First 4 Things You Should Know Before Taking out a Student Loan (Pt. 1)

It's a very exciting time in my life. I'm about to start paying off my student loans.... yay. Student loans are a beast to figure out, and an even worse beast to pay off. There are so many types of loans and several options of repayment. So I talked to a Student Loan Officer, Patricia Poplicean, from Michigan First's Student Loan Program and asked some questions that several students have, regarding taking out loans (before and during college) and repaying loans (after graduating). These posts will be split up throughout the week! 

1. How do you take out a student loan? What necessary steps do I take to fill out the application?

Federal Student Loans:

Federal Direct Subsidized and Unsubsidized Loans

  • Follow your schools process – you may need to accept or decline awards
  • To apply – log into studentloans.gov using your FSA ID
  • First time borrowers – must complete an entrance counseling exam
  • Complete the master promissory note (MPN)

Federal Perkins Loan

  • Apply through your schools Financial Aid Office (FAO)

Federal Direct PLUS – Parents and Graduate Students

  • Follow the schools process – parents may need to complete a direct PLUS loan request
  • To apply – log into studentloans.gov using your FSA ID
  • Complete the master promissory note (MPN)

Private Student Loans

**Always recommended to exhaust federal student loans first*

1. Choose your lender

  • Does your school have a private/alternative lender list?
  • Does your credit union offer a private/alternative loan option?

2. To apply – complete lender’s application 

2. What’s the difference between a federal and a private loan? Is one better?

Private student loans are not funded or subsidized by the federal government; instead, they are funded by banks, credit unions, or other types of lenders. The bank or lender – not the federal government – sets interest rates, loan limits, terms, and conditions of private student loans. Private student loans are any student loans that are not federal student loans. While private student loans are all structured differently, they are generally different from federal student loans in several ways and may include:

  • Variable interest rates
  • Fewer options to reduce or postpone payment
  • Do not offer some of the borrower protections or benefits featured by federal student loans
  • Less flexible repayment options

3. Do I need a cosigner for either type of loan? 

  • Federal Direct Subsidized and Unsubsidized – No cosigner (Students responsibility to pay)
  • Federal Direct PLUS for Graduate and Professional Students – No cosigner (Students responsibility to pay)
  • Federal Direct PLUS for Parents – this loan is in the parent’s name and if they do not qualify for the loan alone, they may add an endorser. (Parents responsibility to pay)
  • Federal Perkins – No cosigner (Students responsibility to pay)
  • Private Student Loans – depends on the lender. Some lenders require a student borrower to have a cosigner. Some lenders do not require a student borrower to have a cosigner but the student borrower must qualify for the loan on their own. Student applying alone must meet lender’s credit requirements. (established positive credit history and income requirements) The credit requirements may vary between each lender. (Students responsibility to pay – if they have a cosigner, it would be the cosigner’s responsibility if the student does not pay)

4. Who pays off the loans? The student? Parent? Both?

Good question. Who is responsible to pay the loan? See question #3

Student loans can be pretty tricky. But hopefully this breakdown makes it a little simpler to understand. Tomorrow, I'll be posting about interest rates (fixed versus variable, good versus bad rates, and how that number is determined). 

Stay informed! Student loans are serious because they really do affect your life, finances, and credit. Make sure you know your options and are doing what's right for you. 

Be Easy, 

Erin