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Student Loans Explained
By Laura Jeanne Hammond

If you don’t get enough scholarships, grants, and money from the Tooth Fairy to pay your way through school, consider getting a student loan. There are two types of loans: federal and private. Federal loan money comes from the government; private loan
money comes from banks.

You’re eligible for a federal student loan as long as you’re:

* A U.S. citizen,
* Attending an accredited school,
* Enrolled in at least six credit hours, and
* Haven’t defaulted on a student loan before.

You don’t have to make a certain amount of money or prove that you’re needy to get a federal loan, though your financial need can determine if you get a subsidized or unsubsidized loan.

How to apply
“File your Free Application for Federal Student Aid, then contact your school’s financial aid office for specific processing steps to apply” to apply for a federal loan, says Leigh M. Fiorenzo,
assistant vice president of Educational Lending for M&T Bank (

After you send in the FAFSA (,) you’ll receive a Student Aid Report (SAR) to confirm your info. Then expect to hear from your college regarding your financial aid award.
You don’t have to accept all—or any—of the loans that you’re awarded. Just make sure you follow your school’s directions for declining. Before your award is disbursed, you’ll have to sign a Master Promissory Note, which shows you understand how you’ll pay the loan back.

How to pay it back
Once you graduate or drop below half-time enrollment (six credit hours), you’ll begin repayment within six months.

“For the subsidized loan, the interest is paid for by the government until the student goes into repayment,” says Fiorenzo. “For the unsubsidized loan, the interest begins to accrue immediately, but the student can defer the interest payment until they actually go into repayment. It is recommended that the student pay the interest while in school if they are able.”

“Unlike federal student loans, our private loans are credit-based, so you don’t have to demonstrate financial need to get one,” says Sharon Slade, director of client services for the Loan to Learn Corporation (, part of EduCap Inc.

How to apply
To apply for a private loan, you’ll have to fill out an application from the bank or loan company you plan to use. Before you do that, ask your parents if they’ll be co-borrowers.

“You can maximize your chances of being approved, obtaining a larger loan and getting more beneficial loan terms by applying with creditworthy co-borrowers—typically, one or both of your parents,” Slade says. “At least one of you must be a U.S. citizen or permanent resident, have a good credit history and a verifiable annual income of at least $15,000.”

How to pay it back
You may have decades to repay your student loans. But just because you have that much time doesn’t mean you should take it. You can save a lot in interest charges if you pay it back sooner.
“Many people are surprised to learn how much control student loan borrowers have over their own repayment terms,” Slade says. That control can mean adjusting your monthly payment dates, arranging for automatic payments and qualifying for discounts.

No matter what kind of student loan you have, if you’re finding it difficult to pay it back, contact your lender to ask what can be done. Keep paying your student loans until you work out another arrangement with your lender!

Q: I think my college has a “preferred lender.” What does that mean?
A: “Schools often have a preferred lender list, which means they prefer that you work with one of the selected lender partners,” Fiorenzo says. “The preferred lenders are picked for a variety of reasons, including but not limited to customer service, bank reputation, borrower benefits, etc.”
You don’t have to use your school’s preferred lender; consider it the equivalent of just a “seal of approval.”

This article is provided by The Next Step Magazine (, a publication that helps students prepare for life after high school.