How the Borrowing Process Works
Before and After the Aid Award Letter
For most students loans are a part of the financial aid package, and the borrowing process is part of the overall financial aid process. The steps described here are generalized: always check with a college's financial aid office to make sure that you're doing everything you need to do—when you need to do it—to stay in the running for the best possible aid package.
Before the Aid Award Letter
The financial aid process ideally begins in the summer before your senior year of high school when you start to find colleges and universities you like. Take these steps to make sure you're considered for grants, scholarships, and a work-study job as well as loans.
Check In with Colleges
Visit the website of each school you'd like to apply to, learn their priority deadlines for financial aid, and find out about any special requirements they have. For instance, do they ask that you complete the CSS/Financial Aid PROFILE® in addition to the Free Application for Federal Student Aid (FAFSA)? Do they have their own financial aid forms? Meeting college deadlines is important, since some funds are limited and run out.
Most colleges have deadlines that are earlier than the government's deadline for completing the FAFSA. Meeting deadlines is important, since some funds are limited and run out.
Master the Basics
The summer is also a good time to educate yourself about the various College Loan Options. Share what you learn with your parents and start a discussion about paying for college.
Complete the FAFSA
Starting January 1 of your senior year, you can complete the FAFSA. When you do, you'll let the Department of Education know which colleges to share your information with by entering each school's Federal School Code on the form. Don’t forget to complete the PROFILE as well if you need to.
We recommend that you and, if you’re a dependent child, your parents complete tax returns first since much of the information requested is the same. But don't miss a financial aid deadline just because you or your parents haven't filed your tax returns yet. You can provide estimates and update the data later.
Complete the FAFSA even if you don't expect to qualify for need-based grants and loans. Why? For one thing, it's required for the unsubsidized
After the Aid Award Letter
In addition to the prized admission letter, usually sent in April, you'll receive a financial aid award letter. It will explain how much and which forms of aid you've qualified for. Most likely, it will combine gift aid (money that you don't have to repay), loans, and the offer of a work-study position. Which Loans Are Least Expensive? Starting with the most desirable loans, your batting order should be:
Evaluate Your Award
The letter is a suggestion: You are not obligated to borrow the full amount offered. It's up to you and your family to evaluate the award, compare it to awards from other schools, and decide how much to borrow. The online Compare Your Aid Awards tool walks you through part of this process and performs the necessary calculations.
Loans can be classified in many ways, but for the purposes of evaluating the award letter, you should distinguish between loans that are subsidized and those that are not. Do not include unsubsidized loans, like the unsubsidized
Is your family's share of college costs more than you can afford? If so, it's time to consider the unsubsidized loans listed in your letter.
Seal the Deal
Accepting a loan listed in the letter involves some additional steps, which vary depending on the type of loan and which federal loan program the school participates in. If the school takes part in the Federal Direct Loan Program, the financial aid office administers the loan. Saying yes is as simple as signing a promissory note (a contract between you and the lender that specifies terms and conditions). If the college participates in the Federal Family Education Loan (FFEL) Program, you'll need to choose a lender and work with the school to complete an application. Although the college will likely recommend certain lenders, you may shop around on your own to find the one that's best for you. Whichever program the school participates in, the financial aid office will guide you through the paperwork.
In the case of PLUS Loans, a credit check is required. However, the criteria are not as tough as those for private, or alternative, loans.
Consider Private Loans Carefully
If your share of costs is still too high, then you might consider private loans, also known as alternative loans. In general, private loans are less desirable than federal loans and should be taken out only as a last resort.
Although colleges rarely include these loans as part of your package, they can usually suggest lenders. Still, take care to shop around for the lowest-cost loans with the best terms and conditions for you. Most private loans require a good or excellent credit rating, so if you have no credit history, you'll need a creditworthy parent or someone else to cosign. Typically, the better the cosigner's credit history and credit score, the better the interest rate and other loan terms.
Decide What's Best for You
To make an informed decision about loans, you'll need to compare the terms and conditions of each offer carefully. These include everything from interest rates and borrower benefits to fees and repayment plans.
To figure out how much a loan will really cost you in the long run, you'll need to take all of these factors into account. Whether you're evaluating private loans or government loans offered by banks and other lenders, the Student Loan Comparison Calculator will guide you through this process.
Learn more about being a savvy consumer in Borrowing Tips.
