Can you get student loans for online college? Yes! Keep reading to learn about the different types of loans, what to look out for, how to apply, and how to repay them after you finish your education.
An appropriate college education is a crucial and expensive investment in a student’s life. Experts estimate that tuition charges by private universities and colleges reach more than $50,000 a year, and this number has been increasing alarmingly over the past few years. Although the tuition costs at public universities are generally lower, the expenditure there has been snowballing in recent years, with a steep decrease in government support.
The increasing college costs have led many parents and students to borrow large amounts to pay for their education. Estimates show that they collectively took out more than $78 billion in loans in the academic year 2021, both private and federally guaranteed.
However, despite the increasing need for student loans, applying for them is not an easy endeavor. Loans can lead to a tremendous interest rate payable years after graduation. Thus, it is crucial for students looking to attain financial assistance to understand the loans they take and the financial assistance system before applying.
This article discusses getting a student loan, its types, the application process, and more.
Let’s get started!
Article Navigation: Student Loans for Online School – Explained | Types of Student Loans | How to Apply for Student Loans | Difference Between Private and Federal College Loans | Federal Loan Interest | How Much Can You Borrow With a Federal Student Loan? | Can You Get Student Loans for Online College? | Can Federal Financial Aid Pay for Online School? | Can Private Student Loans Pay for Online School? | Final Thoughts – Get Started With a Student Loan for Online School | FAQs Guide To Student Loans
Student Loans for Online School – Explained
As the name entails, a student loan is simply a loan. You receive money from a providing body (US government, bank, etc.) and then owe that body the sum of money back, plus interest. You can look at interest as a reverse savings account, where you accrue more debt instead of earning money.
Student loan debt can negatively affect a student’s debt-to-income ratio, preventing them from leasing a car, buying a house, or even renting an apartment. It is, therefore, critical to understand the collateral before borrowing and know what you are borrowing against. Like several other kinds of loans are secured against something – for instance, borrowing against your car or mortgaging your house – you borrow student loans against your future. The loaning bodies assume that you will earn more money by getting a higher education and thus be able to pay off your student loans efficiently.
It is a massive gamble for the government and banks, so it comes with several restrictions. You should pay back your debt with interest at all costs. The regulations make it almost impossible to discharge in bankruptcy. Only an individual who dies or becomes permanently disabled can get out of paying their student loans. The rest get their wages garnished if they try skipping out on paying, irrespective of whether they can afford it.
Types of Student Loans
There are three primary types of loans that undergraduate students can consider. These include:
- Federal loans provided directly by the government
- Federal loans provided by banks or other government-guaranteed lenders
- Private or alternate loans made from private lenders or banks that do not carry a government guarantee
A college often gives out loans, typically collaborating with a financial institution. Opting for federal loans should be every student’s first choice, either made by a government-approved bank, lender, or government itself. Why? Because Congress fixes the interest on these loans at a particular rate. That is not the case in private loans; thus, students must be highly wary of lenders who try to steer them away from applying for federal student loans. All financial aid administrators at colleges and universities should also impart this valuable knowledge to students to help them avoid making impulsive decisions.
The most highly sought-after federal loan is the Stafford loan, available for students from the government or a lender, irrespective of their financial need. Students facing severe economic issues can opt for the Perkins loans, prioritizing students receiving the federal Pell grants (given to students with considerably low income). In addition, students’ parents can also attain federal loans known as the PLUS or Parental Loans for Undergraduate Students. Information on Stafford, Perkins, and PLUS and available on the Federal Education Department website. Have patience; the website may be challenging to navigate.
Students can also take funding from the William D. Ford Federal Direct Loan Program, which grants loans directly from the federal government. However, this option is only available for students who attend a college participating in the direct loan program. Students who attend institutions not participating in this program should look into other opportunities until they find the most suitable one.
How to Apply for Student Loans
Except for the students who hail from prosperous families, most students in the United States of America take loans to pay for their college education. Since working through college is not enough to pay off the high tuition fees and other costs, an increasing shift to student loans is underway. However, there are certain aspects that students need to keep in mind before applying, which we will discuss below.
Federal student loans come in two primary types: subsidized and unsubsidized. Applying for federal college loans requires parents and students to fill out the Free Application for Federal Student Aid, commonly known as FAFSA.
Let us look at the steps you need to follow if you wish to apply for a student loan:
Step 1: Fill Out the FAFSA Form
Filling out the Free Application for Federal Student Aid (FAFSA) is the first step in applying for student loans. The form includes a series of questions regarding a student’s and their parents’ investments, income, and whether the family will enroll more than one child in higher education simultaneously. The Expected Family Contribution (EFC) determined by the FAFSA is based on students’ data. The EFC is the sum of money the government believes you and your family should be able to pitch in for a college education.
