Got enough cash to pay for college, loan-free? Good for you. But the majority of college students aren’t so lucky. If you need to borrow some cash (and who doesn’t), federal loans are the place to start. Federal loans are capped at a fixed rate set by the government, ranging from 3.4 percent to 7.9 percent, so they’re typically cheaper than private loans. Here’s how it works.

This is for you: If you don’t have enough money to cover school costs, or you’d like to see whether you’re eligible for low-interest federal student loans before deciding what school to attend.

Hands-on time: A few hours once you’ve gathered all the required financial information. (That will all depend on how organized you are.)

Total time: Anywhere from 3 to 10 days to receive your information, depending on whether you mail in your form or complete it online.

Cost: $0

Types of loans:

Perkins loans: Available to students with the greatest financial need, but the government is in the process of phasing them out, so availability is limited. Priority is given to students receiving federal Pell grants, which are awarded to low-income students. Loans are limited to $5,500 per year for undergrads and $8,000 per year for grad students, with cumulative caps of $27,500 for undergrad loans and $60,000 for undergrad and grad loans combined. This type of loan doesn’t require a credit check or collateral, and you must be enrolled at least half-time to qualify.

Stafford loans: Available to students regardless of financial need. Stafford loans come in two varieties: subsidized and unsubsidized. Subsidized loans are awarded to those who demonstrate sufficient financial need, and they don’t accrue interest as long as the student is enrolled in school, with a nine-month grace period after graduation. Unsubsidized loans accumulate interest, and you can either pay that interest as it comes due or let it be added to the principal balance and defer payment until after enrollment ends. See this page for current Stafford loan rates. This type of loan doesn’t require a credit check or collateral, and you must be enrolled at least half-time to qualify.

PLUS loans: Parental Loans for Undergraduate Students are available to (all together now) parents of undergrads. A credit check is required, and your parents must claim you as a dependent on their tax return in order to be eligible for this type of loan. PLUS loans are also available to grad students. While they charge a higher interest rate than Perkins or Stafford loans, they still generally charge less than private loans. You must have already received as much money in Stafford loans as you can, and the max you can borrow is the cost of your attendance, minus any other financial assistance you’ll receive.

What you’ll need:

• An Internet-connected computer
• Your 2010 W2 forms and other records of money earned
• Your 2010 income tax return (or your parents’ return if you’re a dependent)
• Your 2010 untaxed income records
• Your current bank statements
• Your current business and investment mortgage information, business and farm records, stock, bond and other investment records (if any)
• Your driver’s license (if any)
• Your Social Security Number
• Your alien registration or permanent resident card, if you’re not a U.S. citizen

What to do:
1. Once you’ve been accepted to a school (congrats!), fill out the FAFSA, or Free Application for Federal Student Aid. It’s available starting January 1 for the following school year, and the earlier you submit it, the better. No matter what you think you’ll qualify for, it’s worth it to do the paperwork. You’re not obliged to accept loans even if you qualify for them. Plus, it’s free.

• If you fill it out online, it will process in 3 to 5 days.
• If you fill out a paper FAFSA, it will process in 7 to 10 days.

2. A PIN allows you to electronically sign your online FAFSA for faster processing. If you’d like to sign your online application and have it processed quickly, apply for a PIN here that will enable you to do so.

3. Fill out the required information on the FAFSA. Don’t worry—there are lots of great instructions on how to do this.

4. There will be a place on the FAFSA to fill in your school’s code. If you haven’t picked a school yet, don’t fret—you can list several, and your Student Aid Report (SAR) will be sent to all of them (and you). You should list your first choice college first and your second choice college second, and so on. You can list up to 10 schools. (If you want to apply to more than 10, you can add them later.)

5. If you provided a valid email address, you’ll receive an email within 3 to 5 days with instructions on how to access an online copy of your SAR. Otherwise, your SAR will be mailed to you within 7 to 10 days.

6. The SAR will contain your Expected Family Contribution, or EFC. Schools will base their offers of financial aid on that number. (Note: The EFC isn’t considered the amount of money your family will have to shell out for school. Rather, it’s used to help determine how much federal student aid you’re eligible to receive. For a quick-and-dirty estimated calculation of your EFC, click here.)

7. Read through your SAR to make sure it’s correct and complete. If you need to correct your SAR, click here for instructions.

8. If you’re eligible for federal aid, the school or schools you listed on the FAFSA form will send an award letter, detailing the types of aid you’re eligible to receive and how much you might see.

9. Compare your loan offers and accept the one that best fits your needs. You generally have the option of accepting only part of the loans offered, if you wish.

10. Follow the school’s directions to sign for and accept the loans as part of your financial aid package.

11. Study hard.

To learn more:
Student Loans (Finaid.org)
Free Application for Federal Student Aid (Finaid.org)

Did you do it? Tell us what worked or share other tips in the comments below.

Who helped: Matt Zarris, DePaul University Office of Financial Aid

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