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How to Get Loans for College

Update June 2014: President Obama has issued an executive order expanding eligibility for the government’s income-based replacement plan.

College costs. No matter what type of program you're interested in, figuring out how to pay for college is one of the biggest parts of the process, and there are nearly as many potential financial aid options as there are schools. For students who can't afford college on their own, there are three main possibilities: online college scholarships, grants and loans.

Our Ultimate Guide to Online College Loans can help students identify different ways they might fund their education. Borrowing money might not be ideal, but it is one of the most common ways to pay for school. Scholarships and grants typically have limited funds to offer, and most students can't bank on getting them. However, they can typically count on getting some sort of loan.

In this guide, we'll cover some of the most important topics when it comes to borrowing for college. Click on the links in the list below to go to each of the topic sections. They include:

To find out about other forms of financial aid, check out our Ultimate Guides to Scholarships and Grants.

Federal Loans

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The U.S. government offers two types of loans:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans

With both options, the Department of Education is the lender. These two loans are pretty similar — the primary difference between the subsidized and unsubsidized loans is how they accrue interest. Direct Subsidized Loans are offered to students who demonstrate financial need, and the school they're attending determines how much they can borrow. The government pays the interest while you're in school and for six months after you leave, meaning you don't have to worry about these loans until after you're done studying. (A third loan option, the Federal Perkins Loan Program, is no longer available. Congress did not reauthorize its funding, so it expired October 2015.)

Direct Unsubsidized Loans are available to undergraduate and graduate students regardless of financial need. Your school still determines the amount that can be borrowed, but the government doesn't help with paying the interest in this case. While you're enrolled in school, the unsubsidized loans accrue interest, which you can either pay as it accumulates or let it be added to the total amount of the loan after you leave school.

Regardless of which kind of loan you might qualify for, all students who want federal financial aid apply for it in the same way: with the FAFSA. The  Application for Federal Student Aid helps determine what portion of the financial responsibility for college the government thinks you or your family can bear. It's a relatively quick application, and it's not only used for federal aid. Even if you don't want one of these three types of loans or don't qualify for federal grants, it's important to fill out the form because it can determine whether you're eligible for aid from specific colleges or states, and even from some private lenders.

Federal loans are a relatively common source of financial aid for students at traditional colleges, but they can be used for some online colleges and distance-learning programs. The Department of Education warns that not every online or distance-learning option is eligible for federal aid — or is even accredited — and in addition to checking out the quality of the schools that interest you, you need to contact individual financial aid departments to find out if you can use federal loans to pay.

State Loans

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In addition to federal loans, financial aid from individual states can also be helpful to online college students. Every state has its own higher education agency, and nearly all of them have grants or scholarships available to students, but some also offer loan options.

An important thing to note about loans from individual states is that, while you still have to fill out the FAFSA, states have their own deadline for receiving the application, which might be different from the federal deadline of July 30. The Department of Education's Federal Student Aid office has a database that lists many of the deadlines, but you may have to contact your state's higher education agency or check with a college's financial aid office, if the date isn't listed there.

Missing the deadline doesn't necessarily mean you'll be disqualified from receiving any loans, but it does mean you won't get priority consideration for aid. And remember: Some federal and state aid programs have a limited amount of funding, and once it's gone, it's gone.

The National Association of Student Financial Aid Administrators (NASFAA) can help you check out loan resources in your state, but before banking on anything, remember to verify that these loans can be applied to online colleges. Also keep in mind that, while states typically offer grants and scholarships, not all offer loans beyond those available through the Department of Education. On the plus side, some of those who do offer loans have the forgivable kind — if you commit to working in certain fields. Here are examples of some of the state loan options, forgivable and otherwise:

Alabama

The Alabama Board of Nursing offers loans to registered nurses who have been admitted to graduate nursing programs and who agree to teach full-time or work as a nurse in Alabama for two years after graduation.

