The Complete Guide to Applying for Student Loans

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Kristen Kuchar

By Kristen Kuchar

April 6, 2022

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 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.

Experts recommend saving for at least one-third of future college costs, and covering the remaining two-thirds with current income (such as scholarships) and student loans.

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.

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Ways to lower college costs

You might find that the only way to make college affordable is to reduce the cost. Start by filing the Free Application for Federal Student Aid (FAFSA). The federal government uses the FAFSA to determine your eligibility for need-based federal aid.

You can file the FAFSA as early as October 1 of the year before you enter college. Some financial aid is awarded on a first-come, first served basis, so it’s important to file as soon as possible.

The FAFSA will determine your how much financial aid you are eligible for an academic year. This includes need-based aid, like grants and federal student aid. Colleges also use information from the FAFSA to award institutional scholarships. Students should file a FAFSA for every year they attend college.

In addition to the FAFSA, be sure to apply for as many scholarships as you can. There are many free tools online that can help match you with possible opportunities.

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Another way to bring costs down is to consider your school choice. If you’re planning to attend a private university, would it make sense to start out at a community college? Or, could you get a similar education at a less expensive in-state public college? Do any colleges in your city or state offer free tuition?

Students who plan to work while in college should explore openings at companies that offer employer-paid tuition assistance. Some colleges also offer on- or off-campus work programs to help cover tuition costs.

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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.

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How Student Loan Interest Works

When you take out a student loan, you’re required to repay the original amount you borrowed, plus an additional interest payment. The interest payment is based on a percentage of the loan balance, and the percentage is based on the interest rate. You can think of interest as a fee that the lender charges to loan you money.

The interest rate for federal student loans is set every year and is the same for all undergraduate borrowers, regardless of credit history. Interest rates for federal loans are always fixed, which means they will stay the same for the total life of the loan.

The interest rate for private student loans differs per borrower. The interest rate depends on the current rate offered as well as your credit history (and, if applicable, your cosigner’s credit history). The interest rate on private loans can be fixed (stays the same) or variable (can move up or down).

If you’re applying for a private student loan and you don’t have stable income or good credit, you’ll probably need a cosigner. Your cosigner should also have a good understanding of how student loans work and their obligation.

Because private student loan interest rates can vary, it’s important to explore options from different lenders before you apply.

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How Student Loans Can Affect Your Credit

When you apply for a private student loan, lenders will review your credit worthiness before they loan you money. Your credit score will also determine your interest rate. In other words, borrowers with stable income and good credit history will pay less for their loans.

Undergraduate federal student loans don’t require a cosigner or a credit check.

Having student loan debt affects your credit the same way your other loans do. This is important to know if you’re planning to borrow money from another source. For example, student loan debt increases your debt-to-income ratio, which can hurt your chances of getting approved for a mortgage or other loan.

However, student loan debt can also help you build your credit. Making on-time regular payments could improve your credit score – another measure lenders use to determine your ability to make payments.

And of course, the opposite is true if you miss a payment so be sure to stay on top of your loan payment every month.

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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 FAFSA is your application for federal student 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

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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.

The loan may require a cosigner if you have a limited credit history (which most students do). 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 their credit, too.

Once you find a cosigner, be sure to have their information handy when you complete your application.

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Federal Student Loans Versus 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. Here are some key differences between a federal student loan and a private student loan:

Interest rates

Congress sets the interest rates for federal student loans, which are typically lower than interest rates for private student loans. Private student loan interest rates are set by the lender, and are based on the borrower’s credit worthiness. These loans may have a variable interest rate or a fixed interest rate. Variable rates may start out lower, but they will fluctuate over time based on economic conditions.


Just about anyone can get a federal direct student loan. The Department of Education requires a credit check for federal PLUS loans, but you may still be able to qualify even if you have an adverse credit history. Private student loans, on the other hand, always require a credit check and may also require a cosigner if you don’t have establish credit.

Some federal loans, such as a direct subsidized loan, are based on financial need. Other federal student loans, such as a federal direct unsubsidized loan, are not based on financial need, but there are limits as to how much you can borrow. Private student loans are not based on financial need.


The only way to get a federal student loan is to file the FAFSA and select an option from your financial aid award letter. Borrowers must submit the FAFSA by a certain deadline for each year that they need help paying for college. But, you can apply for a private student loan at any time throughout the year.


With a federal loan, you are borrowing money from the government. However, once the government disburses the funds they will assign the loan to a loan servicer to manage the account. The loan servicer is who you would contact if you wanted to change your repayment plan, apply for forbearance or deferment or update your contact information.


You can refinance a private student loan to another private student loan with a lower interest rate or a better repayment term. You can’t, however, refinance a federal student loan into another federal student loan. That means once you refinance a federal student loan, you give up government benefits like student loan forgiveness options. To keep your federal benefits, you might consider consolidating your loans into a direct consolidation loan.

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.

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What Can You Pay for With Student Loans?

Your total college costs will include much more than just tuition. Room and board alone could easily cost over $10,000, and that doesn’t include transportation, books and “fun money”. But, can you use your student loans to pay for housing and living expenses?

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.

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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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