What Is an Education Loan? – How to Apply For Federal Student Loans

Do you want to know What Is an Education Loan? I bet you want to. Well, there is no problem since you want to know what this loan is all about. But what I am going to do today is not just tell what the education loan is all about.

What Is an Education Loan
What Is an Education Loan

But I will also show you how you can apply for the loan and be able to chase or pursue your education smoothly. So what you need to do now is to just keep on reading this article and you will get all the necessary details needed.

What Is an Education Loan?

An education loan simply refers to a type of loan that is been borrowed by students to finance their expenses related to post-secondary or higher education. Education loans are then been used to pay for tuition fees, basic living expenses, as well as books, and also supplies necessary during the education period. Compared with other types of loans, education loans simply carry lower interest rates, and also the repayments are typically deferred until students earn their degrees.

The education loan policies simply vary in different countries. In the U.S., the students can then obtain education loans either from the federal government or from private lenders. Education loans cannot be discharged by simply claiming bankruptcy unless the borrower can then demonstrate that the repayments will lead to “undue hardship.” Hence, the potential losses of lenders on education loans are very limited.

Types of Education Loan

There are majorly or basically two types of Education Loans and here are they below:

  • Federal Education Loans
  • Private Education Loans (Student Loans).

Federal Education Loans

In the U.S., the federal education loans make up the majority of education loans. Borrowers of education loans are typically seek financing from the federal government first. The applicant information will be then required to facilitate the application process varies in different cases, depending on the applicants’ status.

The amount of the loan that a borrower can then get or receive usually depends on one’s state of residence, family income, parental dependency, as well as tuition fees and also living expenses. A credit check is not even necessary for the application process.

Federal education loans can then be further categorized into direct subsidized loans, direct unsubsidized loans, and also direct consolidation loans.

Direct subsidized loans can be then availed by undergraduate students only. Applicants need to simply demonstrate financial need in order to be eligible.

Direct unsubsidized loans can also be availed by both undergraduate and graduate students without even requiring financial need demonstration. Both types can be converted into consolidation loans.

Direct consolidation loans simply allow or enable the borrower to combine several federal education loans into one. It charges interests based on the average rate of each loan.

Private Education Loans

Private lenders of education loans typically or simply follow a traditional application process. They will also ask for higher interest rates than the federal government. Thus, students usually go for private education loans only after they are running out of their maximum amounts available for federal loans.

The private education loan providers simply include state-affiliated non-profit lenders and also institutional lenders, such as universities. A credit check is will be required as a part of the application process. If a loan application is then approved, the school that the borrower attends will then receive the funds first to cover any pending bills. Then, the borrower will also receive the rest of the funds.

How Does Education Loan Works?

Education loans can be broadly divided into two categories: federal student loans and private student loans which I have explained above. Both are available only to those qualifying students and in some cases, to their parents. Students are not even allowed to borrow more than the school-certified cost of attendance for either type of loan.

To apply for federal loans, students must then need to complete the FAFSA.

Benefits of Education Loans

Here are the benefits of the Education Loans:

  • Lower Interest rates.
  • Moratorium holiday-Pay after your course completion.
  • A wide range of expenses covered.
  • Education loan interest subsidy.
  • Tax benefit- Section 80E.
  • Tax collection at source (TCS) on foreign remittance.
  • Build your CIBIL score.
  • No need to liquidate valuable assets.
  • Liberating your parents from loan burden.

How to Apply For Federal Student Loans

Receiving federal student loans like the Direct Subsidized and also the Direct Unsubsidized Loans starts with completing the FAFSA, or Free Application for Federal Student Aid. You can then simply perform the entire process online at the FAFSA website. Some loans are even awarded based on your family’s financial need, so you will then want to gather the following pieces of personal and financial information when applying:

  • Name, date of birth, and address.
  • Social Security and driver’s license numbers.
  • Federal tax returns, including W-2 tax forms and other recent records showing the income earned by you, your spouse, and your child (if the child is a dependent).
  • Federal student aid PIN number, which will allow you to access the application and sign the form.
  • Name of school (up to 10 can be listed on the application).

Next, you will now receive your Student Aid Report, which simply outlines your expected family contribution. The form will then automatically be forwarded to the schools listed on your application. The financial aid offices of those institutions will now send you a financial aid award letter outlining the aid package they will offer. It is now your job to compare those offers and also choose the school that best fits your future goals and family budget.

Lastly, you should accept the financial aid package from your chosen school, if you then choose to receive aid. Your financial aid also award letter will have an itemized list of all available types of aid, which includes grants and federal student loans. Remember, even after you have accepted your award letter, you must simply check with your school’s financial aid office to see what other forms or documents you will need to complete in order to secure your funding (for example, completing your Direct Loan Master Promissory Note, or MPN).

How to Apply For a Private Student Loan

While every private lender has its own application process, they all will simply require similar information from applicants. Here is a list of information that you will likely need to provide when applying for a private student loan:

  • Name of school.
  • Driver’s license number.
  • Social Security number (or Alien ID number for permanent residents).
  • Gross monthly income and one most recent paystub.
  • Employer name, phone number, and length of employment (if applicable).
  • Monthly rent or mortgage payment.
  • Anticipated graduation date (MM/YYYY).
  • Loan amount requested.
  • Loan period for which funds are needed (can be an entire academic year, or a single semester).
  • Co-signer name and valid email address.
  • Student borrower reference (name, address, and phone number of someone who is not your co-signer).

Some private student loan lenders might even ask you to submit documents to verify some of this information. Once you have been approved, all lenders will require you to sign a promissory note that details every aspect of the loan you are taking out. Once you have accepted the loan and then signed all your documents, the lender will typically send the funds directly to your school. If you requested additional funds for school certified expenses, then check with the financial aid office at your school to find out how they simply handle those funds.

FAQs

What is Federal Direct Loan Program?

The Federal Direct Loan Program provides low-interest student loans to post-secondary students (undergraduates and graduate students) and also their parents. The William D. Ford Federal Direct Loan Program is been issued and also managed by the U.S. Department of Education. It is the only government-backed student loan program in the United States.

What is the Free Application for Federal Student Aid (FAFSA)?

The Free Application for Federal Student Aid, simply known as the FAFSA, is the official form to apply for federal financial aid to simply pay for college. It is also used by many states, individual colleges, and universities in making their financial aid decisions.

What is FAFSA Award Letter?

An award letter is a documentation that is been sent from a college or university to the student that details how much financial support the student is eligible to receive. The award letter is also sent following the student’s submission of the Free Application for Federal Student Aid (FAFSA) and application to attend college or university.

What is Cost of Attendance (COA)?

The Cost of attendance (COA) is a college’s total estimated expenses for one year which includes tuition, room and board, books, supplies, transportation, loan fees, and miscellaneous expenses. A school’s cost of attendance is been used to determine each student’s eligibility for financial aid, such as grants and loans.

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