The Student Loan Application Demystified
If you have spent any time at all considering attending college, you have probably already come across the term FAFSA, along with other information regarding financial aid and student loan applications. Understanding the FAFSA and the role it plays in determining your financial aid (including student loan) eligibility is your first step to grasp the big picture of paying for college.
FAFSA stands for Free Application for Federal Student Aid. Every incoming freshman and every upperclassman is expected to fill out this form each year that they plan to attend college. If you do not fill out this form, you are basically saying that you are independently wealthy enough to attend college, and you will require no financial assistance to pay for college. In addition, if you do not fill out this form, you will not be considered for any merit scholarships that might be available to you, and you will not be eligible for a student loan or any other type of funding to help you pay for college.
So, step one is to fill out the FAFSA, for almost every imaginable road you could take regarding your payment for higher education.
The FAFSA is conveniently located on the web at www.fafsa.ed.gov. This Web site is easy to use, takes you step-by-step through the college application process, and allows you to create an account and save your information, if you are unable to complete the application in one setting.
The information required to fill out the FAFSA is much the same as the information you need to fill out any standard loan application. You will need a social security number, driver’s license or state identification, W2 forms, current federal income tax returns, all other records for income earned, bank statements, mortgage information, investment income information, and so forth. If you are a dependent student, you will need all of this information from your parents.
In addition, in some cases, you may be asked to verify information you have provided on the FAFSA or to submit certain documents for clarification.
Next, you will receive a Student Aid Report (SAR) from the Federal Student Aid Office. This report will also be sent to the chosen college. The SAR will provide you with your Expected Family Contribution (EFC) amount. This is the number your school will use to determine your eligibility for financial aid. Your college will provide you with a financial aid packet (a list of the types and amounts of funding for which you are eligible, including scholarship grants, college scholarships, work-study opportunities, and federal loan options). After taking into account how much money your family is able to contribute, this packet will help you cover the remaining amount you need to pay for college.
If a student accepts the student loan as part of the financial-aid packet, the school’s financial office will work with that student to select a money lender. As part of the Federal Family Education Loan Program (FFELP), money lenders will loan the student money to pay for their education. The lender, school and federal government (Department of Education) work together to ensure the student is eligible for the particular loan amount.
Once the loan is approved, the lender will send a Notice of Loan Approval to the student, indicating the loan amount(s) and the date(s) of disbursement. The funds will be sent to the student’s educational institution, and the financial aid office will notify the borrower of receipt of funds.
Loan funds will be applied first to the student's account. If there is an overage, the additional money will be cashed out by the educational institution to the student. For instance, if there is no balance on the account and if the student has paid the semester’s college tuition bill with other funds, then the student receives the entire loan amount. Then, that student can use the remaining money to pay for textbooks and toward college-related living expenses.
If you are attending a college that participates in the Federal Direct Student Loan Program (FDSLP), your lender will be the U.S. government rather than a private lender. All Federal Student Loans are available through FFELP and FDSLP except for the Federal Perkins Loan. In the case of Federal Perkins Loans, money is only available through the federal government program.
Once you graduate from college, you may find that the loans that were so convenient in helping you complete your education goals are now financially overwhelming. Consolidating your student loans is one way to ease your repayment burden. By consolidating your loans, you will end up with one loan and one monthly loan payment. Often, you can cut more monthly loan payments by consolidating, but be aware that the process can affect the life of your loan. Ten-year loans may be stretched to thirty-years, meaning that you may end up paying a greater total amount by the end of the loan repayment period.
Student loans may be consolidated through any bank or credit union that takes part in FFELP. You can also apply directly to the U.S. Department of Education with a federal consolidation loan application. Consolidation loan terms and conditions are the same, following guidelines set by the federal government, regardless of where you apply to consolidate. Before consolidating, make certain that you understand any incentives you are receiving on your current loans. Consolidation interest rates are usually based on a weighted average of the existing loans. If you receive special incentives from a particular lender (awards or discounts based on meeting target repayment dates), those incentives will not be transferred to the consolidated loan. So make certain that consolidation truly benefits your particular payment situation.
Keep in mind that you can only consolidate your student loans once. The only exception is if you go back to school and acquire more loans. If you are interested in a student consolidation loan, you will find that with most lenders, you only need to fill out a simple form online.
Financial, Tax and Legal Disclosures
NextStudent does not offer tax, legal or investment advice. Nothing contained herein is intended to serve as tax, legal or investment advice. We urge you to consult with experts in these fields before taking any action based on the information contained on our site.
Private Loan Apply