The Basics: Understanding Federal Student Loans
College is an exciting (and sometimes hectic) time for you and your child. There are many unknowns, but one thing is certain: Paying for college can be easier with the right support—and that’s what we’re here for.
Below, we’ve outlined some basics to keep in mind as your family prepares to pay for college.
A general rule for financing college is that you should never borrow more money than is necessary; following this practice sets your child up for a more stable financial future.
Along with this basic rule, there are many other factors to think about: Which school does your child want to attend? What do they want to study? Do they know what kind of career they want, and what their expected earnings might be?
It’s a lot to think about, but if your child takes a little time now to consider their future career and the potential return on investment from their education, it can plant the seed for a successful future!
Many Ways to Pay for College
Student loans aren’t the only way to pay for college. There are a variety of resources available to help you get the money you need. Opt for the items at the top of this list first, and work your way down to put your child in the best financial situation possible upon graduation.
Many local communities, companies, states, and colleges offer a variety of scholarship opportunities that are awarded based on grades, background, and many other factors. Award amounts between scholarships can vary greatly, but they do not need to be paid back.
Like Scholarships, many grants don’t have to be paid back, although some do. Grants are often awarded based on the student’s or family’s financial situation. Taking the time to apply for grants can save you a significant amount in the long run. Several grant application forms can be found online.
The work-study program lets students work part time to help with college expenses. There are two different kinds of work study: Federal Work Study and non-Federal Work Study. Talk to your child about contacting their school’s financial aid office for details.
Encouraging your child to find a part-time job can help them pay for their college expenses, and gives them the freedom of their own income for things like clothes, movies, and entertainment.
There are two types of student loans: Federal and private. Federal student loans are funded by the U.S. Department of Education and are based on financial need. There are also certain restrictions on how much can be borrowed and what the interest rates are. Conversely, private loans are lent by non-government companies like banks, and are offered based on your credit score. They often have much higher interest rates and fewer repayment assistance options than federal loans.
To apply for a federal student loan, your child must complete the Free Application for Federal Student Aid (FAFSA®), and do so as soon as possible before each year that they will need federal student aid. Note that there are federal and state FAFSA deadlines, and colleges sometimes have individual deadlines. The FAFSA is the main determining factor the government uses to decide how much money borrowers qualify for, and the first students who apply are the first students who will receive a response.
The Different Types of Student Loans
To find out about federal student loans, visit Federal Student Loans 101. There, you can find an overview of topics like who can get federal student loans, the different types of student loans, interest rates, how to apply, and information about various loan servicers (including Nelnet).
You can also see an in-depth comparison of different federal student loans with this chart of Types of Federal Loans, including information about loan amount limits, which loans are subsidized (meaning that the government pays the interest while the student is in school at least half-time, for the first six months the student leaves school, and during periods of deferment), and whether the loan requires a credit check.
Loan repayment for your child doesn’t start until they leave school. However, they have the option of paying on their loans (including paying down interest on any unsubsidized loans) while they are in school, in grace, or in deferment. This reduces the amount of interest added to the principal balance of unsubsidized student loans (this process is called capitalization).
Please Note: If your child borrows Federal Stafford Loans, they’ll have a six-month grace period after they graduate or drop below half-time status before they must begin paying their loans back. They should take advantage of this grace period to find out who their loan servicers are, determine the best repayment plan, and explore loan consolidation, which can give them one easy-to-remember payment per month.
The Loan Servicer—Customer Service for Your Child’s Student Loans
Nelnet is a federal student loan servicer working on behalf of the U.S. Department of Education, the government agency that lends you or your child student loans.
A loan servicer acts as the customer service provider for the loans that the Department of Education lends to borrowers. While the Department of Education originates and funds federal loans, student loan servicers like Nelnet help parents and students navigate the student borrowing process for the lifetime of the loan. After your child’s six-month grace period ends, they will make payments to their servicer.
|Nelnet—Here to Help|
Nelnet is a loan servicer that provides innovative products and services throughout the educational life cycle to help students and families reach their goals. Nelnet provides customer service on your or your child’s federal student loans, so we answer questions, offer solutions if you're having trouble paying, and process payments.
Our customers are our #1 priority. Read more about Nelnet.
If you have questions about preparing and paying for college, please contact us! We’re here to help.