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Applying to college or grad school, but haven’t worked out how to pay for classes yet? Once you have exhausted your scholarship and grant options, you might need to turn to loans to round out your finances.
Before you run out to your local bank, there are some specific education loan options that students should consider.
How to Qualify for Federal Student Loans
To receive federal student loans you must meet the following requirements:
- Be a citizen or eligible permanent resident
- Have a high school diploma or equivalent
- Plan to or already attend an eligible school
- Have submitted your Free Application for Federal Student Aid (FAFSA)
- Not be in default on any other federal student loan debt
- Maintain Satisfactory Academic Progress
- Be enrolled at least half-time at an eligible institution
Even if you are not sure if you will need a loan to pay for school, every grad or college student should fill out the FAFSA every year they attend school. The FAFSA not only helps determine what federal student loans you qualify for, but how much need-based federal aid you will receive to pay for college costs.
If you are not familiar with the FAFSA or haven’t applied yet, check out our guide to the FAFSA and get started.
Reading your financial aid award letter
In the FAFSA you include the schools you are either considering or will be attending next year. The financial aid office of each school listed will receive a copy of your application and will include how much the school can offer you based off that information. After your acceptance letter, your financial aid award letter (also called a financial aid package) is the second most important piece of mail you will receive from a school you are considering attending.
Your financial aid letter will include your federal financial aid, any merit-based scholarships, federal loan options, work-study options, and more. Your federal loan options may be listed under Aid Description, Offer of Assistance, Self-Help Aid, or another section.
Federal Student Loan Options
When reviewing your financial aid package, you might see one to all three federal loan options included:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
The main difference between subsidized and unsubsidized loans is when interest starts accruing and who is responsible for paying it. Direct subsidized loans are loans where the federal government pays, or subsidizes, the interest on the loan while you’re in school, during your grace period, and during any other deferments.
By contrast, for unsubsidized loans you pay all the interest, including that which accrues during school, during your grace period, and during any other deferments. Since no one wants to pay more in interest, ideally, undergraduates would max out their subsidized loan options before taking on an unsubsidized loan.
Direct PLUS Loans are loans made to graduate or professional students (Grad PLUS Loan) or parents of dependent undergraduate students (Parent PLUS Loan). Unlike the other federal direct loan options, a credit check is required to take on PLUS loans. Similar to an unsubsidized loan, interest accrues while you’re in school, during your grace period, and during any other deferments.
Who Qualifies for Subsidized Federal Student Loans?
To qualify for a Direct Subsidized loan, you need to be enrolled as an undergraduate and demonstrate a financial need on your FAFSA. If you are applying to grad school, or do not demonstrate financial need, you will only see Direct Unsubsidized Loan or Direct PLUS Loan options in your financial aid package.
How to Qualify for Private Student Loans
Unless you apply for a PLUS loan, federal student loans have a maximum loan amount for borrowers each year. If you hit that limit and need additional funding to cover your cost of attendance, you might consider private student loans.
The qualifications will depend on the lender, but at Earnest we look for the following:
- Must be a US citizen or eligible permanent resident OR have a cosigner who is
- Must live in a state in which Earnest is licensed
- Must be enrolled full-time at an eligible institution
- Must be the age of majority (18 in all states except Alabama , Mississippi , and Nebraska )
- Must meet credit requirements or have a cosigner who does
Unlike most federal loans, private lenders are interested in your credit history and will determine your interest rate from your credit score and loan application. If you have good credit, or are applying with a cosigner who has good credit, you might find that you qualify for a lower interest rate from a private student loan lender than those offered by the US Department of Education.