HOW IT ALL WORKS
When it comes to investing in your future, it pays to do your homework. Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Here’s a helpful overview of common student loan terms:
Undergraduate scholarships and graduate fellowships are types of aid that help pay for your education. Unlike student loans, you do not have to pay them back. There are many types of scholarships and fellowships awarded each year. Generally, they are given to students who excel at academics, sports or the arts.
Federal student loans are guaranteed by the government and made through the Federal Direct Loan Program. You borrow money directly from the Department of Education at a fixed interest rate. To apply for a direct student loan, you will need to fill out the Free Application for Federal Student Aid (FAFSA). Schools use it to determine your eligibility for federal student loans and other federal, state, and school aid.
You can complete the FAFSA online.
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Most students qualify for the federal Stafford Loan. There is a subsidized and an unsubsidized loan. Your financial need will determine which loan you qualify for. Some students qualify for both. The amount you can borrow is based on which year of study you are in, whether you are a dependent or independent student, and if you are receiving subsidized loans, unsubsidized loans or both. Additionally, the amount depends on whether your parents qualify for the Federal PLUS Loan.
Private Student Loans are used to fill the gap between the cost of your education and the amount you receive from the Department of Education, when needed. Usually private lenders offer flexible repayment options. You do need to meet the credit criteria in order to qualify or, when possible, use a cosigner with a higher credit score to improve your chances of receiving a lower interest rate. The interest rate on these loans is variable rather than fixed, which means your interest rate can increase or decrease during the life of the loan.