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When to take out student loans

When to Take out Student Loans

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Going to college is an exciting period in your life. But it can also be expensive. The National Center for Education Statistics reported that the total cost of attendance for a single year at an in-state public university was $20,500. Opt for a private school, and that number jumps to $43,139 per year. 

To minimize student loan debt after graduation, you need to consider potential schools and your financial aid options while you’re still in high school. Here’s what you need to know about qualifying for aid and applying for student loans.

Applying to Schools

When deciding what schools to apply to, it’s important to think about cost and affordability before submitting your application. Otherwise, you could spend money on application fees for colleges you simply don’t have a repayment plan for.

It’s wise to apply to several schools: reach schools, colleges that are a good match for your abilities, and safety schools that you’re sure will accept you. But when evaluating your options, take into consideration what kind of financial aid the schools typically offer. Some stretch universities may offer more substantial financial aid packages, making them more affordable.

For example, the total cost of attendance at Harvard University as of the 2020-2021 school year is up to $80,041. While that number is prohibitively expensive for most, you may not actually have to pay that amount. According to the university, 20% of Harvard families pay nothing at all, and the students’ educations are funded by financial need-based grants and scholarships.

To find out how much a school will cost you, use The College Board’s net price calculator. It gives you an estimate of what financial aid you can expect to receive and what your out-of-pocket costs will be based on your family’s income, how many siblings you may have in college, and your current grades and GPA. 

When to File the FAFSA

Filling out the Free Application for Federal Student Aid (FAFSA) is an essential first step in qualifying for financial aid. Unfortunately, many students skip the FAFSA because they don’t understand its uses. 

In a study by the National Center for Education Statistics, 32% of survey respondents said they didn’t fill out the FAFSA because they thought their family wouldn’t be eligible for aid, usually because they made too much money. An additional 28% said that they didn’t fill out the FAFSA because they didn’t want to take on debt. 

But the FAFSA is what schools, states, and the US Department of Education use to determine your eligibility for aid, including scholarships, grants, work-study programs, and federal student loan programs.

Even if you think you’re ineligible for grants or scholarships, it’s still smart to fill out the FAFSA so you can take advantage of federal loans or work-study programs. 

You can complete the FAFSA form online. You will need to enter the following information: 

  • Your name
  • Address
  • Social Security number
  • Parents’ Social Security numbers if you’re a dependent student
  • Driver’s license number
  • Parents’ tax return information
  • Information on assets, such as your parents’ savings or checking accounts, investments, or real estate
  • List of schools you are interested in attending; you can list up to 10 colleges

The FAFSA is available starting on October 1 of your senior year of high school and must be submitted by June 30. However, states and colleges may have their own deadlines, so make sure you submit the FAFSA on time. You can view state deadlines online. For your intended college’s deadline, contact the school aid office. 

Reviewing Your Financial Award Letters

When you’ll receive a response from a college is dependent on when you apply and what type of application you submitted: 

  • Early decision: By mid-December
  • Rolling admission: Within six to eight weeks of receiving your application
  • Regular admission: March or April

When a college accepts you as a student, they will send you a letter notifying you. They will send you a financial aid award letter, also known as a college offer letter or a school aid offer, along with that notification. 

The letter will detail what financial aid you can receive at that particular college. It will list the total cost of attendance and what grants, scholarships, and work-study programs you can use. It will also include a list of what federal student loans you can qualify for and what your expected contribution is outside of that financial aid package. 

To compare financial aid offers, make sure you subtract grants and scholarships — gift aid that doesn’t need to be repaid — from the total cost of attendance. The rest of the money you will have to borrow, so you can more clearly see which school is offering you the best financial aid package. 

Financial Aid Before You Borrow

Before taking out federal loans or private student loans and sign up for monthly payments after graduation, make sure you exhaust all interest-free financial aid opportunities first.

Scholarships and Grants 

While you can qualify for grants and scholarships from your college, you can also get financial aid from non-profit organizations and private companies. You can apply for multiple scholarships and grants to reduce your education costs. 

For example, Earnest operates The Earnest Scholarship, awarding $5,000 to 50 undergraduate and graduate students for the 2020-2021 school year. There are no minimum GPA, residency, or major requirements to apply, and you can submit your application online. 

You can search for scholarships and grants on FastWeb,, CareerOneStop, and Cappex


With a federal work-study program, you take on a part-time job related to your major. As an undergraduate student, you’re paid on an hourly basis, and you can use your earnings to cover a portion of your education costs. 

The number of hours you can work is determined by your federal work-study award, and your employer and the school financial aid office will base your schedule on your class schedule.

If a work-study program wasn’t included in your financial aid letter, reach out to the financial aid department to see if there is any availability. Not all schools participate in the federal work-study program, but many do and can help you. 

Signing Your Loans

If you’ve applied for scholarships, grants, and a federal work-study program and still need money to pay for school, you may need to take out student loans. If that’s the case, you want to give yourself plenty of time to consider all your options.

Federal student loans

On your financial aid offer letter, the school will include directions on what you need to do to accept the offered financial aid, including the federal student loans — such as Direct Subsidized Loans, Direct Unsubsidized Loans, or Direct PLUS Loans — listed. 

The fixed interest rates for each federal loan option are set each year and do not change based on your credit score, unlike a private loan. Federal loans also have a number of repayment options only offered by the federal government, including loan forgiveness plans.

There are usually school deadlines you have to meet, so make sure you follow the directions carefully. In some cases, you can sign a Master Promissory Note and accept the loans online. With other schools, you may have to fill out a paper form and mail it back to the college.

Private student loans

If you need additional funding, private student loans can be a useful supplement to federal loans. And, they have more flexibility, since you can borrow up to the total cost of attendance. Make sure you are only borrowing the loan amount that you need for attendance, borrowing too much will mean extra loan payments and interest.

However, you should still start shopping and apply for your loans as soon as you know you’ll need funding. It may take time to perform credit checks and find the right lender with a competitive interest rate offer. You may also need to work with a cosigner if you don’t have a robust enough credit history.

After you submit your private loan application and are approved, private lenders have to send the loan information to your school for certification before it can be disbursed. It can take weeks for the loan to be certified, so it’s a good idea to start the process as soon as possible.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.