When you get a loan for your car or home, you get all of the money upon approval—or it’s paid directly to the dealer or seller. With student loans, however, it’s a bit different. Student loans are typically paid to the school in multiple disbursements, usually at the beginning and middle of the academic year. If your school does quarters or a non-traditional school year, they will pay out accordingly.
Getting the Most Out of Federal Student Loans
Your first option when looking at student loans should always be federal student loans. When compared to private student loans, the interest rates and fees on federal loans are lower, costing you less money over time. In addition, the flexible repayment plans available can make federal student loans a better deal than private student loans.
You can borrow up to $5,500 per year in Federal Perkins Loans, and from $5,500 to $12,500 per year in subsidized and unsubsidized loans. These aren’t fixed amounts, however, they’re the maximum that can be borrowed. Your personal limit will depend on several factors, including whether you’re an undergraduate or graduate, your total financial need, the cost of the school you’ve chosen, and how much funding your school has available to lend you.
The current average in-state cost of a public college for the 2017-2018 school year was $25,290. Private colleges were roughly double that. In order to meet that cost, you’ll need to begin by filling out a FAFSA.
Filling out a FAFSA to Maximize Your Federal Aid
FAFSA stands for the Free Application for Federal Student Aid, and it’s the first step to getting any kind of federal student loans or grants. It’s important to understand the information you put into the FAFSA about your financial situation is much of what decides how much aid you receive. How early you submit your FAFSA is also taken into account, as some schools run out of aid or have less to offer to later submissions.
Another critical thing to understand is the difference between being a dependent and independent student. If you are considered a dependent student, the federal government will also consider your parents’ finances before awarding you financial aid. If you are an independent student, it will take your information alone and that of your spouse if you are married.
There is a list of criteria and questions on the FAFSA used to determine what your status is. Living on your own, for instance, is not enough to make you an independent student, and needing help from your parents to pay your bills isn’t necessarily going to mark you as a dependent. Understanding your status will help you form the best expectations for federal financial aid amounts.
Borrowing Up to the Maximum for Private Student Loans
Once you have done what you can with your federal student loan options, you might need to look at private student loans to fill in any remaining gaps. Ideally, you won’t need to consider private student loans if you can reach your funding goal with federal aid. Private loans do, however, have a few perks you should be aware of.
You won’t have to complete a FAFSA to be considered for a private student loan, you will need good credit instead. Maximum amounts available are typically the net result of subtracting your previous financial aid from the school’s cost of attendance. To ensure you can get the maximum, make sure you have a cosigner with excellent credit.
Find Ways to Reduce Borrowing
The best option of all, of course, is simply borrowing less—or even not borrowing at all. Before you look at any student loans, check out other financial aid options. There are thousands of scholarships and grants in the United States. While the programs are competitive and involve effort, a motivated student can often pay for a significant portion of college without loans.