Take the Direct Route to the Best Student Loans with FAFSA

Millions of students each year head off to college to obtain a higher education degree. Statistics show that employees with a college degree make more money than those that do not hold a degree. The problem that many college-bound students face is figuring out how they’re going to come up with the money they need to pay for college. While there are a multitude of sources you can turn to for student loans, the first place you should start is with the Free Application for Federal Student Aid (FAFSA).

What is FAFSA and How it Can Help

FAFSA is a program offered by the U.S. Department of Education in an effort to support secondary education. Its programs provide financial aid for college to eligible student applicants. The FAFSA program offers three levels of financial aid including federal grants, work study programs and federally funded student loans. It’s free to apply using the FAFSA application http://www.fafsa.ed.gov/FOTWWebApp/complete013.jsp . The financial aid awarded is based on your financial need rather than credit scores and other qualification requirements that a private lender or bank may require. The FAFSA program disburses over $80 billion in federal aid each year and it’s the logical first step to obtaining the best student loan programs.

Federal Student Loans versus Private Loans

Federal student loans provide many benefits over private student loans, which is why applying for federal loans should be your first step in obtaining financial aid. If you don’t obtain enough money in federal aid, you can always supplement with private student loans.

Benefits of federal student loans:

* Lower interest rates than private student loans
* Fixed interest rates
* More attractive repayment terms and options than private loans
* Repayment is usually deferred until six months after graduation from college
* Repayment plans can be based on your employment income after college
* Loan forgiveness options
* Loan payment deferment if you return to school

How to Apply for a Federal Student Loan

Applying for federal student loans, grants and work study programs is relatively easy and can all be accomplished with one application, the FAFSA form. The form can be completed online at www.fafsa.ed.gov. Be sure to complete the form in its entirety and if you need assistance or have any questions about completing the form, refer to the Federal Student Aid http://federalstudentaid.ed.gov/ government site. On the application, you’re asked to supply the schools you’re interested in attending. The schools disburse the funds to students so the colleges you provide on the FAFSA form will notify you of the amount you’re eligible to receive.

When Federal Aid isn’t Enough

There are times when federal aid covers all of your college education expenses including tuition, books, and room and board. Then there are times when federal aid falls short of covering all of your expenses. In this case, you may need to apply for some private student loans to make up the difference. So how can you get the best private student loans?

* Start with your bank. The first place to start is with the bank you have your checking or savings account with. Since you have an established relationship with the bank, you’re more apt to receive more favorable interest rates, repayment terms and conditions than approaching a bank that you don’t have a history working with. If you don’t have an account yet, approach the bank where your parents have their accounts. If necessary, your parents can be a co-borrower to help you get approved for the loan.
* Private loans. If you have a family member or friend of the family that may be able to loan you the difference, this is a logical and cost effective way to pay for the costs that federal aid doesn’t cover. Since it is a private agreement between you and someone you know, you can negotiate the interest rate and repayment terms and conditions. Be sure to make it official and put everything in writing and create a promissory note that spells out the repayment terms.
* Shop and compare. Just as you would with any major purchase, be sure to collect information for and compare at least three student loan options from banks, credit unions and other student loan lenders. Be sure to compare interest rates, repayment terms, the term of the loan and other options such as deferment and loan forgiveness. Since you’re not sure what your employment and income situation will be after graduation, it’s important to know what all of your options are before deciding on the one that is most beneficial to you.

Going off to college is a very exciting time, but don’t let figuring out how to pay for it get you down. Turn to the U.S. Department of Education’s FAFSA program first to see what grants, work study and federal student loans you’re eligible to receive, which provide more favorable terms and conditions than private loans. Then turn to private student loans to make up any difference in costs. Starting with FAFSA is the most direct route to the best student loans.

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