Applying for student loans is a big part of the college planning process for nearly all families with college-bound students. When you're applying for a student loan, it's important to check your eligibility and gather the required paperwork, including the FAFSA form. Christina Ubl, CFP® and co-owner of Clute Wealth Management answers some of the frequently asked questions about applying for student loans and how to avoid some of the most common mistakes.
Read Christina's excerpt below - or read it on the MoneyGeek website.
When is the best time to apply for a student loan?
The best time to apply for a student loan is as soon as the FAFSA® (Free Application for Federal Student Aid) becomes available. The FAFSA for the 2025-2026 school year was scheduled to be available on December 1, 2024. Schools have different timelines for awarding financial aid, and many grants and scholarships are awarded on a first-come, first-served basis. Submitting the FAFSA early ensures you’re considered for all available aid, including loans, if you meet eligibility requirements.
What is the minimum credit score needed for student loans?
Federal student loans do not require a credit check, so there is no minimum credit score needed. These loans are available to all eligible students enrolled in a program that qualifies for financial aid. Private, non-government student loans, however, often require a credit check and may have specific minimum credit score requirements, often around 670 or higher.
What is your advice for increasing one's chances of obtaining a student loan?
To maximize your chances:
- Complete the FAFSA accurately and on time.
- Maintain Satisfactory Academic Progress (SAP) by meeting your institution’s academic standards.
- Be enrolled at least half-time in credits applicable to a degree or eligible program.
What are the most common student loan mistakes, and how can they be avoided?
Common mistakes include:
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Not completing required paperwork: Ensure you complete documents like the Master Promissory Note (MPN) and entrance counseling.
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Failing to submit verification documents: Respond promptly if your school requests additional information for FAFSA verification.
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Not accepting the loan: After receiving your award letter, you must actively accept the loan if you wish to use it.
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Providing incorrect information on the FAFSA: Double-check your FAFSA for errors to avoid processing delays.
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Not filling out the FAFSA at all: Some families overlook student loans as part of financial aid. However, the FAFSA is essential to access federal loans, including those for parents.
By staying informed, organized and proactive, students and families can avoid these common pitfalls and navigate the financial aid process effectively.
There are five additional questions we frequently hear about student loans.
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Should student loans or Parent PLUS loans be used?
Student loans are typically the better option due to their lower fixed interest rates, the ability to defer payments while the student is enrolled in college, and a grace period of six months after graduation in most cases. Parent PLUS loans, while useful in some circumstances, generally have higher interest rates and require immediate repayment unless deferment is requested.
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What is the difference between subsidized and unsubsidized loans?
The key difference lies in how interest accrues:
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Subsidized loans: The federal government covers the interest while the student is enrolled at least half-time and during the grace period after graduation.
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Unsubsidized loans: Interest begins accruing from the date of disbursement, and the borrower is responsible for paying it, even while in school.
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Should a home equity loan be used instead of a PLUS or student loan?
Using a home equity loan to finance education is generally not recommended. Home equity serves as a financial safety net for emergencies, and tapping into it for education reduces that backup. Moreover, student loans offer benefits like lower interest rates and deferred payments during enrollment, which home equity loans do not provide.
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Should a retirement account be used to fund higher education?
The short answer is no. Retirement savings should remain untouched because you can finance an education but not your retirement. Withdrawing from a retirement account often involves taxes, potential penalties and a loss of future investment growth, making it a less favorable option.
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Do I need to fund a 529 plan if my child can access student loans?
Yes, funding a 529 plan is highly beneficial. These accounts offer state tax advantages and the potential for investment growth. Additionally, student loan caps are often much lower than the actual cost of higher education, leaving families to cover the difference. A 529 plan can help reduce reliance on student loans, lowering future interest expenses and overall debt burden.
