In some ways, student loans are great—they make education more accessible for millions of college students across America who otherwise might not be able to afford the cost of college. A higher education degree can be a catalyst for a successful career.
On the other hand, talk to the people in your life who are paying off their student debts, and it’s doubtful you’ll find many who are enthusiastic about it. According to one 2023 study, 54% of U.S. adults with debt say they always or often feel stressed because of their debt.
In a 2019 poll by Pew Charitable Trusts, 7 in 10 people said student loans are a reasonable choice because college is beneficial, but nearly 9 in 10 expressed concern about the burden of repayment.
These factors are a few reasons why choosing your loan options wisely from the get-go is important. Depending on whether you opt for public or private loans, you could be facing very different interest rates, repayment options, and more.
We’ll walk you through your options and how to set yourself up for future repayment success.
Step 1. Preparing to Apply
As you consider what type of student loan is best for you, it’s crucial to understand your options. Most students will choose between two: federal student loans and private loans.
Researching Loan Options
At the most basic level, the two broad categories are federal and private. Federal loans are issued directly by the U.S. government, whereas private loans come from private financial institutions.
Federal student loans are made by the U.S. government. A federal loan, such as a 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.
Beyond that, many stripes and varieties of federal student loan programs should be considered. Note that the amount you can borrow through the Federal Direct Loan Program depends on your dependency status and your year in college.
Type |
Who Is the Borrower |
Borrowing Limits |
Additional Notes |
Federal Direct Loan – subsidized |
Undergraduate student |
$3,500 – $5,500 per year |
Also known as the Federal Stafford Loan. Dependent on financial need. |
Federal Direct Loan – unsubsidized |
Undergraduate student |
$5,500 – $7,500 per year for dependent students
$9,500 – $12,500 per year for independent students |
Also known as the Federal Stafford Loan. Not dependent on financial need.
Depending student aggregate limit of $31,000. Independent student aggregate limit of $57,500. |
Federal Direct Loan – unsubsidized |
Graduate student |
$20,500 per year |
Aggregate loan limit of $138,500. The graduate aggregate limit includes all federal loans received for undergraduate study. |
Federal Direct PLUS |
Graduate and professional students, or parents of undergrads |
Equal to cost of attendance, minus other aid. No aggregate loan limits. |
Federal unsubsidized loans have a much lower origination fee than Grad PLUS, but the maximum borrowing limit for graduate school is $138,500. |
Federal Student Loans Versus Private Student Loans
Private student loans, on the other hand, are loans offered by banks or credit unions. When borrowers exhaust their college savings and reach their federal student loan limits, they may turn to private student loans to help cover the remaining cost of attendance. Students will generally need a parent or family member to co-sign.
Federal Student Loans Versus Private Student Loans
When it comes to federal versus private, how do you know which option is best? 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 creditworthiness. These loans may have a variable interest rate or a fixed interest rate. Variable rates may start out lower but fluctuate over time based on economic conditions.
- Eligibility. 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 qualify even with 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 established credit. Federal loans are based on financial need, whereas private loans are not.
- Applying. 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. However, you can apply for a private student loan anytime throughout the year.
- Servicing. With a private loan, you are borrowing from a private lender. With a federal loan, you are borrowing money from the government. However, once the government disburses the funds, it will assign the loan to a loan servicer to manage the account. You would contact the loan servicer to change your repayment plan, apply for forbearance or deferment, or update your contact information.
- Refinancing. If you refinance a student loan, you enact consolidation (combining multiple loans into one monthly payment); however, federal loans will lose government protections like student loan forgiveness options.
Gathering Necessary Documentation
Some documentation that you might need—depending on the type of loan you apply for—could include:
- Valid driver’s license or other ID
- Social Security number
- Income and credit history for you or your cosigner
- Recent tax documents for you or your cosigner
- Bank account and asset information for you or your cosigner
- Payment obligations like other loans (mortgage, credit card, car loan, etc.) for you or your cosigner
Step 2. Applying for Federal Student Loans
Applying for federal student loans can seem overwhelming, but the process is actually straightforward. Take a look at the steps you will need to follow.
