How to Find, Fill Out and Submit Federal Loan Applications
When asked to think about the word “loan,” most students will think about banks and credit unions. These are the institutions that typically lend money to people in need, and while these private institutions can and do provide a number of student loan products, there’s an entirely separate marketplace that could be quite valuable for students who need help in order to pay for school.
Federal student loans, which come with government backing and which are overseen by the U.S. Department of Education, could be wonderful options for some students. These loans come with perks that might be difficult to find in the private marketplace, and in some cases, students can get these loans without passing any kind of credit check at all. This article will outline what these loans are, as well as the simple steps students must complete as part of the federal loan application process.
Students who use loans to fund their educations are expected to pay back the balance with interest. That remains the same whether students take out private loans or federal loans, and many students who do take out federal loans struggle with their payments to such a degree that they skip a few payments or stop making payments altogether. According to the U.S. Department of Education, about 14.7 percent of federal student loan borrowers were in default on those loans in the 2010 fiscal year.Defaults like this are hard on individuals, but they’re also difficult on the health of the entire economy, as families experiencing financial distress might not be able to buy cars, move into new houses or otherwise spend money. Since defaults have become such a big problem, the U.S. Department of Education has developed a variety of tools that can help borrowers stay in front of their loans, so they can avoid a default. Students can:
- Apply for forbearance packages and remove their obligation to pay for a specific amount of time
- Affix their payments to their income levels, so they won’t be asked to pay more than they can afford
- Apply for programs in which graduates work in specific industries or specific locations and have a portion of their balances forgiven as a result
- Apply for programs in which the balance of the loan is forgiven after a specific period
Students with federal loans who are disabled and unable to work might also be able to discharge their balances, and students who die before repaying the balance of a student loan won’t leave their families responsible for those debts. Some private loans also offer these protections, of course, but an expert quoted in a piece by USA Today suggests that this is rather rare in the private marketplace.
In addition to these protections, federal loans also tend to come with competitive interest rates that are fixed throughout the life of the loan. This is somewhat extraordinary, as students who apply for these loans tend to be considered risky borrowers by private banks, and they’re often penalized with high interest rates and unfavorable loan terms. Federal loans are designed to help any student go to school, so they don’t have the same sorts of penalties attached.
But there are limits to the benefits a student can obtain through federal loans. For example, the U.S. Department of Education places caps on the amount of money a student can borrow. In the 2011-2012 academic year, 68 percent of all borrowers at the undergraduate level hit that borrowing level, according to analysis done by the Wall Street Journal. Some students are forced to augment their federal loans with private options, simply because they have borrowed too much.
There are a number of different types of loans that fall under the heading of federal loans, and they’re all designed to help slightly different students.Direct Unsubsidized Loans are the most common type of federal loan provided to federal student loan applicants. Both undergraduate and graduate students can apply for these loans, and there’s no credit check required. Any student who completes an application, and who passes standardized checks of legal status and criminal history, can get a loan like this. The openness of this program makes it appealing, but there are no subsidies involved with this loan. Students are required to pay the balance of the loan, plus the interest that begins to accrue when the loan is disbursed.Direct Subsidized Loans are a little different. These loans are provided to undergraduate students who have demonstrated financial need, so not all applicants will qualify. But those who do qualify will receive a form of financial assistance, as the government will pick up the tab for the interest charges that accrue while the student is in school. This could save students a significant amount of money during the life of the loan.
Perkins Loans are also made for students who have demonstrated financial need, but these loans are administered at the school level, not the government level. Not all schools participate in this program, meaning that not all students who need help paying for school could benefit from this program.
Direct PLUS loans are designed for students in graduate school, but parents of students who are graduates or undergraduates can also apply for this program. Credit checks are a big part of this program, and applicants who don’t meet strict requirements are typically not admitted to this program. Some news articles suggest that PLUS Loans are harder for applicants to get now, as many people have lowered credit scores due to distress they endured due to the recession. But these can still be good options for many students, as loans in the PLUS program aren’t subject to the same limits seen in the Direct Loan program. In other words, students who have hit their direct loan limits might still be able to get a PLUS loan.