Students can fill out FAFSA online at the US Department of Education’s Office of Federal Student Aid website. Gathering all your relevant information before filling out the form is advisable. Keep a note of it as you should fill out the FAFSA the first time you apply for aid and every year after that for its continuation.
Step 2: Compare the Financial Aid Offers You Get
The financial aid offices at the universities and colleges that a student applies to use their FAFSA information to calculate the amount of aid they can offer. These calculations determine a student’s need by subtracting their EFC from their COA or cost of attendance. You may also see the cost of attendance referred to as the Student Aid Index. It typically includes the tuition fee, room, board, mandatory fees, and other compulsory expenditures. You can conveniently find information regarding COA on the websites of most colleges and universities.
Colleges usually put together an aid package to bridge the gap between a student’s COA and EFC. The package may include paid work-study and federal Pell Grants and loans. Grants are primarily for students with “exceptional financial need.” The main difference between loans and grants is that grants do not need to be necessarily paid back, except in rare circumstances. Therefore, it is crucial to compare the sum of money each institute offers a student.
Step 3: Look Into Private Student Loans
Private student loans are suitable for students who do not qualify for federal student loans or need more money than the provided sum. Students can apply for them via the particular forms of an institution instead of FAFSA. Banks, credit unions, and several other financial institutions offer private student loans irrespective of need.
To obtain a private student loan, you need to have a good credit rating or have someone cosign on a loan with you, such as a relative or a parent. Having inadequate or less-than-stellar credit makes obtaining private loans difficult. Private lenders and banks usually consider the credit history and income of a student to decide on their loans. So, you are highly likely to have no credit or poor credit as a young adult college student. However, some lenders also offer student loan options to students with bad credit. Private loans are known to have higher interest rates than federally granted loans.
Furthermore, these rates are likely more variable than fixed, adding great uncertainty to the amount a student would eventually have to pay. Private loans are also not eligible for loan consolidation under the Federal Direct Consolidation program. They have less workable repayment options than federal loans. However, students can refinance their private student loans after graduation, probably at a lower interest rate.
Each college or university typically notifies students about the sum of aid they will be offering when they send out official acceptance letters. This combined letter is often known as an award letter. Colleges may also provide money out of their funds in addition to federal aid, such as athletic or merit-based scholarships.
Step 4: Choose the Most Suitable School Option
One of the primary factors influencing a student’s college decisions is the sum they would have to borrow to attend one institute versus another. Graduating from a university with an unmanageable amount of student loan debt, or being unable to graduate after taking the debt, is a significant burden. It can limit or even derail your life choices and career for several years.
In addition, students should also consider their future career goals before taking on substantial student debts, as a career with a high-paying job with good entry-level positions can make student loan debt repayment considerably easier.
Difference Between Private and Federal College Loans
Private and federal loans are the two primary categories of student loans. You can attain a student loan from a personal vendor or the federal government with varying requirements and merits. Federal student loans usually have more favorable terms for students, such as flexible repayment options and lower interest. Similarly, students can also qualify for subsidized federal loans if they have “exceptional financial needs.” Unsubsidized loans are available irrespective of financial needs.
Let us take a comprehensive look into these two college loans domains:
Private Loans
Several sources can offer private college loans, including credit unions, banks, and other financial institutions. Students can apply for private loans at any time. They can use the money for educational expenses of their choice, including tuition, books, computers, room and board, transportation, and other living expenses.
Since private loans do not consider financial needs, unlike several federal loans, all kinds of students can apply for them. However, they may have to pass a credit check to prove their creditworthiness. Those with zero or little credit history may need a cosigner to get the loan. Private loans typically have higher borrowing limits than federal loans.
Federal Loans
The US Department of Education specially administers federal loans, which tend to have lower interest rates than flexible repayment options on private loans. Students will need to fill out the FAFSA form to be eligible for this loan.
Types Of Federal Loans
There are several types of federal loans. The William D. Ford Federal Direct Loan program is the best and the most sought-after federal student loan program. These student loans are sometimes also known as Stafford loans, which was the name of an earlier program. It is important to note that a particular provision in the American Rescue Plan makes all student loan forgiveness tax-free from January 1, 2021, to December 31, 2025.