Complete the Free Application for Federal Student Aid (FAFSA)
Start by filing the Free Application for Federal Student Aid (FAFSA), which the federal government uses 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; for example, the 2025-2026 FAFSA will open on October 1, 2024.
Some financial aid is awarded on a first-come, first-served basis, so it’s important to file as soon as possible. You can access the FAFSA online at studentaid.gov. Remember to fill out and submit the FAFSA as soon as possible to maximize your chances of getting the most aid.
Even if you don’t think you’ll qualify for need-based aid, it’s probably worth filling out the FAFSA because federal aid doesn’t have an income cut-off; it factors in things like family size and what year you’re in at school. FAFSA is also the key to federal work-study funds and some scholarships or grants offered directly from your school.
Note that you’ll need to file a FAFSA for every year you attend college. That said, once a year is enough—you don’t have to apply every semester.
Deadlines and Important Dates for FAFSA
Keep in mind the following dates and timelines as you prepare to apply:
Your school’s deadline: your school will typically have the earliest deadline, usually well before the academic year begins. It’s important to look up your school’s FAFSA deadline and make sure your form is submitted before then.
Your state of legal residence deadline: to qualify for state aid, you must submit your FAFSA form by your state of legal residence’s FAFSA deadline.
Federal deadline: The US Department of Education sets the federal deadline, typically the latest of the three. It is June 30 of each academic year.
Compare Federal Student Loan Offers
Once you complete and submit the FAFSA, you’ll wait for financial aid offer award letters from the financial aid offices of 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
Receiving Your Federal Loan
Generally, you will receive your loan money in at least two payments called disbursements, and in most cases, at least once per term (semester, trimester, or quarter). Typically, the school first applies your loan money towards tuition, fees, and room and board; any remaining money is paid to you directly for other education expenses.
Learn more
- How Student Loan Interest Works
- What is Capitalized Interest?
- Fixed vs. Variable Interest Rate Student Loans
Step 3. Applying for Private Student Loans
If federal student loans aren’t sufficient to cover the costs of your education, private student loans are your next step. You can apply for private student and parent loans through private lenders like banks, credit unions, or online lenders outside of the government.
How to Compare Private Student Loan Offers
It’s important to research your options to ensure you’re getting the lowest interest rate. You’ll also want to compare 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.
While federal student loans don’t require a credit check, private student loans do. Typically, lenders look for a positive repayment history and a credit score in the upper 600s or higher. You may also have to meet the minimum income requirement to prove that you can repay your student loan.
Steps to Apply for Private Student Loans
Before applying for private student loans, you should consider the risks. Unlike federal Direct Subsidized Loans, these loans don’t offer the same protections as federal loans; the government won’t pay for your interest while you’re still in school. Once you graduate, you won’t have access to federal income-driven repayment plans.
First, you must choose a lender—and as with other types of loans, it’s always wise to shop around and compare factors such as eligibility requirements, interest rates, and loan terms. You can find and compare private student loan lenders here.
Once you’ve found the private student loan that best fits your needs, you will need to fill out an online application. Be prepared to submit information about yourself, your school, your potential major, and provide proof of income.
When your student loan application is approved, the lender will typically send funds directly to your school to cover tuition and other necessary fees while the remaining funds are dispersed to you.
Step 4. Understanding Student Loan Repayment Terms
Before you apply for a student loan, you should fully 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 a private lender. In either case, the borrower typically has to sign a loan agreement acknowledging 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. However, federal borrowers may be eligible for flexible payment plans or forbearance during unemployment.
Private student loans are a different story. If you can’t make your private student loan payments, you may not have the option to postpone or lower payments through deferment or forbearance. You won’t have the option for forgiveness, either, through programs like Public Service Loan Forgiveness.
Understanding how student loans work before you apply is important so you 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 and propel you into a promising career. Before starting the process, be sure you understand the varying factors, jot down key deadlines, and educate yourself on future repayment options.
If you begin early enough, you can avoid scrambling to finish everything on time; the most important deadline is filing the FAFSA. If you miss them, you won’t be eligible for federal student aid, including federal student loans, for a year.
At the end of the day, you’ll own these choices and face the consequences when you repay your loan amount down the road—and you’ll also own the joys and the benefits of higher education.