Alaska

The Alaska Supplemental Education Loan (ASEL) offers graduate, undergraduate and vocational loans to Alaska residents or students enrolled at eligible schools in the state. These are similar to private loans, with a fixed interest rate and a good credit score — or a co-signer — required. Alaska also has a number of career-specific loans, which aim to address the shortage of qualified professionals in some important industries in the state. These loans include:

  • Teacher Education Loan
  • Winn Brindle Loan, for students in a fisheries-related field
  • WWAMI Biomedical Program Loan
  • Professional Student Exchange Loan, which covers professional programs not offered at Alaska schools, such as physical therapy and dentistry.

Arizona

There are a few different options for forgivable loans for students who meet certain financial or academic criteria.

  • The Math, Science and Special Education (MSSE) Loan is a need-based, forgivable loan of up to $7,000 per year, for three years. If you qualify, you must commit to teaching in an Arizona public school for a certain amount of time; otherwise, you have to pay the loan back, with interest.
  • The Postsecondary Education Grant (PEG) is another forgivable loan, but it's not need-based. If you don't graduate within five years or don't maintain certain academic standards, the loan won't be forgiven. However, the program has been placed on suspension for the moment.
  • The Arizona Private Postsecondary Educational is a need-based grant for students who are transferring from community college into a private school in Arizona; you must meet certain academic standards and graduate in three years for the loan to be forgiven.

Arkansas

The Nursing Student Loan Program - Nursing Educator Loan offers forgivable loans to students who are training to be nurse educators and who meet certain financial need standards.

Connecticut

The Connecticut Higher Educational Supplemental Loan Authority serves as an alternative source for financial aid for students who don't qualify for need-based loans but want to avoid private loans, or who need to borrow more than the maximum amounts other loan programs can provide.

Georgia

In addition to its Student Access Loan, which has a low interest rate and incentives for finishing school on time, there is a loan forgiveness option through the Scholarship for Engineering Education, if students meet certain conditions.

Maine

Students here can potentially get loans from the state to pursue certain courses of study, and they are typically for borrowers who want to work as health care providers in underserved areas of the state. These loans include:

  • The Maine Dental Education Loan Program is a forgivable loan that aims to help students pursuing an advanced dental degree, if they work as a dentist in an eligible facility in an underserved area.
  • The Maine Veterinary Medicine Loan Program is a need-based award established to help students in doctoral programs who want to practice livestock veterinary medicine in areas of the state without sufficient services
  • The Maine Health Professions Loan Program offers low-interest, need-based loans for students who are pursuing advanced degrees in allopathic, osteopathic or veterinary medicine, as well as dentistry.

Massachusetts

The Massachusetts No Interest Loan is a need-based program that helps eligible students pursuing postsecondary education; the loans have a 10-year repayment period.

Minnesota

The Minnesota SELF Loan is a low-interest, long-term loan for students who attend eligible schools, which have a contract with the state's Office of Higher Education. If you're enrolled in an online college in Minnesota, check with your school's financial aid office to find out whether you qualify.

New Jersey

The New Jersey College Loans to Assist State Students (NJCLASS) offers low-cost loans to both undergraduate and graduate students, with flexible repayment options. As a bonus, a co-signer is not required if you're applying for the graduate loans, regardless of your income.

New Mexico

The state-offered loans here are primarily loans for service, in which up to 100% of a loan is forgiven if you commit to working in a certain industry or a certain underserved area in the state. These loans include:

  • The Allied Health Loan for Service aims to increase the number of physician assistants in designated shortage areas of the state
  • The Medical Loan for Service aims to raise the number of doctors in designated shortage areas of the state.
  • The Nursing Loan for Service has a goal of boosting the number of nurses in designated shortage areas.
  • The Minority Doctoral Loan for Service aims to add more female and minority teachers of engineering, science, math and other academic subjects that have typically low levels of instructors in this demographic.
  • The WICHE Loan for Service, offered through the Western Interstate Commission on Higher Education, aims to help in-state students pay for graduate or professional programs at private schools or out-of-state institutions, if their course of study is not available in New Mexico

Texas

The Lone Star State has three options for student loans. The College Access Loans and Texas B-On-Time Loan are not need-based, though it's still recommended you fill out the FAFSA. The state also offers the Texas Armed Services Scholarship Program, which, contrary to its name, is not a scholarship — if you don't meet the requirements, which include academic standards and military service, you have to pay it back.