Following are the four basic kinds of federal direct student loans:
- Direct subsidized loans
- Direct unsubsidized loans
- Direct PLUS loans
- Direct consolidation loans
Let us take a comprehensive look into these types:
1. Direct Subsidized Loans
Direct subsidized loans are for students who have exceptional financial needs. The federal government subsidizes the interest on this loan. The main advantage of subsidized student loans is that interest does not accrue while a student is attending school at least half-time or in the first six months after graduating. If a student’s loan defers, they will not have to pay interest on their loan during that period.
2. Direct Unsubsidized Loans
Direct unsubsidized loans do not have a need-based criterion and are available to families regardless of this distinction. However, their interests begin accruing as soon as they receive the funds, unlike subsidized loans. The interest continues to be added to the total payable amount until a student repays the amount in full. However, independent students who apply for a direct loan are eligible for more unsubsidized funds than dependent students who apply with their parents.
There are several pros and cons of direct loans. Some primary benefits include the following:
- No requirement to pass a credit check
- A predetermined, low, and fixed rate of interest
- No penalty for prepaying the loan
- Various flexible repayment options
However, they do also have some cons, which are as follows:
- Lower loan limits
- Strict restrictions on how students can use their money
- The requirement to file a new FAFSA form every year to be eligible for a loan
3. Direct PLUS Loans
Direct PLUS loans are specifically designed for the parents of college students, irrespective of their financial needs. These loans boast several attractive features, such as the possibility of loaning the entire college expenditure (not including any other scholarships or financial aid). They also have a fixed and relatively low-interest rate but are higher than different direct loan types. Direct PLUS loans also offer flexible repayment plans, including deferring payment until a student graduates.
PLUS loans are also available for professional and graduate students and the parents of undergraduate students. In addition, parent applicants do not need to pass a credit check or obtain an endorser or co-signer to get this loan. They also do not have to reapply for funds every academic year. Still, they are legally responsible for repaying the loan in full.
4. Direct Consolidation Loans
The federal government offers direct consolidation loans for repaying student loans. Students can use this option to combine two or more federal education loans into one single loan with a pre-decided and fixed interest rate. This rate typically depends on the average rate of the loans a student consolidates.
Although students cannot consolidate private loans using the federal program, they can take help from private lenders to achieve this goal. Private lenders can combine federal and private loans by paying off the old loans and issuing new ones. This process is commonly known as refinancing.
Refinancing with a private lender may earn you a lower interest rate. However, you will lose the consumer protections and flexible repayment options of federal student loans. It is wise for the students with private and federal loans to consolidate the federal ones through the government program and then refinance the others via a private lender.
Federal Loan Interest
Congress sets the maximum interest rate a lender can charge on federal loans. Most lenders charge the total amount on their loans. The maximum interest rate on new Stafford loans as of May 2022 was 6.8% (but only 6% on subsidized Stafford loans, where the federal government usually pays the interest). The interest rate on new Perkins loans was capped at 5% and 7.9% for PLUS loans. The interest rate was up to 8.5% for students borrowing money from a bank or any other non-governmental lender.
Students must continuously check these rates because they are subject to change. You can find current rates on the US Department of Education’s Federal Student Aid website. There are limits on the total sum of money students can borrow under each loan program.
Families that take out PLUS loans can take out enough money to cover the total cost of their attendance, excluding any other financial aid, like grants or scholarships, that they receive. The law defines the cost of attendance, including more than just fees and tuition. COA also includes:
- Room and board
- Transportation
- Allowance for supplies and books
- Other specified personal expenses
Every college must provide incoming students with an accurate estimate of its cost of attendance.
There are two kinds of Stafford loans available for students. The federal government covers the interest on subsidized Stafford loans for students who demonstrate substantial financial needs when enrolled in college. With the alternative Stafford loan, interest may accumulate when a student is still studying. Students can pay interest as it comes due or let it add to the principal balance and reimburse it later.
How Much Can You Borrow With a Federal Student Loan?
The amount a student can borrow in federal student loans depends primarily on their status as a dependent or independent student. This status is based on whether a student’s parents financially support them or not. In addition, the sum a student can borrow also depends upon the year of school they are in, as they can only subsidize a particular amount per year.
