit annualcreditreport.com, as this is the only site that is fully endorsed by the government, and can in fact provide you with your credit report without the need of some form of payment.
You will however have to pay something for your actual score, so if you want to gain access to both your report and score you can decide between going to this site, or other third-party sites that are available online. You can also obtain your credit report for free directly from any one of the major credit reporting agencies, as they are required by law to give you access to your report for free at least once a year.
What are uncertified student loans?
Uncertified student loans are private student loans that don’t require certification by a school official in order to be approved, or disbursed. Whether a private student loan is uncertified or not depends on the lender’s policies, and if you do apply for an uncertified student loan you can expect to receive your money directly via a check that is sent to your place of residence, as the proceeds of an uncertified student loan are not set to your school, and are instead sent straight to you.
Should I consolidate my student loans?
Yes if you can benefit from a consolidation, and you can get approved. The main reasons for consolidation include the convenience of only having to make one monthly payment instead of having to make multiple payments, and the fact that you can potentially lower your monthly payment by a considerable amount by either reducing your interest rate, or by extending out your loan term.
If you can benefit with either of these scenarios, then I would highly suggest that you consider applying for a consolidation loan, although getting an approval will reside on your ability to have good credit.
Cost of attendance, or CoA, is the standardized cost of attending a particular postsecondary institution. In other words, it is the sum total of all education-related expenses, and will vary of course depending on the actual school that is being attended.
It is used to determine your financial need for federal student aid, as well as to establish how much money you can borrow via a private student loan.
What is expected family contribution?
Expected family contribution, or EFC, is the product of an equation that uses information that is provided during the completion of the FAFSA. It is supposed to be used as an indicator of the amount of money a particular student’s family can contribute towards their child’s higher education, and it is determined by taking into consideration the student’s income (and assets if independent), the parents’ income (and assets if dependent), the household size, and the number of family members that are currently attending postsecondary institutions.
Under most circumstances lower EFC values will result in a higher level of financial need, thus increasing eligibility for certain types of federal aid.
Financial need is the amount of money that a student must come up with in order to pay for their college education, minus any funding they are able to provide directly out-of-pocket. An equation may explain this better:
- Financial Need = Cost of Attendance (CoA) — Expected Family Contribution (EFC)
So for example, if the CoA for attending a particular college is 20,000 dollars, and a particular student’s EFC is 5,000 dollars, the level of financial need will be said to be 15,000 dollars. This means that the student must come up with an additional 15,000 dollars in order to pay for school, and this is typically accomplished via financial aid.
The SAR, or Student Aid Report, is the report that is generated upon successful submission of the FAFSA. It contains most of the information that was provided during the completion of the FAFSA, as well as other sorts of values and indicators, such as EFC.
The SAR is typically accessed via email, although a written report is also sent to students a few weeks after the FAFSA was submitted.
A rate index is used to determine the interest rate for most private student loans. The majority of private education loans utilize either the LIBOR or T-bill rate index plus a margin to calculate the interest rate for a particular loan. These rate indexes will fluctuate with regard to market conditions, and may either lower, or raise interest rates accordingly.
Student loan default is the status that is given to a particular student loan debt once it has not been repaid for a consecutive number of months.
How many months it takes to place a student loan into default depends on the actual student loan, with most private student loans having a lower threshold than federal student loans. Once a student loan has fallen into default, it may be sold to a third-party for a fraction of its original cost.
FFELP stands for the Federal Family Education Loan Program, which has since been discontinued. Federal student loans used to be made primarily through FFELP, which made it so that independent private lenders served as the providers for such loans.
In 2010 the Student Aid and Fiscal Responsibility Act, or SAFRA eliminated FFELP, and made it so that all government education loans were to be provided directly by the Department of Education as part of the Direct Loan Program.
SAFRA, or the Student Aid and Fiscal Responsibility Act, is the piece of legislature that eliminated the FFELP student loan program in 2010. It also made other changes to several federal student aid programs, including the Pell Grant.
Deferment is a repayment benefit that comes with many student loans. It allows a borrower to postpone their repayment schedule by a number of months, and is typically utilized in three, six, or twelve-month increments.
Most federal student loans come with an abundance of deferment time, while most private student loans do not. Both federal and private student loans typically come with automatic in-school, and grace period deferments that allow borrowers to push back when they must begin making payments until they have been out of school for a full six months.
Forbearance is very similar to deferment in that it can be used to postpone repayments. The primary difference has to do with how the interest that accrues during this postponement period is handled, as it is capitalized onto the principal of the loan when a forbearance is instituted.