West Virginia

Med students with financial need might qualify for the state's Medical Student Loan Program, which offers up to $10,000 annually to students pursuing an advanced degree at one of three public institutions in the state.

Wisconsin

There are three options for loans offered through the state's Higher Educational Aids Board, in addition to the federal options, that might be offered to online college students:

  • The Minority Teacher Loan is for minority students who are enrolled at least half-time and pursuing a teaching degree.
  • The Nursing Student Loan is offered to qualifying students who are enrolled at least half-time at an eligible school in the state and who agree to work as nurses within Wisconsin after they graduate.
  • The Teacher of the Visually Impaired Loan can be offered to either grad students or undergraduates, and you don't have to be enrolled in a Wisconsin college to qualify — just an eligible out-of-state school. You do, however, have to commit to being a teacher for the visually impaired in Wisconsin or to work at an approved agency for a total of three years if you want the whole loan to be forgiven.

Private Loans

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If you don't qualify for federal or state loans, can't find government loans that can be used for your online college of choice or simply need more financial assistance than the FAFSA can provide, borrowing from a private lender might be the way to go.

Some of the more common options for private student loans include banks and financial services companies, such as:

  • Sallie Mae
  • Wells Fargo
  • Discover
  • Citizens Bank

Sallie Mae used to be affiliated with the government, but it began privatizing its operations in 1997 and now only offers private student loans. For undergraduates, there are different repayment options, meaning you can choose whether to make payments while you're in school or whether to defer entirely. For the Smart Option Student Loan, for instance, the options are:

  • Make no payments while in school
  • Pay as much as you want during school
  • Pay $25 a month during school
  • Pay the interest accrued while in school

The advantage of Sallie Mae and other private loans, compared with the federal loan types, is that you can borrow up to 100% of your school's certified cost of attendance. Wells Fargo and Discover both have loan programs that allow students the same borrowing privilege, though they have less variability in the repayment options.

The catch is that to apply for a private loan, unlike a federal loan, the issue is not your financial need — it's your credit rating. If you don't have a good credit score, you might need to find a co-signer. Unlike federal loans, private loans might not have fixed interest rates, so your credit score can potentially have a big effect on how much you have to pay back in the long run. There is the option for variable interest rates, however, which you might want to consider if you want a lower initial interest rate but are willing to take the risk that it might rise above the fixed amount you could get.

As with federal loans, it's crucial that you make sure that the loans you're considering can be used at your school of choice. This goes beyond just making sure that a school is accredited — some private lenders will only lend to students attending approved schools, and that list might not include every online college option, regardless of its accreditation status.

When you're ready to compare student loan options, the ELM Select Tool might come in handy. ELM Resources is a not-for-profit corporation that serves the student loan industry, and its comparison tool is a non-proprietary, open data exchange that is meant to connect students to private lenders. It's not an application or a binding agreement, and the tool can also check whether certain schools are among those eligible for loans. Private lenders, including Discover, also have loan calculators to help would-be borrowers figure out how much they might need for school and, later, how much they will pay back, depending on interest rates and the length of repayment. If you're a prospective online college student, this type of resource can be a great place to start the loan process.

Payback Time

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Whether you borrow from the federal government, an individual state or a private lender — or all of the above — there are likely to be different options for how to repay those loans. A few loans, like some of the grants mentioned above, might not have to be paid back at all, if you meet certain criteria.

Most loans, however, do need to be repaid, and the system for doing so depends on where you got the money in the first place.

