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Apply for and obtain a student loan

With the costs of a college education rising rapidly, it’s no surprise that many students find themselves in need of student loans. There are a variety of different student loan types, but the most popular loans are Federal Stafford Loans, which are guaranteed by the U.S. Government (meaning the government will pay the loan to the lender if you default on it).

Stafford Loans

There are two types of Stafford Loans: subsidized and unsubsidized. With a subsidized loan, the government pays the interest on the student loan while you are in school and during the following 6-month grace period. Interest accrues on an unsubsidized loan or you can choose to pay the interest while you are in school. Subsidized loans are given based upon financial need, while no income restrictions are placed on unsubsidized loans.

Student loan application process

To apply for a Stafford Loan, first you need to fill out and submit the Free Application for Federal Student Aid (FAFSA). This application asks questions about your financial situation to determine your eligibility for aid. You need to fill out only one FAFSA, regardless of the number of schools you apply to, but you are required to submit a FAFSA each year while you are in school.

Once you submit the FAFSA, the U.S. Department of Education reviews it and determines your expected family contribution (EFC), which takes into account your family’s financial situation, number of children, etc. After your application is reviewed, you will receive a report called the Student Aid Report, which explains how much Federal funding you are eligible for. A similar copy of this report is sent to the schools you’ve applied to.

The schools then take this information into account when developing your student aid package. When you receive your financial aid letter from your college, it will include your eligibility for loans. If you are eligible for a Stafford loan, and choose to receive one, your school will let you know if they have a preferred lender or if you can choose any lender. Then, you can complete and sign a Master Promissory Note, which is essentially a contract for the loan. The loan is dispersed directly to your college and the loan amount deducted from your tuition bill.

View more loan and debt resources on MoneyManagement.org.

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Featured News

MMI suggests finance options for obtaining a higher education According to a recent report released by the U.S. Secretary of Education, student loan default rates are up a staggering 7 percent, up from the 2007 default rate of 6.7 percent. The default rates for student borrowers are considerably higher for those who attended public schools than those who attended private ones. Due to a lackluster economic turnaround and high unemployment, it’s no surprise that student borrowers are struggling to make loan payments.

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