How To Get Student Loans: A Step-by-Step Guide

Student loans are a common way to pay for college when scholarships, grants, and savings don't cover the full cost. About 30% of adults who pursued higher education borrowed money to make it possible, according to the Federal Reserve. If you're considering loans to bridge the gap, it's important to understand your options.

This guide will walk you through the process of getting both federal and private student loans so you can make informed decisions about funding your education.

Current private student loan rates

Understanding federal vs. private student loans

There are two main types of student loans available for borrowers:

• Federal student loans: These are provided by the U.S. Department of Education and require you to apply through the Free Application for Federal Student Aid (FAFSA). Most federal loans don't involve a credit check, have fixed interest rates, and include borrowing limits on certain loan types. Federal loans also come with a variety of repayment options and benefits, such as income-driven repayment plans and potential loan forgiveness.
• Private student loans: Offered by banks, credit unions, and online lenders, these loans typically require a credit check. Many lenders allow you to apply with a cosigner if you don't meet their criteria. Private loans offer both fixed and variable interest rates but have fewer repayment options and borrower protections compared to federal loans.

Below you can compare the main differences between federal vs. private student loans:

How to apply for federal student loans

Federal student loans should generally be your first step when borrowing for college. They offer significant advantages over private loans, including income-driven repayment plans, potential loan forgiveness, and protections like deferment and forbearance, which allow you to pause loan payments during periods of financial hardship.

To qualify for federal student loans, you must:

• Be a U.S. citizen or eligible noncitizen.
• Have a valid Social Security number.
• Enroll in a degree or certificate program at an eligible school.
• Maintain satisfactory academic progress while enrolled in school.
• Have a high school diploma, GED, or equivalent.

1. Create a Federal Student Aid (FSA) ID

To apply for federal student loans, you'll need to create an FSA ID. You'll need this unique username and password to complete the FAFSA and log in to your account on StudentAid.gov. Setting up your FSA ID is quick and straightforward. You'll need basic information like your Social Security number, date of birth, and email address.

If you're a dependent student, your parents may also need to create their own FSA ID to provide required information on your FAFSA.

Check Out: Dependent vs. Independent Student: Which Are You?

2. Submit the FAFSA

To apply for federal student loans, you'll need to complete and submit the FAFSA. Schools use your FAFSA to determine your eligibility for a range of financial aid, including federal student loans, scholarships, grants, and work-study opportunities.

The FAFSA is available online and typically takes less than an hour to complete. Here's what you'll need to get started:

• Your FSA ID (and your parent's FSA ID if you're a dependent student)
• Your Social Security number
• Your date of birth
• Your email address
• Details about your income and assets (or your parents', if applicable)

If you're a dependent student, your parents will need to provide their information, including consent to transfer tax data directly from the IRS to the FAFSA form. Each contributor, such as a parent or spouse, must have their own FSA ID to complete their sections of the form and provide a signature.

3. Review financial aid offers

Once you submit the FAFSA, the schools you listed will send you a financial aid award letter outlining the types of aid you qualify for. This may include scholarships, grants, federal work-study, and various federal student loans, such as:

• Direct Subsidized Loans: These are available to undergraduate students with demonstrated financial need based on their FAFSA. The government pays the interest while you're in school and during the grace period, reducing your overall borrowing costs.
• Direct Unsubsidized Loans: These are available to both undergraduate and graduate students and don't require you to show financial need, making them more accessible.
• Direct PLUS Loans: Graduate students and parents of dependent undergraduate students can apply for PLUS loans, also called parent PLUS loans or grad PLUS loans. You must not have an adverse credit history to qualify for PLUS loans.

There are borrowing limits in place for how much you can take out with Direct Subsidized and Unsubsidized Loans, depending on your year in school and dependency status. PLUS loans, on the other hand, can cover the full cost of attendance at your school after taking into account other financial aid you receive.

4. Accept and finalize your aid

After reviewing your financial aid offers and choosing a school, it's time to officially accept your federal aid. Start by accepting any grants and scholarships, as these don't need to be repaid.

If you're borrowing, prioritize Direct Subsidized Loans if you qualify for them since the government covers interest while you're in school and during your grace period, making them a more cost-effective option. Only borrow what you need to cover educational expenses.

If you're a first-time borrower, you'll need to complete entrance counseling to understand your responsibilities and sign a Master Promissory Note to agree to the loan terms.