Suppose you are an undergraduate student whose parents don’t qualify for a Parent PLUS loan. In that case, you can borrow a sum up to the independent undergraduate limits. Let us look at the rough sum the different kinds of students can subsidize in their academic years. These figures are current as of June 2022:
Year 1
Dependent Undergraduate Student
$5,500 – up to $3,500 can be subsidized
Independent Undergraduate Student
$9,500 – up to $3,500 can be subsidized
Graduate or Professional Student
$20,500 for a complete education
Year 2
Dependent Undergraduate Student
$6,500 – up to $4,500 can be subsidized
Independent Undergraduate Student
$10,500 – up to $4,500 can be subsidized
Graduate or Professional Student
$20,500 for a complete education
Year 3 and Beyond
Dependent Undergraduate Student
$7,500 – up to $5,500 can be subsidized
Independent Undergraduate Student
$12,500 – up to $5,500 can be subsidized
Graduate or Professional Student
$20,500 for a complete education
Lifetime Maximum Limit
Dependent Undergraduate Student
$31,000 – up to $23,000 can be subsidized
Independent Undergraduate Student
$57,500 – up to $23,000 can be subsidized
Graduate or Professional Student
$138,500 for a complete education
Can You Get Student Loans for Online College?
Online college is typically considered in a completely different domain than on-campus education, especially regarding tuition expenses. Standard rules may or may not apply to a student loan for online schools.
One primary question regarding student loans for online schools is whether or not they’re available for distance learning. The answer is an absolute yes. A student usually gets these loans through the government or a private lender. But, this depends on where you are getting your online education.
Several accredited online universities and colleges accept the same federal student financial aid as brick-and-mortar institutions. This determination means that students wishing to enroll in online schools are generally eligible for financial assistance through FAFSA, which is how they apply for federal student loans.
Can Federal Financial Aid Pay for Online School?
Yes, financial aid can pay for online school just as it does for a physical school. However, there are certain factors that students must remember when choosing their online school and mode of financial assistance. According to various experts, students must ensure that they choose an online program accredited by the US Department of Education to be eligible for federal financial aid.
The Free Application for Federal Student Aid determines a student’s eligibility for federal financial aid. Students can also look into the website of the institution of their choice to check if the school and program are eligible for federal financial aid. They can also look for their institute in the Department of Education’s Database of Accredited Postsecondary Institutions and Programs. Some institutes and states also use the data from FAFSA to award their financial support.
Students enrolled in an online course, or university must ensure that they meet specific other requirements for federal financial aid. To qualify, a student must be a citizen, an eligible non-citizen, or holder of satisfactory academic achievements and progress. Experts also believe that students must be certificate or degree-seeking to attain most financial aid and satisfy a university’s minimum enrollment requirements.
Many online students wish to continue their professional careers while pursuing their degrees. However, the minimum enrollment requirements may prevent them from particular types of financial aid. Thus, students must understand that their course enrollment may affect the kind of financial aid awarded. It is wise for students who work full-time to opt for an online program that allows maximum flexibility to learn part-time and take breaks.
Can Private Student Loans Pay for Online School?
Students who are not eligible for federal financial aid or are unable to pay their tuition costs with that alone may opt for a private student loan. Although pricier than federal loans, private student loans can serve as the last resort for students who desperately need additional funding to pursue their education.
Various private student loans, such as standard private loans, career loans, and continuing education loans, can pay for an online school. It is advisable to check the requirements and restrictions of each loan to choose the one most suitable for you. In addition, students need to make their selection prudently, looking into all possible scenarios before taking out a loan. Why? Because private loans are not federal government approved and may not always be as they seem. Some may include expansive interest rates, and it is crucial to do your homework, read the fine print, and steer clear of such programs.
Final Thoughts – Get Started With a Student Loan for Online School
Student loans are among the most crucial resources for aspiring students and families. They cover college expenses and help students get the right degree to set them on a prosperous career path. Both federal and private student loans have pros and cons depending on a student’s circumstances. Thus it is crucial to do the necessary leg work to determine the option that best suits their needs.
If you are looking to pursue advanced education but the high academic expenses are holding you back, start considering the prospect of taking a student loan. Aspiring students should take advantage of the resources on GetEducated.com to learn more and make an informed decision about their career choice and the kinds of student loans available.
FAQs Guide To Student Loans
How are federal student loans more beneficial than private student loans?
Federal student loans usually have lower and fixed interest rates. They offer a variety of flexible repayment plans, which is not the case for private student loans. Private loans are not based on financial needs. Thus borrowers may need to pass a credit check to justify their creditworthiness. In addition, private student loan borrowers may also need a cosigner on the loan if they have a poor credit history.
Are direct subsidized and unsubsidized loans different?
Direct subsidized loans are similar to grants and are only meant for students with “exceptional financial needs.” The US Department of Education covers the interest in subsidized student loans when a student is at least a half-time student or in the first six months after graduation. Direct unsubsidized loans, in contrast, are not need-based, and the interest starts accumulating as soon as the loan is received.
Can I pay for an online school with federal student loans?
Yes, you can pay for an online school or program through federal or private student loans. However, ensuring that the US Department of Education accredits the online school, you opt for is equally important.