College Loans: Applying and Offerings

Even if we start to save for college expenses the day a child is born, college costs present a challenge to many of us.  With the cost of universities and colleges in the range of $25,000 to $60,000 per year, a college loan is a necessity.  Fortunately, there are some attractive interest rates available through federally-funded programs.

Applying for a College Loan

The process for getting a college loan is fairly simple.  There are literally millions of college students in need of loans, so the entire process is well known to those that administer these programs.  In fact, the process goes beyond just finding a college loan, since there are other forms of federal aid too.  That topic will be discussed in more detail later in this article.

The application procedure for getting a college loan is a three step process:

  1. Applying for a loan
  2. Receiving aid reports
  3. Working with financial aid administrators

Once a family has completed the application process, they have at least two more steps before making a final decision:

  1. Evaluating the various types of federal student loans
  2. Assessing alternatives to traditional college Loans

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.  Most colleges and universities have deadlines for submitting aid applications that fall somewhere between early November and mid-February.  An online application is available on the Department of Education's website.

Student Aid Report

About four weeks after the FAFSA is completed, a Student Aid Report, or SAR, should be received in the mail.  Applicants are responsible for checking the SAR for errors; confirming the information on the report is correct.

When everything is finalized, the Student Aid Report will list the Expected Family Contribution, or EFC, which is a formula-driven calculation that figures out how much financial aid an applicant is eligible to receive from the U.S. Department of Education.

Financial Aid Administrators

The last step in the process is to contact the financial aid administrators at the colleges the student is considering attending.  The aid administrator will examine the 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.  That letter is known as an Award Letter.

Types of College Loans

A college or federal loan is borrowed money, which means it needs to be repaid with interest.  College loans from the government are true loans, just like any other loan obtained 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.  In 2015 / 2016 loan maximums under this program are $5,775 per year 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 the loan.  Under the subsidized program, the Department of Education pays the interest 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 college loans that are made available to the parents of dependent undergraduate students.  PLUS loans are financial obligations of a student's parents.  The maximum anyone qualifies for under this program is the cost of attendance, minus all other forms of aid received.

College Loan Alternatives

There are several alternatives to college loans that students can use to help pay the costs of college tuition.  In fact, some of these alternatives might even be more desirable than a college loan.

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 alternative to a loan.  These programs allow the student to earn money by working at the college or university they are attending.  The money earned while working can be used to pay for the cost of college tuition.

Under the federal work study program, both graduate and undergraduate students can work either on or off campus.  The hourly pay is at least minimum wage, and there is no limit on earnings through this program.

Private Student Loans

The final alternative to a federally-funded loan is to seek out private student loans to pay for college.  This type of college loan is becoming more popular because federal loans have not kept pace with the rapidly rising cost of tuition.

Sallie Mae has a private college loan program that is offered through select lending institutions or lending partners.  The financial aid provided is privately insured, and interest rates are based on credit history.

Many of the larger banks in the United States also offer student loans.  Lenders that offer special programs in this area include Citibank, Chase, Bank of America and Wells Fargo just to name a few.


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