Thinking about taking out a student loan? Read this first

Thousands of Iowa college students borrow money to help pay college-related expenses such as tuition, fees, textbooks, room and board. But it’s easy to get in over your head if you’re not careful.

Here’s what you should know before signing your name on a loan application, according to advice from to the Federal Student Aid and Edvisors.

What is the first step to applying for student loans?

Prospective and current college students should fill out the Free Application for Federal Student Aid, or FAFSA, which is administered by the U.S. Department of Education. The form must be completed before students can apply for federal grants, loans or work-study money. The FAFSA must be completed each year a student is in school. A student’s eligibility for federal grants and loans is generally based on financial need. (Loans must be repaid; grants do not.) The application deadline in Iowa is midnight on July 1.

What federal loans are available to students?

Two of the federal government’s most popular loans are Direct Subsidized and Direct Unsubsidized. The government pays interest on subsidized loans while a student is in college. A student’s financial need determines whether he or she is eligible for a subsidized loan. Eligibility for unsubsidized loans are not dependent on financial need. Students are responsible for paying an unsubsidized loan’s interest, which begins accruing when proceeds are disbursed.

Are there borrowing limits for federal student loans?

Yes, there are annual borrowing limits as well as cumulative loan limits, which apply to both subsidized and unsubsidized loans. Dependent undergraduate freshmen are limited to borrowing $5,500 a year; sophomores, $6,500; and juniors and seniors $7,500. Annual borrowing limits are higher for independent undergraduates. Dependent undergraduates are limited to borrowing a total of $31,000 during their college career; independent undergraduates can borrow up to $57,500.

What are the interest rates for the federal student loans?

The current interest rates for both the subsidized and unsubsidized loans is 4.45 percent; the loan origination fee is 1.066 percent. Congress sets the interest rates, which are adjusted on Oct. 1, the start of the federal government’s fiscal year.

Are there other federal student loans or grants available?

Yes. The Pell Grant, which does not have to be repaid, is available to undergraduate students from low-income families. Up to $5,920 can be awarded to an eligible student annually. The Perkins Loan, which must be repaid with interest, is available to undergraduate and graduate students with “exceptional “financial need. Up to $5,500 is available annually to undergraduates who meet the financial need criteria. In addition, parents of dependent undergraduates can obtain Parent PLUS loans.

Are other types of loans available?

Yes. Private student loans can be obtained from financial institutions such as banks and credit unions. Loans are also available through Iowa Student Loan. Experts and others advise that students borrow the maximum amount available in federal loans before applying for private loans, which generally carry higher interest rates.

Tips for affording college

The following tips are compiled from Iowa Student Loan, College Savings Iowa and Edvisors on ways to make your child’s college education affordable:

• Begin saving early and save often. Saving for college – or other post-secondary education – should begin when your child is an infant. Many families contribute to state 529 savings plans, which are offered in Iowa.
• Search for scholarships, many of which are available from employers, local groups and national companies and organizations.
• Enroll in a community college for two years before transferring to a four-year institution.
• Earn college credit in high school through Advanced Placement and College Level Examination Program tests.
• Accelerate a post-secondary degree by graduating a semester or more early to save on tuition, fees and living expenses.
• Live at home to reduce costs.
• Determine a realistic starting monthly salary and expected monthly student loan payment. Experts recommend that the loan payment be no more than 12 percent of an expected monthly salary.

Online databases

• Federal loan borrowing. See how much Iowa’s public and private four-year college students borrowed from the federal government’s loan programs from 2011-12 through 2016-17.
• Average student loan instant payday loans Dardanelle, AR debt. The Class of 2016 had an average student loan debt of $29,801, the 19th highest in the nation. See fives years of data by Iowa public and private four-year college and university.