In Part 1 of this series, we talked about the costs of PA school, and in Part 2 we covered grants and scholarships. Today, in the final installment, we cover student loans. Short of borrowing a stack of Benjamins from your “friend” Sal who works in “sanitation management,” or the concrete business, this means taking out a student loan.
Student loans are different from other loans for two reasons:
- The interest (the cost of borrowing the money) is lower than other loans.
- In most cases, you do not need to make payments until you graduate.
These two facts make them among the easier loans to repay. They’re this way because you as a student are a pretty safe investment – they know that when you get out you’ll probably get a job, and you’ll be more able to repay the money than the typical person who borrows from your “friend” Sal. Which loan you get will depend on your level of financial need (how poor you are), and other factors, like the financial status of your parents, your own income, and your dependency status. All of this will be determined when you complete a FAFSA.
The FAFSA (Free Application for Federal Student Aid) is a form you will fill out before starting school that will tell you and the financial aid office which types of federal money you can borrow, and a few federal grants (free money, remember?) you may receive. The form is a bit of a pain (~130 questions that require tax information, SSNs and other personal information on your parents, etc.) but you should think of it as your friend. It’s the one-stop form to borrow money, and with it, you will be able to pay for PA school – one way or the other.
To qualify for federal student aid, you must:
- be a U.S. citizen, a U.S. national, or an eligible non-citizen;
- have a valid Social Security number;
- have a high school diploma or GED or for adult students, pass an Ability-to-Benefit test;
- be registered with the U.S. Selective Service (male students age 18–25);
- complete a FAFSA promising to use any federal aid for education purposes;
- not owe refunds on any federal student grants;
- not be in default on any student loans; and
- not have been found guilty of the sale or possession of illegal drugs while federal aid was being received.
Some important points about the FAFSA:
- FAFSAs are completed electronically at www.fafsa.ed.gov.
- File your FAFSA early, to maximize the money you can receive.
- You must fill out a new FAFSA every year that you are in school that you wish to borrow money.
- The second and later times that you fill one out, your previous FAFSA data will be stored, and you can go through a streamlined process by confirming many of your previous answers (called a renewal). My first FAFSA took about 90 minutes to complete, and my second took about 20.
- After you complete the form online, you’ll receive an email with a summary of your answers to review. This is called a Student Aid Report (SAR). The schools you designate will receive a version of this form. Schools will also receive a special numeric code, indicating which types of federal loans and grants you are eligible for.
The most common types of aid you may receive are:
- Pell Grant – A grant of up to $5,550 for students with low level of Expected Family Contribution (EFC).
- Stafford Loans – A loan with interest set at 6.8%. If subsidized*, the interest is paid by the government while the student is enrolled at least half time. If unsubsidized, the interest accumulates onto the outstanding balance.
- Perkins Loans – A loan that is like the Stafford but is lent directly by schools that are Title IV-eligible.
- Federal Work-Study Program – A program where students can get part-time work, up to a certain amount, and have 75% of their wages reimbursed by the federal government.
Most students are able to borrow enough to pay for tuition, books, and living expenses with the federal money they receive. If you have more income or savings, you can still borrow money, but they won’t get it as cheap (see below).
Subisidized Vs. Unsubsidized Loans*: if you have a higher need (according to their FAFSA responses) you will get to borrow more money that is subsidized. This means that your loan’s interest payments are paid by the government while you are in school. Consequently, when you graduate, the total you owe won’t have grown so much (as if you had an unsubsidized loan). Unsubsidized loans begin building interest as soon as you borrow the money. You don’t need to begin making payments on either type of loan until you graduate. It’s common to have some each of subsidized and unsubsidized loans – how much of each kind is determined by your FAFSA.
Whatever money you choose to borrow will become your financial obligation to repay as soon as you download and complete a promissory note. This note is a legal document that binds you to the borrowing terms. It’s easy to fill out, but it shouldn’t be taken lightly. Wondering how much you should borrow? Here’s a handy calculator that can help you decide.
If you borrow money from Uncle Sam based on your FAFSA, your loans will be deposited into your student financial aid account (at your school) each quarter or semester. It will first be applied to your tuition and fees, and any leftover money is yours for expenses, books, etc. If you choose, this money can be automatically deposited in your personal bank account. If you have a windfall at the casino or find some money in your mattress, you can call your financial aid office and ask them not to disperse as much money to you in the next cycle. This will help keep your interest from accruing for money you decide you don’t need to borrow.
Once you graduate (or drop below 1/2 time at school), the clock starts, and your grace period begins. For typical (Stafford) loans, this period is 6 months. For Perkins loans, it’s 9 months. At the end of this grace period, you will be required to make monthly payments on your loan. You’ll receive a statement each month detailing your payments and balance, and once your loan is fully paid, you in the clear.
The No-Loan Option
Don’t like the idea of borrowing money? Some people don’t. It’s tricky, but it can be done. If you are interested in how you might finance your schooling yourself, I urge you to check out this video by Dave Ramsey as an introduction to his financial management philosophy and methods. Dave Ramsey is a speaker and writer on financial matters who makes a strong case for why you should crawl over dead bodies to avoid debt. His videos and books explain in a stepwise fashion how you can get and stay out of debt – including student debt. He’s very funny, and his style is straightforward and realistic. Even if you decide to borrow money, you’ll find his approach to keeping your finances organized helpful and liberating. If you like the clip, he has plenty of materials on his own site, and in book stores.