How Do Student Loans Work?

An important question for high school students and parents to learn the answer to is, "How do student loans work?" Understanding how student loans work will make the process of finding money for tuition, books, room and board much easier. The wonderful thing about student loans is that many of them are need based rather than credit based, meaning that nearly anyone who wants to go to college, can qualify to get the student loans he or she needs to go to college.

How to Get a Student Loan

The first step to start the process of getting student loans is to fill out the Free Application for Federal Student Aid, otherwise known as the FAFSA. The sooner this form is filled out the better, because it will affect how federal funds are distributed. If you are unsure of the information because you are still waiting to file taxes, the information can be changed later as needed. When you fill out the form, you will need to send it to the school your student will be attending, or all of the schools he or she has applied to. If you know the school he or she will be attending, the next step is calling the financial aid office of the school.

Calling the Financial Aid Office

The college's financial aid office will be able to answer any questions you may have about the FAFSA, and provide you with information on the different types of loans and financial aid the student may get. After the FAFSA has been filed, the government will determine what aid the student is eligible for and what they are willing to give. At this point, the school will talk it over with you and the student to determine the best course of action. If you find that the student will be responsible for a portion of money each semester, discuss moving from full time or part time status to see if this will impact the amount of aid he or she may receive and lessen the out of pocket expense.

Different Types of Financial Aid Tools

  • Perkins Loans: If possible, select these loans first because they have lower interest rates than others, making them less expensive in the long run.
  • Stafford Loans: These loans are very easy to qualify for and come in subsidized and unsubsidized varieties with relatively low interest rates. If the interest is subsidized, it means the government pays it while the student is in school. If unsubsidized, the interest accrues and is added to the principle balance of the loan.
  • PLUS Loans: These loans are for parents and are credit based to help cover the difference between what the student can get and what the student needs.

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