Despite what you might think, federal loans are actually paid back to a loan servicer — not the government. The loan servicer will depend on the type of loan disbursed and the school you attended, but it's easy to find out who the servicer is via the National Student Loan Data System on the Department of Education website.

Here are a few more important things to know about federal student loans:

  • You get a grace period to start your payments — but it might start before you graduate. If you're not attending school at least half-time, the grace period can start prior to finishing your degree. Otherwise, you're given a set period of time — it varies from loan to loan, but is often six months — before you have to start paying back the loans, though keep in mind that interest does accrue during this break.
  • There are a lot of options for repayment plans. It might depend on a student's loan type, but Direct Loans and Federal Family Education Loans between them have about seven different repayment plan options. The Department of Education offers fixed or graduated repayment plans, as well as options that are calculated based on income. It can take 10 to 25 years to pay off loans on some of these plans, and the longer you take to pay back a loan, the more you'll end up paying in interest. However, the flexibility in plan offerings can be helpful for students who need to find a happy medium between paying back their loans and not going broke doing it.
  • You can consolidate your loans, but you don't have to. "Consolidation" is something a buzz word when it comes to loans, and for some students, it can be a way to simplify the repayment process. All federal loans can be consolidated into a single Direct Consolidation Loan, and that's free to do. It combines all the loans into one monthly payment with an interest rate that's fixed for the life of the loan. For some students, it's a great way to manage the debt and make things easier. For others, not so much. Consolidating loans can end up adding a lot of interest over the course of repayment, depending on what type of plan you choose.

Be aware of what different grace periods and repayment plans are available, but if you're still confused, remember that there are a lot of resources out there to help you figure out the best repayment options for your own loan and income. FinAid.org and other websites offer calculators to figure out whether standard or extended repayment plans are the better fit, as well as how much interest you'll end up paying over the repayment period.

When it comes to paying back private loans, it all depends on who the lender is. Different banks and financial organizations have different repayment options for their borrowers, and if possible, find out what lenders' repayment options might fit best before you sign on the dotted line.

Sallie Mae has three repayment options with its undergrad and graduate student loans, though not all loans have all three options available to borrowers. The repayment plans include:

  • Deferred repayment — this has the most flexibility, as you can pay as much or as little as they want during school.
  • Fixed repayment option — you pay $25 per month while in school, and compared to the deferred plan, you can save an average of 10 percent on the total loan cost.
  • Interest repayment option — you pay the interest on the loan(s) while in school and can save an average of more than 20 percent on the total loan cost.

Sallie Mae also rewards borrowers with lower interest rates or percentages of their monthly payments if they pay on time, but as always, it depends on the type of loan you get.

Like many other private lenders, both Discover and Wells Fargo offer fixed or variable interest rates and allow students to defer payments while they're in school, if they choose to. They also offer discounts — usually in the form of a slightly lower interest rate — for paying on time or paying with an automatic debit. (An added bonus of that? No late payments.) Wells Fargo also offers a consolidation option with a 20-year repayment plan. This option doesn't cover federal loans, but private loans from other lenders can most likely be consolidated.

On both its undergraduate and graduate loans, Citizens Bank offers a similar set of options to Sallie Mae, with three possibilities for when students begin repaying the loan. They include:

  • Immediate repayments, which start while you are still in school
  • Interest-only repayment, for which you only pay the accrued interest while in school
  • Deferred repayment, which allows you to avoid making any payments on the loan while in school

Financial hardships such as getting laid off or having unexpected medical expenses can easily affect your ability to pay, but lenders know this, and these temporary roadblocks are no reason to fall behind on your payments. In many cases, lenders will work with you to see if there's a way to make the student loan repayment plan work with your budget.

If you're having trouble paying your loans back after graduation, private and federal lenders often offer some flexibility in repayment, though you might have to demonstrate financial hardship to get it. This change in the repayment plan is called a forbearance, and it can often include reduced payments or a temporary break in repayment, depending on the circumstances and the loan.

