The Complete Guide to Applying for Student Loans

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By Kristen Kuchar

July 29, 2021

Student loans can help you pay for college, but they can also lead to trouble if you’re not careful. Too much debt can hold you back from meeting your financial goals and could delay important life milestones. It’s important to learn how to apply for a student loan that will help set you up for future success.

This student loan application guide will walk you through the process of how to borrow smart for college.

How Much to Borrow

Student loans must be repaid with interest. Because of this, you’ll want to keep the amount you borrow to a minimum. Before you start your loan application, determine how much you can really afford.

If you don’t have enough in savings, you might be tempted to fill the gap with student loans. But, remember to give yourself limits.

Aim to keep your total student loan debt below your expected starting salary after graduation. This will help keep your debt manageable so that you can realistically pay off the balance within a standard 10-year repayment plan.

Our loan calculator can help you estimate your monthly payment based on the loan amount, interest rate, loan fees and loan repayment term you input.

Understanding Student Loans

Before you apply for an student loan, you should completely understand the requirements, how the process works and what it really means to be in debt.

Most students borrow money for college from the government or from a private lender. In either case, the borrower typically has to sign some form of loan agreement that acknowledges the loan repayment terms.

With federal student loans, this agreement is called a Master Promissory Note. This confirms that you legally agree to pay back the loan, along with any interest and fees, no matter what.

Borrowers who don’t repay their student loans may face harsh consequences, such as wage garnishment, suspension of professional licenses and a lower credit score.

Even if you file for bankruptcy, you will likely still be liable for paying your student loan debt.

The federal government wants students to understand their obligation and what they’re getting into. Before they disburse loan funds, they provide mandatory entrance counseling for the borrower.

Federal loans pay the college first, including tuition and on-campus room and board costs. Anything leftover is then sent to the student. If you end up with more borrowed money than you need, consider cancelling the unused portion to avoid paying interest and fees.

How to Apply for a Student Loan

Now that you understand the basics of student loans, how much to borrow and what’s required, the next step is to apply.

Applying for federal student loans

The Free Application for Federal Student Aid (FAFSA) is your application for need-based financial aid, which includes federal student loans. You can access the FAFSA online or with the myStudentAid mobile app. Remember to fill out and submit the FAFSA as soon as possible to maximize your chances of getting the most aid.

Once you complete and submit the FAFSA, the next step is to wait for financial aid award letters from the colleges you applied to. The letters will include a list of the federal financial aid you are eligible for. For example, your award may include the following types of need-based aid:

  • Federal Direct Stafford Loan
  • Federal PLUS Loan (education loans for graduate students and parents)
  • Perkins Loan
  • Parent PLUS Loan
  • Grad PLUS Loan
  • Grants
  • Work-Study Programs

Applying for private student loans

Unlike federal student loans, private student loans are not offered by the government. You can choose to borrow a private student loan from a bank, credit union or other private lender.

It’s important to research your options to make sure you’re getting the lowest interest rate. You’ll also want to compare things like eligibility requirements, fees and other features.

Private lenders are looking for creditworthy borrowers. This means the lender will review your income, credit history, debt-to-income ratio, and length of employment. Most students—including 90% of undergraduates and two-thirds of graduate students—will need a cosigner to qualify. Also, you won’t need the FAFSA to apply for private student loans.

If you are applying for a private student loan with a cosigner, your cosigner should be an adult you know and trust, such as a close friend or family member. By agreeing to cosign your private loan, this person will become equally responsible for paying back the debt. That means if you miss payments or go into default it will affect their credit, too.

Most private lenders offer online applications that allow you to apply and be approved in minutes. Some lenders allow you to prequalify and check your rates without impacting your credit score.

Federal Student Loans Vs. Private Student Loans

Federal student loans are made by the U.S. government. A federal loan, such as federal direct loan, will have a lower interest rate than a private loan. Federal loans also typically offer more favorable terms, flexible repayment plans and loan forgiveness options.

When a borrower exhausts their college savings and they reach their federal student loan limits, they may turn to private student loans to help cover the remaining costs.

Key differences between a federal student loan and a private student loan

Federal Student Loan Private Student Loan
Interest Rates Fixed rates set by the government. Typically lower rates than private loans. Borrowers also pay an origination fee. Set by the lender and may be fixed or variable. No origination fee.
Loan Limits $5,500 – $12,500, depending on year in school and dependency status (higher limits for graduate and professional students) Enough to cover the entire cost of attendance, less any financial aid received
Repayment Options Forgiveness and flexible repayment and deferment options available May offer alternate repayment plans, but not eligible for federal student loan forgiveness programs
How to Apply Complete and file the Free Application for Federal Student Aid (FAFSA) Varies by private lender, can apply at any time throughout the year
Cosigner Requirements Borrowers without a solid credit history and a stable income will likely need a creditworthy cosigner Just about any undergraduate student will qualify, regardless of credit history 

Our Loan Comparison Calculator lets you compare two or more different loans, identifying which loan offers a lower monthly payment and which one offers a lower total cost.

What Can You Pay for With Student Loans?

You can use your student loans to pay for school-certified education expenses, which includes most living expenses. This includes tuition, fees, books, room and board, study abroad and computers. Costs of food, transportation, health care and child care are also eligible. It’s important to stick to these essentials so that you don’t end up taking on excessive debt.

If you end up borrowing more than you need, you can return your unused student loans. Remember, every dollar you borrow will likely cost about two dollars once you pay it back.

It’s important to understand how student loans work before you apply, so that don’t end up with too much debt. Student loans are a big responsibility, but if you borrow smart they can help set you up for future success.

A good place to start:

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