In 2006, Congress stopped requiring schools to teach at least half their courses on a physical campus in order to qualify for federal financial aid from the U.S. Department of Education. That made it possible for borrowers to receive federal student loans for online colleges and other types of federal financial aid.
The problem is that not all online colleges are eligible for aid. Whether yours is eligible or not, here’s how to pay for a so-called distance degree.
1. Determine if your school is eligible for federal financial aid
If you want to avail of federal financial aid, including student loans, for an online college, your school must be accredited by a federally recognized accrediting agency. The good news is there are plenty of accredited online colleges that can set you up with federal student loans and financial aid.
For example, about 80% of students at online-only Capella University received financial aid as of Dec. 31, 2017, including federal grants, work-study opportunities, and loans. Many more traditional schools, including public nonprofit giant Arizona State University, offer fully online degrees.
Find out if your school is eligible by using the Department of Education’s Federal School Code Search tool. You can find your school’s code by asking its financial aid office or doing a search — with “[school name] federal school code” — online. The Federal Student Aid office also maintains a downloadable spreadsheet of school codes.
Go a step further to determine if your degree path would also be accredited. You can type your school’s name into the Department of Education’s Database of Accredited Postsecondary Institutions and Programs. You might find, for example, that your school’s nursing department enjoys full accreditation while its program for teachers has lost its backing.
Use the federal agency’s tools instead of relying solely on your school. A school might tell you that it enjoys the support of an accrediting organization — but that organization could be dubious. You also can cross-check your school’s accreditation claims using the Council for Higher Education Accreditation’s list of legitimate accreditation organizations.
Confirm your findings with the school’s financial aid office. Then complete the Free Application for Federal Student Aid (FAFSA). The FAFSA will determine the amount and kind of federal aid you’ll be eligible to receive, including student loans.
Depending on your Expected Family Contribution, you might be eligible for Direct Subsidized Loans, which are a specific kind of federal student loan. The government pays interest on the debt while you’re enrolled and during the first six months after you graduate, so it’s better than Direct Unsubsidized Loans.
Federal aid also can be available in the form of grants and work-study opportunities, if your family proves financial need.
2. Compare federal and private student loans for online college
Whether you’re an online or on-campus student makes no difference in the world of federal student loans. The interest rates, repayment terms, and other details are the same for each type of loan.
Still, it’s important to study the difference between federal and private loans. Even the best private student loan companies can’t match some federal protections such as the ability to change your repayment plan or apply for loan forgiveness. They could, however, potentially beat the government’s interest rates if you apply with a creditworthy cosigner. So it’s wise to shop around for the lowest possible rate.
There’s another key nuance of student loans for online college. Just because your school is eligible for federal loans doesn’t mean that it’ll be eligible to work with every private lender. Some lenders, for example, such as College Ave, maintain a list of eligible schools.
You can check with lenders directly if you don’t see your school as an option on your initial loan application. Then, use our student loan payment calculator to figure out the amount of interest you’ll be responsible for during your loan term.
No matter the type of loan, borrow only what you need after applying for gift aid such as grants and scholarships. Gift aid doesn’t have to be paid back, unlike federal student loans.
3. Examine other options if school accreditation is an issue
You could run into trouble when financing your education if you opt for an online college without accreditation. Talk with the school’s financial aid office about your options. And ask why it doesn’t enjoy the accreditation of a legitimate accrediting body.
For-profit colleges (online and on-campus) often might not have the proper accreditation, so you can’t finance your degree with federal loans.
If you’re seeking a certificate for a specific trade and not for an associate or bachelor’s degree, your school might not be accredited. However, there are ways to find student loans for trade programs.
The Wells Fargo Student Loan for Career and Community Colleges, for example, is available to students seeking a degree, certificate, or license. Its fixed interest rates start as low as 7.46% as of April 2018 with applicable student loan discounts, which pale in comparison to the 4.45% rate on Direct Unsubsidized Loans offered by the federal government for the 2017-2018 academic year.
Even if you can find a reputable lender for your program, you’d be wise to question the school for not being accredited. Schools that enjoy accreditation offer more student loan options. More importantly, they could be better suited at preparing you for a career.
At the end of the day, attending an online college ultimately could be a big money-saver, especially if you don’t have to pay for on-campus room and board.
Paying for school will come with challenges whether your classroom is virtual or not. When you’re on the lookout for student loans for online college, start by examining your school’s accreditation. That will help you figure out if it’s even eligible for federal and private student loan options.
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