After months of waiting, it finally arrives: a fat envelope from your dream school with an acceptance letter tucked inside. After the victory dance and initial excitement wear off, you look at the rest of the information and are shocked by college costs. How on earth will you pay for it?
The New York Federal Reserve Bank reported that the outstanding federal student loan balance in the U.S. was $1.58 trillion in May 2021. So if you’re like many people, you’ll need to take out student loans. However, figuring out your borrowing options can be overwhelming because there are many types of loans.
To learn how to apply for student loans, you must first understand your education loan options and eligibility requirements.
Federal vs. private student loans
When it comes to student loans, there are two main types: federal and private. Before you turn to private student loans, it’s a good idea to use up all available federal loans.
Federal loans typically have lower interest rates than private loans. Additionally, federal loans don’t have minimum income requirements and most don’t require credit checks. They also have more repayment options, which could make it easier to manage your debt after you graduate.
|Federal student loans
|Private student loans
|The U.S. Department of Education
|Annual loan limits
|Varies by lender, but typically up to the total cost of attendance
|Varies by lender
|Credit check required?
|Yes, lenders typically require good to excellent credit
|Yes, unless you meet the lender’s income and credit score requirements on your own
|Payments generally don’t begin until after graduation
|Varies by lender; some might require payments while you’re still in school
|Eligible for loan forgiveness?
How do federal student loans work?
Federal student loans are available through the federal Direct loan program offered by the U.S. Department of Education. There are federal student loan options available to undergraduate students, graduate and professional students, and parents of undergraduate students.
Because of their relatively low fixed interest rates and repayment options, federal loans are generally a good first choice for eligible students. However, these loans do have specific eligibility requirements.
Federal financial aid is available only to U.S. citizens and certain eligible non-citizens, such as those granted asylum from another country. You must have a valid Social Security number, though there are certain exceptions. For instance, a Social Security number isn’t required if you’re a student from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau.
To be eligible for federal loans, you must also be pursuing a degree or certificate from a school that participates in the federal Direct program. Students ages 18-25 who were assigned as male at birth must also register with the Selective Service
Types of federal loans
There are four types of student loans to pay for college:
- Direct Subsidized Loan: Eligible undergraduate students who have a demonstrated financial need might qualify for Direct Subsidized Loans. With these loans, the government pays the interest that accrues while you’re in school, during your grace period, and any periods of deferment.
- Direct Unsubsidized Loan: Eligible undergraduate students could qualify for Direct Unsubsidized Loans regardless of financial need. These loans have the same interest rate and disbursement fee as Subsidized Loans, but you are solely responsible for the payment of all interest that accrues.
- Grad PLUS Loan: Eligible graduate and professional students could apply for Grad PLUS Loans to pay for school. With these loans, eligible applicants could borrow up to the total cost of attendance. PLUS Loans require you to undergo a credit check. If you have an adverse credit history according to the U.S. Department of Education’s guidelines, you might need an endorser — similar to the role of a cosigner— to qualify for a loan.
- Parent PLUS Loan: Eligible parents who want to help their children pay for their undergraduate degrees could apply for Parent PLUS Loans, also called Direct PLUS Loans. With these loans, you could borrow up to the total cost of attendance, but a credit check is required. If you have an adverse credit history, you might need an endorser to take out a loan.
|Annual loan limits
|Direct Subsidized Loans
|Undergraduate students with financial need
|3.73% (as of July 22, 2021)
|Up to $5,500 depending on school year and dependency status
|As of July 22, 2021:
|Up to $20,500 depending on school year, dependency status, and other loans
|Graduate or professional students
|6.28% (as of July 22, 2021)
|Total cost of attendance
|Parents of undergraduate students
|6.28% (as of July 22, 2021)
|Total cost of attendance
Federal loan aggregate maximums
Federal student loans come with lifetime borrowing limits. Once you reach the limits below, you will be unable to qualify for additional loans and will have to find another financing option if needed.
- Undergraduate independent students*: The aggregate maximum is $57,500. No more than $23,000 of that amount can be in Subsidized Loans.
- Undergraduate dependent students*: The aggregate maximum is $31,000. No more than $23,000 of that amount can be in Subsidized Loans.
- Unsubsidized Loans for graduate students: The aggregate maximum is $138,500 and includes loans used for undergraduate study. No more than $65,500 of that amount can be in Subsidized Loans.
- Grad PLUS Loans: There is no aggregate maximum.
- Parent PLUS Loans: There is no aggregate maximum.
*Note: Undergraduate independent students fall into one or more categories: at least 24 years old, married, graduate or professional student, veteran, member of the armed forces, has legal dependents other than a spouse, is an orphan, homeless, or at risk of being homeless. Undergraduate dependent students are students who don’t meet these criteria.
How to apply for federal student loans
To apply for federal student loans, you must complete the Free Application for Federal Student Aid (FAFSA). According to the Office of Federal Student Aid, the FAFSA usually takes less than an hour to complete.
To complete the FAFSA and apply for federal student loans, follow these steps:
- Create a Federal Student Aid (FSA) ID: The FAFSA is easier to complete if you have an FSA ID. Eligible applicants can create one at StudentAid.gov.
