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Understanding and Applying for Student Aid and Student Loans

While college costs of public four-year colleges average at $5,500 annually, their private four-year counterparts charge more than $21,000. Consequently, students and their parents often wonder how they'll be able to afford an education.

The actual out of pocket costs of these universities can greatly decrease if students seek out financial aid and student loans. In fact, over $35 billion dollars in student financial aid is available each year.

College School Loans Available
Numerous student loan vendors and loan programs are available to students and parents looking for financial aid. Before applying, be sure to review the requirements for a specific loan to determine the repayment guidelines, the interest rates and the possibility of future student loan consolidation.

Federal Government Student Loans
Government student loans are the best place to start when applying for student loans. The Federal Stafford loan is the most common student loan source.

There are two variations of the Stafford Loan:

  • Federal Family Education Loan Program (FFELP): This group includes government student loans provided and serviced by private lenders, banks, credit unions and other savings and loan institutions.
  • Federal Direct Student Loan Program (FDSLP): This type of loan describes student loans provided directly to the student from the federal government. Direct student loans are available only through Direct Lending Schools.

Stafford loans may be subsidized (interest paid by the government due to the financial needs of student) or unsubsidized (interest is paid by the student). With unsubsidized loans, students have the option of deferring the interest until after graduation.

Most loans come with "grace periods" after you graduate from college. A grace period is a set time during which the principle and interest payments on the loan are put on hold to allow you time to get a job. The type of loan you get determines the length of the grace period. However, once the grace period comes to an end, the graduate has to start making monthly payments.

To extend repayment periods (and to lower interest rates on unsubsidized loans), some students combine their loans in a student loan consolidation once they complete their education. Help your son or daughter with some comparison shopping to get the best interest rate and monthly payment option available.

Alternative Student Loans
Private or alternative loans can cover the remaining school costs after the federal loans have been applied. Most alternative loans are based on your credit score and may require a cosigner to help the student qualify. These forms are not subject to the same federal regulations as government student loans.

Parents have the option of a federal Parent Loan for Undergraduate Students (PLUS). PLUS loans allow parents to borrow money to pay for any costs not already covered by other student aid. In fact, they may be offered up to the full cost of attendance. Unlike Stafford Loans, these don't have a cumulative limit.

Other Types of Student Aid Available
Government and alternative student loans are not the only type of student aid available. Unlike student loans, scholarships and grants are forms of student aid that don't have to be repaid. These are the best kind of financial aid available because they're essentially "free money."

Grants or gifts may be awarded by the federal government in the form of Federal Supplemental Educational Opportunity Grants (SEOGs) or Pell Grants, awarded by the state (the types of grants vary by state) and individual colleges and universities as need-based awards.

Scholarships are usually awarded by colleges and universities to students based on academic achievement or athletic ability. These merit based forms of financial aid are often the most competitive type and may require a student to send in an application, write an essay or attend an interview.

Student employment and federal work-study programs allow students to earn money for their education. This money does not have to be repaid. Eligibility requirements for a particular program may vary.

Should the Student or Parent Apply for Aid?
Students should apply for aid with their parent(s) unless they're considered to be independents in the eyes of the government. A student is considered to be an "independent" if he or she:

  • is 24 or older
  • is a graduate or professional student
  • is married
  • is a veteran
  • is a ward of the court
  • has dependents that get more than half of their financial support from the student.

To minimize the amount of debt a student accumulates to pay for college, the federal government enforces student loan cap amounts each year for the Stafford Loans. These caps may be lifted only after a parent has applied for student aid on a child's behalf and met certain criteria.

Keep in mind that a student with little or no credit will have difficulty getting approved for an alternative loan without a parental cosigner.

What You Need to File for Student Aid and Loans
Once you're ready to apply for student aid and student loans, be sure you have all of the required information and forms:

Free Application for Federal Student Aid (FAFSA) form
To complete the FAFSA, you will need:

  • social security number and date of birth
  • driver's license number and state
  • your contact information
  • an email address
  • name, address and phone number for two references.

Student Aid Report (SAR)
The SAR application requires a signed Promissory Note (provided by the school or lender) and the completion of the following forms provided by your school's Financial Aid Office:

  • Statement of Education Purpose
  • Certification Statement on Refunds and Default
  • Anti-Drug Abuse Act Certification
  • Statement of Updated Information
  • Statement of Registration Status

any other form required by your particular school.
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