Don't qualify for a federal student loan? Here are your options

With the fall college semester fast approaching, and the cost of higher education soaring, many students and their families are looking to secure funding for school. In many cases, that means getting federal student loans. But while federal student loans come with unique protections and typically offer low interest rates compared to other types of loans, not everyone qualifies for this type of funding.

"A few reasons why a student would not qualify for federal loans are less than half-time enrollment, not maintaining satisfactory academic progress as defined by their school or if they have already received sufficient aid to cover their expected cost of attendance," says Angela Colatriano, chief marketing officer at College Ave Student Loans.

Still, "most students at least qualify for unsubsidized federal student loans," Colatriano says. But those types of loans have limits. "For example, the typical freshman cannot borrow more than $5,500 in federal student loans for their first academic year in college, so families may still have a funding gap." 

Luckily, there are plenty of other ways to fund your education if you don't qualify or can't borrow enough from federal loans to cover the costs of college.

Get started now and find out the private student loan rates and terms available to you.

Don't qualify for a federal student loan? Here are your options

If you need an alternative to federal student loans or need to borrow more to close the funding gap, consider the following options.

Parent PLUS loans

Parents can take out federal loans for their children via a parent PLUS loan, also known as a Direct PLUS loan. However, these tend to have higher interest rates than the federal loans that students can take out directly. And, not all parents can or want to be responsible for taking out this type of loan, which could mean students have to look for financing elsewhere.

Don't wait; explore your private student loan options here now.

Private student loans

Another option is to take out private student loans. In some cases, students can qualify for these on their own, or they might need to get a cosigner. Private student loans can have higher interest rates than federal student loans, but not always, so it's worth comparing the options. They can also be obtained more quickly in many cases.

"Private loans are generally more flexible, with higher loan limits and are generally faster to process," says Jave Ragan, CFP, CPA, senior wealth advisor at Bordeaux Wealth Advisors.

Grants

Some students qualify for grants, such as from the federal or state government, which are generally based on financial need. The funds from grants typically do not need to be repaid, so they're a great way to reduce the cost of college, but you'll have to qualify in order to access them.

Scholarships

Similar to grants, scholarships provide free funds to students, and are typically awarded based on merit or involvement in an organization or their community. Scholarships can come from a variety of sources, such as governments, colleges, businesses and foundations.

"There are many scholarships available based on a variety of qualifications, including academic merit and community involvement. Many scholarships go unclaimed each year," says Ragan. "It is worth spending time researching available scholarships and completing applications for as many as possible."

College savings accounts 

Some families have 529 plans or similar types of accounts set up that can be used to pay for college. These accounts can have tax benefits when money is withdrawn for education, thereby making them more valuable than regular savings. However, there are some pitfalls to watch out for.

For example, "distributions from 529 plans owned by grandparents are treated as student income two years after the funds are disbursed. This can significantly reduce the amount of financial aid the student may qualify for," says Ragan.

"If there is a 529 Plan from grandparents, but not enough to cover all the expenses, it is best to save those funds for the last two years of school and avoid any potential downsides," he adds.

Traditional and Roth IRAs can also be used for educational expenses without incurring early withdrawal penalties, notes Ragan. However, you or your family might not want to touch this money, as it's generally intended for retirement, which you don't want to jeopardize.

Student jobs 

If you need extra money to pay for school, you might get a job to reduce what you need to borrow.

"Working during the summers and part-time during the school year can provide additional cash flow to help pay for expenses and offset the need for loans," says Ragan.

You can also get a job as part of a work-study program that you qualify for through your Free Application for Federal Student Aid (FAFSA). That's why it's important to fill out the FAFSA form, even if you don't think you qualify for direct aid.

Find out what private student loan rates and terms you qualify for now.

The bottom line

As evidenced by the examples above, there are many ways to pay for college — even if you don't qualify for federal student loans. Other types of borrowing, like private student loans, can fill in gaps, but it's important to first see what you can pay for without taking on a loan due to the accumulation of interest.
"Before borrowing, families should look to maximize free aid first—scholarships and grants—then savings and income," says Colatriano.

And whether you end up with private student loans, federal student loans or a mix, it's important to be aware of the full cost of these loans.

"Any time a student is borrowing money for college expenses, we recommend they evaluate how much the payments will be and when they will come due," says Ragan.