While qualification for federal direct student loans is up to the Department of Education, the school you choose will determine the exact amount you can borrow. Depending on your degree path and the other forms of financial aid you qualify for, that amount may not be enough to fully fund your education. In these instances, supplemental student loans can help bridge the gap.
In this article, we’ll explain how supplemental student loans work, how they’re different from federal direct student loans, and how to find the right loans for you.
What are supplemental student loans?
A supplemental student loan is used to fill in the gaps when you’ve maxed out federal direct student loans. Supplemental loans can be used to cover all kinds of educational expenses like tuition, fees, room and board, transportation, and living expenses.
There are two main types of supplemental loans: federal PLUS loans and private student loans. Some states also have loan programs for their residents or for students going to college within the state.
A PLUS loan is a type of federal loan that graduate and professional students can use when they’ve hit the annual Direct Loan limit. The annual limit for Direct Loans is between $5,500 and $20,500, depending on your year in school and whether you’re an independent or dependent student.
Parents can also take out PLUS loans for children who are current undergraduate students. Like Direct Loans, you can apply for a PLUS loan by filling out the Free Application for Federal Student Aid (FAFSA).
You can apply for a private student loan by submitting a form through individual lenders directly.
Federal supplemental student loans vs. private supplemental student loans
Borrowers should always max out their federal direct student loans before turning to private student loans. Federal direct loans have more flexible repayment options, including income-driven repayment (IDR) plans. They also offer loan forgiveness programs and usually have lower interest rates and longer deferment periods.
If you’re interested in a federal supplemental loan, your only option is a PLUS loan.
The maximum annual amount you can borrow is the cost of attendance minus other financial aid, so eligible students can use them to fund the entire remaining cost of graduate or professional school. Parents can take out Parent PLUS loans to pay for their children’s education, but only if they’re undergraduate students.
Private loans may be a good option if you don’t qualify for a PLUS loan or if you can receive a lower interest rate.
Credit check requirements
Private student loans and PLUS loans are not given out based on financial need, but both will require a credit check. To qualify for a PLUS loan, you can’t have an adverse event on your credit history within the past five years.
Adverse events include:
- Tax lien
- Wage garnishment
If you have an adverse event, you may still be able to qualify for a PLUS loan by adding an endorser. An endorser is someone who agrees to take over your student loans if you default, similar to a cosigner. That means PLUS loans are available to borrowers who have a recent credit history, as long as they don’t have any adverse events.
There is no income verification for Federal PLUS loans, so be careful not to borrow more than you can repay.
Private loans have stricter credit requirements than PLUS loans. The typical credit score necessary for a private student loan is usually around 650. Borrowers also need to have a steady income. Because most students don’t meet the income and credit score requirements, they often need to add a cosigner. This can be anyone willing to share in your debt responsibility, as long as they meet the lender’s credit score and income requirements.
There are some private lenders that don’t look at your credit score. Instead, they may look at your income, current major, projected post-graduation income, and GPA. These lenders usually have higher interest rates, so try to avoid them unless you have no other options for supplemental loans.
How to find supplemental student loans
1) Fill out the FAFSA
To be eligible for all types of federal student loans, including PLUS loans, you must fill out the FAFSA. This form will ask for your parent’s financial information, including their income and total assets. Completing the FAFSA will also determine if you’re eligible for other types of financial aid, like grants, scholarships, and work-study programs.
2) Review your federal student loan eligibility
After you submit the FAFSA, the school’s financial aid department will send you a financial aid award letter. This letter will detail how much money you’re eligible for in student loans and other types of financial aid.
3) Calculate how much you still need to cover your school costs
The award letter will show how much you have left to pay to cover tuition after your financial aid is applied. You may also want to account for extra expenses that may not be factored in the award letter, like transportation, groceries, and other living expenses.
4) Fill out a PLUS loan application online
If you’re eligible for a Grad PLUS loan, you can complete an application online. If you’re an undergraduate student and your parents are willing to take out a Parent PLUS loan, they will also have to fill out an online application.
5) If you still need funds, check if your school has a list of recommended private lenders or a comparison tool
If you don’t qualify for a PLUS loan or your parents aren’t willing to take out a Parent PLUS loan, consider exploring private student loans. Your college may have a list of recommended lenders or you can check out our picks for the best private student loans.
6) Consider state loan programs
Some states offer their own loan programs for residents or students attending a college within the state. Be sure to check if the state where you live or plan on attending college offers any of these programs.
7) Compare eligibility requirements and general loan terms from a few different lenders
Look at each private lender’s requirements and make a list of lenders that you qualify for. Some will have higher income and credit score requirements.
8) Get quotes from lenders
To find your interest rate and repayment term, you’ll have to complete an application with each lender. Once you submit the application, you’ll find out if you were approved for a loan and what kind of terms you’re eligible for.
9) Compare terms and choose a lender
Look through the offers from each lender. Compare the interest rate, term, and any special features or repayment benefits to find the lender that’s best for you. Once you pick a lender, send in any other information they need. Lastly, confirm with your college that your private funding has been received.