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 You can start planning for college expenses the day your child is born, but college costs continue to present a challenge to most of us. With the cost of many universities and colleges in the range of $15,000 to $40,000 per year, getting a college loan is essential to many. But even if you can afford to make these payments, you might want to take advantage of the attractive interest rates you can get with a federally funded college loan.
Getting a College Loan
The process for getting a college loan is really pretty simple. There are literally millions of college students in need of college loans, so the entire process is pretty tight. In fact, the process really goes beyond just getting a college loan, since there are other forms of federal aid that you can take advantage of - we'll talk more about those later on.
That being said, the application procedure for getting a college loan is essentially a three step process:
- Applying for a Loan
- Receiving Aid Reports
- Working with Financial Aid Administrators
Once you've completed the application process, you've got a couple more steps ahead of you before you can make a decision on a college loan:
- Evaluating the Various Types of Federal Student Loans
- Assessing Alternatives to Traditional College Loans
That being said, the application process for getting a college loan is essentially a three step process:
Free Application for Federal Student Aid
The first step in getting a college loan is filling out an application known as the Free Application for Federal Student Aid or FAFSA. This is one of those things you should take care of early because some colleges and universities set deadlines for submitting aid applications. You can fill out the FAFSA online at the Department of Education's website.
Student Aid Report
About four weeks after you've completed the FAFSA, you should get a Student Aid Report or SAR in the mail. You need to check the SAR for any errors, so you need to confirm that all the information on the report is correct.
When everything is finalized, your Student Aid Report will list your Expected Family Contribution or EFC. Your Expected Family Contribution is a formula-driven calculation that figures out how much financial aid you are eligible for - including a college loan.
Financial Aid Administrators
The last step in the process is to talk with the financial aid administrators at the colleges you're considering attending. The aid administrator will examine your Student Aid Report and use the information to prepare a formal letter that outlines the amount of aid and the types of financial aid the college is willing to offer you. That letter is known as an Award Letter.
Types of College Loans
A college or federal loan is borrowed money that needs to be repaid with interest. College loans from the government are true loans, just like any other loan you'd get at a local bank. There are several different types of college loans available to students and their parents.
Federal Perkins Loans
Federal Perkins loans are offered by participating schools to those students that demonstrate the greatest need for financial aid. Priority for these loans is first given to students that are getting Pell Grants - something we will talk more about later. Repayment on a Perkins loan is made back to the college itself. Loan maximums under this program are roughly $4,000 for undergraduate students.
Stafford Loans
There are two kinds of Stafford loans offered to college students - subsidized and unsubsidized loans. The difference between these two is the timing before interest expense starts to accrue on this type of college loan. Under the subsidized program, the Department of Education pays the interest on the loan until the student leaves college. Depending on the program and the student's enrollment status, these college loans can range up to $20,500.
PLUS Loans
PLUS loans are simply college loans that are made available to the parents of dependent undergraduate students. For this reason, PLUS loans are financial obligations of the parents. The maximum anyone qualifies for under this program is the cost of attendance at the college minus all of the other forms of aid received.
College Loan Alternatives
There are alternatives to college loans that students can also take advantage of to help pay the costs of college tuition. In fact, some of these alternatives might be even more desirable than a college loan itself.
Federal Grants
Unlike a college loan, grants are a form of federal aid that does not have to be repaid. The federal government runs two college grant programs:
- Pell Grants - available almost exclusively to undergraduate students. Pell grants are based on three factors - need, cost of attendance and enrollment status.
- Federal Supplemental Educational Opportunity Grant - also known as FSEOG grants, this help is targeted towards undergraduate students with exceptional financial need.
College Work Study Programs
College work study programs are another college loan alternative that allows the student to earn money while working at the college they are attending. The money earned while working can then be used to pay for the costs of college tuition.
Under the federal work study program both graduate and undergraduate college students can work either on or off campus. The hourly pay is at least minimum wage and there is no limit of earnings through this program.
Private Student Loans
The final alternative students have to federally funded loans is to seek out private student loans to pay for college. This type of college loan is becoming more popular because federal loans have simply not kept pace with the rapidly rising cost of college tuition.
Sallie Mae has a private college loan program offered through select lending institutions or lending partners. The nice thing about their program is that it is privately insured and based on credit history.
Many of the larger banks in the United States also offer private student loans. Lenders that offer special programs in this area include Citibank, Bank One, Wachovia, Bank of America and Wells Fargo just to name a few.
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