Understanding the Student Loan Process

Many families need to take loans to cover the cost of college. The borrowing process has changed slightly since most parents went to college. In 2010, the federal loan program was reorganized so that all federal student loans are now issued directly by the federal government to the school on the student or parent’s behalf.

The process begins by filing the Free Application for Federal Student Aid (FAFSA) at http://www.fafsa.gov. It normally comes out in October but that will change for the 2024-25 school year. The federal government has made modifications to the FAFSA, to simplify it, but it will not be released until December.

Students can only borrow so much each year from the federal government. The chart below from studentaid.gov shows the federal loan limits for students.

A subsidized loan means the government subsidizes the interest while you are in school, so in essence, it does not earn any interest until repayment begins. Unsubsidized loans accrue interest once the loan is fully dispersed. So it will accrue interest each year you are in school until paid off.

Students typically need to indicate on their financial paperwork or portal they want their loans then go through the process to accept the loans, sign loan agreements, and indicate how they want any refund handled (if you borrow more than tuition for example to cover rent, do you want a check mailed to you or your parents, a direct deposit, etc).

Each loan you take is technically a separate loan. Most students will consolidate at graduation to have one loan payment.

$5500 for the first year will not likely cover much of the tuition. Therefore many parents also need to borrow. The parents can take a Parent Plus Loan for the total cost of attendance at a school each year if they are credit-worthy (no bankruptcies or delinquent loans). If a parent doesn’t qualify, a student gets a small increase in their loan. Parent Plus loans also go through the federal government and can be applied for through the student aid website.

Parents and students can also apply for private loans. Many colleges partner with a loan provider that gives preferred rates to that school. Other options are Invested.org (Indiana only), Discover Loans, or your own bank or credit union.

If you are planning to take loans, start the process in May or June so you are not scrambling if you are not approved right as your child needs to start college. Most colleges do allow a payment plan and will send info around summer orientation. Look for that info so you can structure your tuition payments in the best way that meets your family’s needs.

Remember loan repayment starts six months after you leave college whether you graduate or not. So borrow wisely!

Published by Kate Coffman

Kate has worked in admissions, financial aid, college and career readiness for over twenty years. She most recently served as the Vice President and Dean of Admissions and Financial Aid at Franklin College. Kate has also worked in admissions at Butler University and Indiana University. Kate has presented at numerous schools and conferences helping families, educators and those who work with youth understand how to be college and career ready, how to apply to college and how to afford their education.

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