You might think that if you’re taking out a loan to help pay for your college education, you would take it out in one big loan. But that’s not quite how it works. Read on and you’ll find out why.
When do I need to apply for a Federal Student Loan?
Here's an important thing to remember: Federal Student Loans are not renewed automatically. To qualify for a Federal Student Loan, you need to fill out and submit the FAFSA® before each year you’re in college. This may sound complicated, but because each year is treated separately, you also have the option not to borrow in any particular year.
Your college gets the money. It doesn’t come to you.
Contrary to what you might think, it's not you who receives the money. The money is paid directly to your college – to cover tuition and other expenses. If there is any money left over and you have valid expenses – as defined by the federal government – you can use it. Living off campus and paying rent are typical examples of a valid expense.
How your student loans are issued to your college
For each year that you take out a federal student loan, your college will receive that money in two separate parts: once at the start of each semester. The interest rate you pay on each part is the same and is set early in the year. The reason it works this way is so the interest on the loans doesn't start to accumulate until you actually begin using the money. Also, you can't be sure you will come back for the second semester (although we hope you do!)
What’s it all mean? It’s like this: If you go to college for four years, and you get two loans from the federal government each year, that’s 8 loans. Still, you only have to apply four times, because each application covers the full school year – and the interest rate is set once a year for both of that year's loans.
Signing the promissory note
With each loan you take out, you have to sign a promissory note. In technical terms, this online contract details the full terms of your loan and your legally-binding promise to pay it back. In other words, it’s a big scary document that takes something like 48 pages to say that you have to pay your loan back with interest no matter what. For more information, visit this page.
The whole idea of student loans can feel a little confusing at first. But the more you know, the more you can feel in control.
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