The benefits of federal loans are hard to ignore, so it’s not surprising that all students are encouraged to apply for these loans before they look into their options in the private marketplace. The process can be a little hard to understand, but thankfully, it’s not difficult to complete.Students who want a federal loan should begin the process by completing the Free Application for Federal Student Aid (FAFSA). Students are required to complete the form online, but those students who don’t have online access can obtain forms from the financial aid office of the school they attend, fill out the forms at home and return to the office to input the numbers online.
- Their citizenship status
- Their residence
- Their age
- Their financial health
- The financial health of their parents
Typically, this financial information is found on a family’s current tax statements, but often, students use tax statements from the year prior and correct the data as new information comes to light, as the deadlines for completing the FAFSA are often incompatible with the country’s tax deadlines.
It’s tempting for students to leave their parent’s information off the form, particularly if these students have poor relationships with their parents and don’t expect any kind of financial contribution from them. Unfortunately, however, the U.S. Department of Education requires financial information from families. A lack of willingness to pay on the part of parents isn’t considered grounds for a student to declare financial independence.
Students are also required to list the schools they’re planning to attend with the funds they’ll get from the federal student loan program. Students can be haphazard about the schools they list, particularly if they have a large number of institutions they’re considering at the moment, but an article from Kiplinger’s Personal Finance suggests that students would be wise to list schools in alphabetical order. Schools see these forms during the evaluation process, and some schools are insulted by their low placement. Listing the schools alphabetically can remove this stigma.
What Happens After the FAFSA?
Students who complete a FAFSA are provided with a confirmation letter from the U.S. Department of Education within weeks. This letter contains no information about eligibility of loans, but it does contain the data the student put into the form. Students can check over this information in order to make sure everything is correct, and they can issue corrections if anything seems incorrect.
Weeks later, another notification comes from the school. Some institutions use the U.S. Mail in order to deliver these letters, but some rely on email. These electronic schools typically require students to sign up for a password-protected account in order to get their information, so no sensitive financial information is floating in cyberspace for thieves to take advantage of.
With an offer letter in hand, students have important decisions to make. They might have letters from many schools to consider, and the loans offered at each school might be a little different. Some schools might even sweeten the pot by adding in grants and scholarships in their offer letters, allowing students to take out a smaller
amount in a federal loan. Students should examine all of their options carefully, and that might involve meeting with the representatives of the school’s financial aid office. These administrators can explain the data in the letters, and sometimes they’re swayed to provide better options when they see the offer letters provided by other schools.
Students who decide to accept the loans provided through the federal program will need to follow the directions on the school’s offer letter. Some institutions require students to go online and sign a promissory note, while others ask students to come to the office and sign a note in person. Students are also required to complete admissions counseling, so they’ll understand their financial obligations in the federal student loan program.
Each school is a little different, in terms of dispensing aid. But typically, when a student signs a promissory note, that student is well aware of how the funds will be disbursed and when the money will begin to flow. There should be no surprises at this point.
Every year, students go through this process in order to obtain federal loans. In 2012-2013 alone, for example, 21.8 million students completed a FAFSA, according to The Washington Times. Awareness about this process is fairly widespread.
However, a number of private companies hope to exploit those students who don’t know about the FAFSA process, and they ask students to pay a significant amount of money to complete a form that should be free. The U.S. Department of Education encourages students to avoid these commercial sites, as there’s no need for students to pay for assistance when the federal government provides a number of resources students can use at no charge at all. Students can access online help at www.fafsa.gov, and that help is absolutely free. This should be the only place students go when they’re attempting to apply for federal student loans.
However, the FAFSA doesn’t help students to find loans on the private marketplace, and as mentioned, many students will need help that goes above and beyond what federal sources might offer. These students might need to augment their FAFSA work by reaching out to banks and credit unions in order to find out more about their funding options for school. We can also provide an immense amount of help to students like this.
Our “Scholarship Center” allows you to look for scholarships and grants that can help you to pay for school, and you can move right from our search results to the application pages for these sources of money, so you can apply to more programs while spending less time searching for help. We can also provide you with help in finding a private loan through our “Student Loan Comparison” tool. We can help you to compare your loan options in the private marketplace, so you can make an informed decision about the products and services that are right for you. All of our tools are free and ready for you to use. We hope you’ll take advantage of them today.