When your college acceptances start arriving in the months to come, there may be a gap between the cost of attendance (COA) and your available funds. That’s where student loans come in.
Borrowing to help earn your degree is a wise investment in your future, but going to college requires both book smarts and money smarts. To encourage brilliant borrowing, Nellie Mae recommends that students and families follow a simple “1-2-3 approach” when applying for financial aid:
- Look for free money (pursue grants and scholarships)
- Apply for low-cost federal loans
- If necessary, use private education loans to cover any remaining unmet need
To apply for all federal student aid, you must file the Free Application for Federal Student Aid (FAFSA) annually at www.fafsa.ed.gov after January 1. Apply early because financial aid is awarded on a first-come, first-served basis. About four weeks after submitting your application, you’ll receive a student aid report (SAR) with your expected family contribution (EFC), the amount your family is expected to pay for one year of college. Each college that accepts you prepares a financial aid package or “award” that may be comprised of federal, state, and direct aid from the school.
Filing your FAFSA is a gateway to federal student aid that includes federal grants, the Federal Work-Study Program, and student loan programs such as Stafford Loans, Perkins Loans, and PLUS Loans for parents and graduate students. Many colleges, states, and scholarship programs rely on the FAFSA in awarding nonfederal aid.
Federal education loans
The most popular student loan is the Federal Stafford Loan, which allows eligible students to borrow low-interest, guaranteed (insured) loans. There are two kinds of Stafford Loans, and both have annual loan limits set by the federal government.
- Subsidized Stafford Loansare awarded based on a student’s financial need as determined by the FAFSA process. Interest does not accrue during school, grace, and authorized deferment periods.
- Unsubsidized Stafford Loans are awarded regardless of financial need, and interest is charged immediately upon loan disbursement. Students may pay interest while attending school or let the interest accrue until repayment begins (six months after leaving school).
While not part of the financial aid package, Federal PLUS Loans for parents are fixed-rate loans that can help finance the expected family contribution (EFC) for a dependent, undergraduate child's education. There is no income requirement to qualify, but the borrower must have good credit. Parents can borrow up to the cost of attendance (minus other financial aid) without tapping into investments.
Private education loans
Since Federal Stafford Loans are capped by annual borrowing limits, many students and their families turn to private student loans (which are not need-based) for additional education funds. Typically, no FAFSA is required for private loans. With competitive rates, online pre-qualifications and applications, and flexible repayment options, Nellie Mae can provide creditworthy applicants with fast credit decisions for private loan funding for remaining education costs.
To learn more, students can also download Nellie Mae's popular Steps to Success: A Comprehensive Guide to Preparing and Paying for College (PDF, 1.5MB).