If you are planning on applying to college, chances are you will end up having to borrow money to fund your higher education. Understanding the process of getting a student loan, from the time you apply to the time you actually receive the funds is important so that you do not make any expensive mistakes.
First, you should know that there are two main types of student loans—federal and private. Federal loans should be your go-to option. They have lower interest rates and offer more payment flexibility than private loans. Think of private student loans as your last resource to be used only if you cannot get the funds you need from any other source.
The Basic Process of Getting a Federal Student Loan
To get a federal student loan, the first thing you need to do is fill the Free Application for Federal Student Aid or FAFSA. After you submit the FAFSA, the college will put together a financial aid package based on the information you’ve provided and they will send you a comprehensive Student Aid Report (SAR) giving you details of your package. Take time to go through the SAR and determine if the package seems fair to you.
If you agree with the terms and the loan amount, you will have to sign a Master Promissory Note. This agreement is binding so make sure you read everything carefully as it governs your repayment terms.
Once you have signed the promissory note, the loan proceeds will be deposited into your student account, from where you can then access the funds.
The Basic Process of Getting a Private Student Loan
The process of borrowing money from private lenders is vastly different from the federal student loan process. The interest rates, terms of repayment, and all other features are different too. Understanding the process and the differences is crucial.
With private loans, the rate of interest and the terms of the loan will differ from one lender to another. Before you sign any promissory notes, it is absolutely important to do your research and get all of your clarifications in writing.
Once you have found a reliable private lender with the most reasonable rates and terms, you will need to submit a written loan application. The lender will check your credit history to determine whether you are a reliable borrower.
Chances are, as a student you are not likely to have built credit history. In this case, getting a cosigner will help boost your chances of getting the loan approved. It will also help you get a lower rate of interest.
If the lender approves your application, you will need to complete a Self-Certification form and sign a promissory note accepting the terms of the loan.
The loan proceeds will be deposited into your student account, from where you can then access the funds.
A final note of caution: Never take anything for granted when it comes to taking any type of loan. Read the terms and conditions carefully, especially the fine print and get all your doubts clarified before you sign anything.
Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side!