What You Need to Know About Student Loans

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Posted on February 1, 2020 Last Updated: May 18, 2021

February is Financial Aid Awareness Month

If you or a loved one are getting ready for the 2020-2021 college year, now is a great time to educate yourself on financial aid for higher education and how it works. Colleges are preparing to send award letters, and families are anxiously awaiting the arrival to see the financial impact. Many students and parents go into this process without a working knowledge. This can lead to mistakes, such as higher loan balances and interest rates, missed scholarship and grant opportunities, or a short-fall in funding to get through the school year. Learn more about the financial aid process and steps to take to ensure you are ready for this upcoming school year. And take note, families must complete the FAFSA each year to be eligible to receive federal aid.

Getting to know FAFSA

FAFSA (Free Application for Federal Student Aid) is an important step to preparing to fund college expenses. As its name implies, FAFSA is a free service offered by the U.S. Department of Education. It collects information about the student to determine if the student qualifies for financial aid, grants and various types of loans. Unless your student is completely self-funded, everyone who needs a form of federal aid must complete an online FAFSA to be eligible. For students living in Ohio, The StudentAid.gov website accepts applications starting October first each year. The deadline to submit a FAFSA for the upcoming 2020-2021 school year is October 1, 2021.

To get started, you will need the student FSA ID, Social Security, Date of Birth, etc., as well as tax and financial records from the year before last (for example, in 2020 families would use records from 2018). In most cases, the same information is required from at least one parent. A separate FSA ID is required for the parent as well. The process takes about 30-45 minutes to complete. After providing the required information, the FAFSA application is processed to determine the level of federal aid you may be eligible to receive.

How the FAFSA is used

Information from the FAFSA is used to determine how much federal financial aid your student is qualified to receive. This can take the form of need-based financial aid, grants, eligibility for federal work study programs as well as types of loans. Upon conclusion, students will be presented with a summary of options available.

The loan types available, which are backed by the federal government, are divided into two categories – subsidized and unsubsidized loans. A subsidized loan provides deferred interest and payments while the student is in college. Repayment begins six months after they complete their degree. An unsubsidized loan provides deferred payments, but interest begins accruing as soon as the loan is distributed. Federal loans typically offer lower interest rates that private loans, so even with interest accrual, an unsubsidized loan may save money over the long run.

The FAFSA data is also used to determine eligibility for any federal grants available to your student, such as Federal Pell Grants, which are awarded to undergraduate students based on financial need as determined by the information in the FAFSA. In most cases, Federal grants do not require repayment; however, in some cases, grants are issued with some strings attached. For example, a teacher could receive a grant with an agreement to work in an under-served school district for 5 years after graduation. It is important to read the fine print of any grant money before accepting.

Lastly, as mentioned, upon completion the FAFSA is distributed to the colleges and universities that you or your student have selected as potential schools. The information in the application is used by the school to put together the best “offer” to attract your student to their school. This summary will include the total cost of tuition, room and board, and books and resources and a summary that details how the cost will be paid – federal financial aid, any awards, grants or scholarships provided by the school, and any aid in exchange for work studies or campus employment. This is also known as the financial aid award package, which should be hitting mailboxes soon for the 2020/2021 academic year.

Will Financial Aid Be Enough?

In many cases, the financial aid award package will not be enough to cover the full year of tuition creating a gap. There are a few options for parents to consider – Federal PLUS Loans or Private Student Loans. A Direct PLUS loan, commonly referred to as a Parent PLUS Loan (Parent Loan for Undergraduate Student) Federal PLUS Loan is an unsubsidized loan that parents can use to fill the gap. Similar to the federal student loan, payments are deferred, but interest begins accruing as soon as funds are issued to the school. A Private Student Loan is another option for parents to borrow from a credit union or bank to fund the tuition gap. Private loans can be used for tuition, room and board, books, and other related college expenses. Repayment and interest accrual may begin shortly after funds are distributed on any unsubsidized federal loans.

Finding Scholarships for College

Another great source of money for college is scholarships. These are grants and awards set up by companies and organizations to help students with the high cost of tuition. Just like most grants, scholarships are a gift that do not require repayment. They are awarded to students based on a number of criteria – their chosen field, involvement in community outreach, financial need, academic or athletic merit.

The key to finding the right scholarship applications is research. For example, if your student is considering engineering, your school guidance counselor can provide a list of scholarships that are designed specifically for engineering students. Local businesses and organizations also offer scholarships for students in their area. For example, KEMBA Financial Credit Union offers an annual video scholarship contest for graduating seniors or current college students, who are KEMBA members. This year’s scholarship details will be announced on kemba.org in March. KEMBA, in particular, introduced this annual scholarship as the college financing space became increasingly difficult, and its members were experiencing financial challenges associated with the rising cost of college tuition. To get started with your research, visit scholarship.com for opportunities and resources.

Making Financial Aid Add Up

The process can be exhausting but rewarding for you and your student as you start this journey. The keys to securing funds for college are filling out a FAFSA after October first, communicating with the schools that you have selected, applying for scholarships and grants, and understanding any financial gaps that result from the financial aid awards. It’s important to exhaust all options available to you from scholarships to grants and financial aid prior to utilizing private student loans.

Plus, encourage your student to ask for help. If the basic financial aid, scholarships and loans aren’t cutting it, connect with the university’s financial aid office for additional support.

There are many resources available to college families. Likewise, KEMBA understands that the college financing process can be intimidating, and their student loan team is available to help you navigate the options, evaluate your unique needs and assist your family in making the best decision. If you have questions about student loans and your options, KEMBA’s experts can help. You can stop into one of our Central Ohio branches, visit kemba.org for additional information or to connect with a college access counselor, or call 800.282.6420, option 4.

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