Federal loan funds will first be sent to your school to cover tuition, fees, and, if applicable, room and board. If there's money left over, the school will send you the remaining balance. These leftover funds can only be used for qualified educational expenses, such as textbooks, supplies, or a computer.

Check Out: What Is the Average Cost of College?

How to apply for private student loans

If you've maxed out your federal student loan options, private student loans can help you cover any remaining balance. These loans should generally be a last resort, as they lack the protections and benefits of federal loans, such as forgiveness programs and income-driven repayment plans. However, if you understand the risks, here's how to apply for a private student loan.

1. Check your credit

Private lenders check your credit score and income to determine your eligibility and interest rate. Most lenders require a minimum credit score, often around 670, and may reject applications from those who don't meet their criteria. If you have limited or bad credit, you'll likely need a cosigner to qualify.

Before applying, review your credit report at AnnualCreditReport.com. Check for any errors that can be dragging down your score. If you see any, contact the major credit bureaus (Experian, Equifax, and TransUnion) to dispute them.

2. Research lenders

Start by exploring private student loans from banks, credit unions, and online lenders. Since each lender sets its own terms, comparing your choices is essential. Here's what to look out for:

• Loan amounts: Note the minimum and maximum amounts each lender offers to make sure they can meet your borrowing needs.
• Interest rates: Check both fixed and variable rate options to see what works best for your budget. Fixed rates stay the same, while variable rates can change over time.
• Credit requirements: Many lenders require a minimum credit score to qualify, usually around 670.
• Deferment and forbearance options: Find out if the lender offers flexibility, like pausing payments during financial hardship.
• Cosigner requirements: If you don't meet the lender's credit requirements, check if they allow a cosigner to help you qualify.
• Fees: Most private loans don't have origination fees, but double-check to avoid unexpected costs.
• Customer reviews: Research feedback on sites like Google, Trustpilot, and the Better Business Bureau to get insight into the lender's reputation.

Check Out: Best Private Student Loan Lenders

3. Get prequalified with a few lenders

After comparing lenders, the next step is to get prequalified. Prequalification lets you see your potential interest rates and loan terms with a lender before officially applying. Most lenders offer this option without affecting your credit score, as it involves a soft credit check instead of a hard inquiry. A hard inquiry usually only happens when you submit a full loan application.

4. Submit a loan application

When you've chosen a lender, it's time to submit your private loan application. Most lenders let you apply online and will ask for the following information:

• Proof of income (such as a pay stub)
• Social Security number
• School you'll be attending
• Cost of attendance
• Employer information (if applicable)
• Financial aid award details
• Desired loan amount
• Expected graduation date
• Cosigner information (if needed)

After submitting your application, the lender will review your information. You might be approved, denied, or asked to provide additional documentation. If your application is denied, the lender should explain why. If additional information is requested, make sure to respond promptly to avoid delays.

What happens after you apply for a student loan?

For federal student loans, you'll receive a financial aid award letter detailing the types and amounts of aid you qualify for, including loans, grants, or work-study opportunities. If your application is denied, it may be because you don't meet the eligibility criteria or need to provide additional documentation.

Graduate students and parents applying for PLUS loans may face another potential obstacle.

“For federal loans, this would come from an adverse credit history. You could obtain an endorser, who agrees to pay your loans if you do not. You can also file an appeal if there are extenuating circumstances,” says Erik Kroll, certified financial planner and president of Student Loans Over 50.

If approved for private student loans, the lender will typically send funds directly to your school to cover tuition, fees, and room and board. Any remaining funds will be disbursed to you to cover other education-related expenses, such as textbooks or supplies.

Tips for choosing the right student loan

Federal student loans are usually the best place to start due to their competitive rates, flexible repayment options, and borrower protections. Private loans can help cover remaining costs but should be used cautiously.

When comparing loans, calculate your total borrowing costs. Tools like Federal Student Aid's loan simulator or a student loan repayment calculator can help you understand how interest rates, loan terms, and repayment plans will affect your payments.

If you're unsure about repayment plans or forgiveness options, don't hesitate to ask for help.

“Misinformation has been rampant as the federal student loan litigation makes its way through the courts, so it's important that borrowers reach out directly to their loan servicers with questions about student loan relief, or to certified credit counselors with expertise in student loans working for nonprofit credit counseling organizations,” advises Donna Loitz, housing and student loan counselor lead at American Financial Solutions.