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How to get a student loan
When the time comes to make decisions about funding your education, you may find that you need student loans. 43.2 million people in the United States have student loan debt, but how to get a student loan can be mysterious. We are here to make it easier for you! Continue reading to learn how to get a student loan and important things to consider when applying for loans.
Before you apply
If you decide that you need student loans to fund your education, there are a few things you must know:
First, all loans must be paid back. Be sure that you can handle any debt you take on. Calculate what your monthly payments would be using a student loan calculator. From there, make a plan for how you will budget and repay your loans when the time comes. Another good tip is to try to borrow no more than what you expect your salary to be when you graduate. That amount is a good reference point for how much debt you can afford.
Only borrow what you need. Student loans are an investment in your future, but you don’t want excessive debt.
See also: How Much Student Loan Debt is Too Much?
Federal student loans
The Department of Education holds federal student loans. Any student can apply for federal student loans. They do not require a co-signer or a credit check.
The Department of Education offers subsidized and unsubsidized student loans. Subsidized loans are for undergraduate students with demonstrated financial need. Subsidized loans do not accrue interest while you’re in school and during the grace period. Undergraduate, graduate, or professional students are eligible for unsubsidized loans. Eligibility is not based on financial need. Interest accrues on subsidized loans as soon as they are dispersed.
Students should start with federal loans. This is because federal student loans come with benefits. These benefits include deferment and forbearance options, income-driven repayment plans, and loan forgiveness programs.
See also: All About Income-Driven Repayment Plans and Guide to Student Loan Forgiveness Programs
The only potential downside to federal student loans is that they have a borrowing limit. For undergraduate students, the maximum that can be borrowed per year is $5,500 – $12,500 depending on the student’s year in school and dependency status. Graduate or professional students can borrow up to $20,500 per year in federal loans.
How to apply
Apply for federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). The FAFSA is always free to submit (you can apply online). Be sure to do it before the annual deadline. The form requires information and documents such as the student’s social security number, tax forms, and information about their parent or guardian’s income. Based on the financial need shown on the FAFSA, you will receive a financial aid offer from your school. The offer may include student loans.
See also: FAFSA 101 Guide
Before receiving the loans, you’ll have to complete entrance counseling. Entrance counseling educates you about your loan and ensures you understand how to repay it. You’ll also have to sign a master promissory note. Signing this document shows that you agree to the terms of the loan.
Private student loans
Private student loans are held by banks and similar financial institutions. These loans require the borrower to have good credit and a steady income. If you don’t meet the requirements, you can use a co-signer. A co-signer isn’t required, but using one is quite common. According to MeasureOne, 91.25% of new private loans in 2020-2021 had a co-signer. Private loans don’t have an application deadline, but you should apply as soon as possible in order to have time to get the loan approved.
Private loans have fewer benefits than federal loans. They often have higher interest rates than federal student loans. They also have more limited deferment and forbearance options. There are no income-driven repayment plans or forgiveness programs for private loans. However, private loans have no borrowing limit, like federal loans. Students can borrow up to their school’s cost of attendance.
Every private lender has different terms, eligibility, repayment plans, and interest rates. Compare lenders to get a loan that works best for you.
How to apply
To apply for a private loan, visit the lender’s website. Most lenders allow students to apply directly online. You’ll need most of the same information needed for the FAFSA. The application will also request details about your school’s cost of attendance and financial aid you’ve already received.
When applying, you’ll choose the interest rate and repayment option you want. Private loans take some weeks for approval, so be patient while waiting to hear from the loan servicer.
Use this guide to borrow the student loan that is right for you and your situation!