Loan forgiveness might also be an option, depending on the type of loan and your path after college. Some loans, like those individual state loans listed above, are essentially designed as grants, with a student committing to a certain type of job for a few years after college in order to get the money. If you meet those obligations, the loan is forgiven.

However, even if you don't get one of these grant-style loans, it's still possible to find student loan forgiveness plans. For instance, the Public Service Loan Forgiveness Program run by the federal government will forgive the balance of some federal loans after students have made 120 payments (which usually takes 10 years, with a monthly repayment schedule), if they commit to a public service career.

This could include working for a government organization, a nonprofit or a private organization that provides a public service, like law enforcement or public education. In addition to the details on the Department of Education website, FinAid.org also offers a list of examples of industries that can lead to loan forgiveness. Checking with your school's financial aid office can also be a helpful step, as they might be able to help find out whether a loan forgiveness program is an option for you.

There are also national loan forgiveness programs designed around specific industries, aside from what the government provides. For instance, the John R. Justice Student Loan Repayment Program, run by Equal Justice Works, offers loan forgiveness for students who commit to working as public defenders or prosecutors for at least three years after graduation. This program is funded by the federal government, even though you typically apply through the state in which you're working, so the amount of money available varies. Another hitch — not every student who applies will be awarded money.

If you've borrowed from Sallie Mae, there are programs that extend loan benefits to the military, but these aren't loan forgiveness options. Instead, they allow you to defer repayment for an extended period of time while you're serving, and in the case of the Military Private Loan Postponement option, interest isn't capitalized at the end of that delay.

However, when making a list of the pros and cons of federal versus private loans, remember that, in general, most private loans aren't eligible for forgiveness. Wells Fargo, for instance, only offers loan forgiveness to a co-signer in the event that the borrower dies. If you're not intending to enter a career that offers loan forgiveness as an option, this might not matter. But for online college students who are considering public service careers anyway, looking for loans from the federal government or their state of residence can be a helpful way to make school more affordable.

What Happens If You Default?

No one likes to ask this question, but it does happen. Missing one payment or being a little late makes your account delinquent, at least temporarily, but that isn't the same as defaulting. For federal loans, default occurs when monthly payments aren't made for a period of 270 days, or when students with FFEL Program loans don't pay for 330 days.

Defaulting on a student loan damages your credit rating, and it could make it hard to do simple things like sign up for utilities. Collections agencies might also garnish your wages. It can be possible to get out of default on federal student loans, however. Loan rehabilitation requires you and the Department of Education to agree on a reasonable payment plan, and a loan can be officially rehabilitated after you've made these payments on time. However, in addition to the credit rating damage, you might still be billed for the collection costs as well, so defaulting on your student loan can cost a lot more than the original loan would have.

The definition of "default" can vary among private loans, but it will be spelled out in the loan agreement that you initially sign to receive your money — so don't forget to read that carefully. In some situations, garnishing wages and freezing bank accounts are possible responses from a collection agency if you're defaulting on a private loan. Borrowers do have rights, and the Consumer Financial Protection Bureau has information on its website about what these rights are, as well as the obligations that come with a student loan, for those who didn't read the fine print.

The bottom line is, if you are having any trouble at all making payments on your student loans, you should contact the lender immediately. Financial hardship or a rough economy doesn't necessarily mean you will have to end up defaulting on your student loans, if you stay on top of your repayment plan and handle your loan wisely.