- Gather documentation: The FAFSA will prompt you to enter your Social Security number, tax return information, and asset amounts. If you’re a student and dependent on your parents, you’ll also have to provide your parents’ tax return information and asset amounts, including their bank account and investment account balances.
- Add your selected schools: On the FAFSA, you will be asked to enter the list of schools you’re considering. Include any college you think you might attend so you can potentially get aid offers from multiple schools.
- Apply: Applicants can submit the FAFSA online. You can also choose to download a PDF version of the FAFSA and send it through the mail. You can download the PDF version at FAFSA.gov.
After sending in your application, you will receive an email notifying you that your FAFSA form is being processed. In some cases, a college might reach out to you for additional information. You won’t have to worry about passing a credit check unless you’re applying for PLUS Loans.
If you’re accepted into college and eligible for financial assistance, the school will generally send you a financial aid award letter. The letter will include all the financial assistance you could receive based on the information you submitted in the FAFSA, including grants, scholarships, and federal student loans. The college’s financial aid office typically handles your aid, so you could then notify them according to your award letter’s instructions if you’d like to move forward with any aid options they’ve outlined.
There is a federal FAFSA deadline, but states and colleges might also have different deadlines. Review your state’s FAFSA deadlines, and contact your intended college to find out when their due date is to ensure you get considered for all the financial aid options available.
How do private student loans work?
The federal government doesn’t issue private student loans; instead, these loans are offered by banks, credit unions, and online lenders.
Rates, terms, and loan amounts for private student loans can vary by financial institution. Unlike federal loans, which have fixed interest rates, private loans can have either fixed or variable rates. The rates are generally higher than you might get with a federal student loan, and rates are typically determined by your credit, income, whether you have a cosigner, and your selected loan term.
Although federal loans are generally available to eligible undergraduate borrowers regardless of credit or income, private student loans work very differently. Lenders typically require borrowers to meet specific credit score and income minimums to qualify for a private student loan. If you don’t meet a certain lender’s criteria, you might need a cosigner with excellent credit and steady income to apply for a loan with you and share responsibility for the payments.
Most private lenders require you to be a U.S. citizen with a valid Social Security number attending a two- or four-year school. However, some lenders might issue loans to international and DACA students as well.
Private student loan repayment options
Once you’ve selected a loan amount and term, you can pick a repayment plan for your private student loan. Loan terms and repayment options typically vary from lender to lender. In general, loan repayment periods range from five to 20 years, and the shorter the loan term you choose, the lower your interest rate could be.
Depending on the lender, you might have the following repayment options:
- In-school repayment: You make full principal and interest payments while you’re in college.
- Flat repayment: If your lender allows you to make flat loan payments, you pay a fixed amount — typically $25 — every month while you’re in school. Once you graduate, you make full principal and interest payments.
- Interest-only repayment: You make payments while in college to cover the interest that accrues. You’ll make full payments once you graduate.
- Deferred repayment: You could postpone your monthly payments until you graduate. This plan is often the most expensive repayment option because more interest accrues.
How to apply for private student loans
You can apply for private student loans through the lender’s website. When you apply, you’ll typically need to provide your Social Security number, employer information, proof of income, and information about your school and degree program. If you’re applying with a cosigner, the cosigner might need to complete a separate loan application.
It’s generally wise to get rate quotes from multiple lenders. Although you can research lenders on your own, using companies like Credible and LendKey could help simplify the process. You can generally fill out one form with these sites and get rate quotes from top student loan lenders.
It's worth noting that if you have private loans, exploring your options for refinancing student loans after you graduate and start working could help you to pay them off faster. With a refinance, you might qualify for a lower interest rate and different repayment term, which could allow you to reduce your student loan debt.
How do you qualify for student loans?
To qualify for federal student loans, you must complete the FAFSA by federal, state, and college deadlines. Qualifying U.S. citizens and eligible non-citizens attending schools that participate in the Direct Loan program can apply for federal loans.
For private student loans, you could qualify for a loan if you meet the lender’s income and credit score criteria. If you don’t have an established credit history or don’t earn enough money to get approved for a loan on your own, you could choose to add a cosigner to your application to increase your chances of approval.
Is it hard to get a student loan?
If you’re wondering how to get a loan, the application process typically isn’t difficult. With federal loans, you can apply by completing the FAFSA. It can be done entirely online and typically takes less than an hour to complete.
If you want to apply for private student loans, you can choose to compare rates and submit your application online. Depending on the lender you work with, the application process could take just a few minutes.
What’s the maximum amount of student loans you can take out?
The maximum amount you can borrow depends on the loan type, grade level, and lender.
With federal student loans, the annual maximum for undergraduate students ranges from $5,500 to $20,500. Graduate or professional students and parent borrowers could potentially borrow up to the total annual cost of attendance.
If you take out private loans, you could potentially borrow up to the total cost of attendance, depending on the lender. However, some lenders may have annual or aggregate limits.
If you have sticker shock from the cost of college and are worried about how to pay for school, consider exploring all your financial aid options. There are many scholarships and grants you could potentially qualify for beyond what your college offers, and you could also pick up one of the best side hustles or a part-time job to help make costs more manageable.
If you need additional money to pay for college, federal student loans are a good place to start. If you’re eligible for federal loans, they’re a smart option because they have lower rates and more borrower benefits than private loans. Once you reach the annual or aggregate maximums, private student loans can cover your remaining costs.