Federal Sources:

1. "FAFSA: Apply for Aid, Federal Student Aid," U.S. Department of Education, https://studentaid.ed.gov/fafsa
2. "Public Service Loan Forgiveness Program," Federal Student Aid, U.S. Department of Education, https://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness.pdf
3. "Repay Your Loans," Federal Student Aid, U.S. Department of Education, https://studentaid.ed.gov/repay-loans
4. "Things to Consider: Distance Learning or Online Degrees," Federal Student Aid, U.S. Department of Education, http://studentaid.ed.gov/prepare-for-college/choosing-schools/consider#distance-learning
5. "Types of Aid: Loans," Federal Student Aid, U.S. Department of Education, https://studentaid.ed.gov/types/loans
6. "National Student Loan Data System," U.S. Department of Education, https://www.nslds.ed.gov/nslds_SA/
7. "What does it mean to 'default' on my private student loans?", Consumer Financial Protection Bureau, http://www.consumerfinance.gov/askcfpb/665/what-does-it-mean-default-my-private-student-loans.html

State Sources:

1. Student & Parent Information, Alaska Commission on Postsecondary Education, http://acpe.alaska.gov/STUDENT-PARENT
2. "Arizona Student Financial Aid Programs," Arizona Commission for Postsecondary Education, http://www.azgrants.gov/AZGrants2009/index.html
3. "Financial Aid Division," Arkansas Department of Higher Education, http://www.adhe.edu/divisions/financialaid/Pages/fa_nursing.aspx
4. "Types of Financial Aid: Loans," College for All Texans, http://www.collegeforalltexans.com/apps/financialaid/tofa.cfm?Kind=L
5. "Medical Student Loan Program," College Foundation of West Virginia, https://secure.cfwv.com/Financial_Aid_Planning/Financial_Aid_101/Loans/Medical_Student_Loan_Program.aspx
6. "CHESLA Loan Basics," Connecticut Higher Education Supplemental Loan Authority, http://www.chesla.org/CHESLA_Loan_Basics/CHESLA_Loans/
7. "Scholarship for Engineering Education," GAcollege411, https://secure.gacollege411.org/Financial_Aid_Planning/Financial_Aid_101/Service_Cancelable_Loans/Scholarship_for_Engineering_Education.aspx
8. "New Jersey College Loans to Assist State Students," Higher Education Student Assistance Authority, http://www.hesaa.org/Pages/NJCLASSHome.aspx
9. "Maine Financial Aid," Finance Authority of Maine, http://www.famemaine.com/files/Pages/education/students_and_families/Maine_Financial_Aid.aspx
10. "Massachusetts No-Interest Loan," Massachusetts Department of Higher Education Office of Student Financial Assistance, http://www.osfa.mass.edu/default.asp?page=nil
11. "SELF Loans," Minnesota Office of Higher Education, http://www.ohe.state.mn.us/mPg.cfm?pageID=170
12. "State Financial Aid Programs," National Association of Student Financial Aid Administration, http://www.nasfaa.org/students/State_Financial_Aid_Programs.aspx
13. "Index of Loans, Grants, Scholarships and Work Study," New Mexico Higher Education Department, http://www.hed.state.nm.us/students/fa_quicklist.aspx
14. "Financial Aid Programs," State of Wisconsin Higher Educational Aids Board, http://heab.state.wi.us/programs.html
15. "Organizations by Type: State Higher Education Agency," U.S. Department of Education, http://wdcrobcolp01.ed.gov/Programs/EROD/org_list.cfm?category_ID=SHE

Other Sources:

1. "Student Loan Calculators," Discover Student Loans, https://www.discover.com/student-loans/calculators.html
2. "Undergraduate Loans," Discover Student Loans, https://www.discover.com/student-loans/undergraduate-student-loans.html
3. "School Search," ELMSelect 2.0, http://www.elmselect.com/Home/Index 4. "Loan Calculators," FinAid: The SmartStudent Guide to Financial Aid, http://www.finaid.org/calculators/loanpayments.phtml
5. "Loan Forgiveness," FinAid: The SmartStudent Guide to Financial Aid, http://www.finaid.org/loans/forgiveness.phtml
6. "Undergraduate Smart Option Student Loan," Sallie Mae, https://www.salliemae.com/student-loans/smart-option-student-loan/
7. "Private Student Loan Repayment," Wells Fargo, https://www.wellsfargo.com/student/repay/
8. "Student Loans for College," Wells Fargo, https://www.wellsfargo.com/student