
How to get a student loan: complete guide

Undergraduate students at public universities borrow on average $32,880. Meanwhile, average college tuition and fees have risen 1,200% since 1980, far more than the 236% increase in inflation over the same period.
Unless their parents have been saving money for a long time, most college students need extra help to pay for their schooling. For many, scholarships and grants are not enough. To make up for the shortfall, most will end up borrowing money – from either the federal government or private lending institutions.
There are many types of student loans out there, and some are better than others. This student loan guide is a brief overview of how student loans work: what you need to know about each loan type and how they can help you pay for college.
Am I eligible for student loans?
For federal student loan eligibility, you just need to be a U.S. citizen or permanent resident with a minimum age of 18. When applying for student loans, you should be enrolled at least part-time at an eligible school.
How to get a student loan

- To apply for federal student loans, you first need to fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA can be completed and submitted electronically. This should only be done via the official government website.
- Some schools may also require you to fill out a CSS profile, which is a little like the FAFSA, but it is used to determine eligibility for financial aid from the schools themselves, rather than the government.
- Once you have completed the form, the information is sent to the schools of your choice, and they will come back to you with a financial aid package that includes federal student loans, work-study options and grants, as well as any relevant scholarships offers.
Understanding student loans
The various types of student loans generally come from either the government or private lending institutions, such as banks and credit unions. Where your loan comes from matters, as different loan types offer varying rates. Read the conditions in your financial award letter carefully to understand which is the best student loan for you. Keep in mind that subsidized federal student loans are the most desirable.
Federal Direct Loans
Loans from the government are called Federal Direct Loans. There are many different types of Direct Loans, including:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
Federal loans can be subsidized or unsubsidized. The main difference is that the interest on subsidized loans doesn’t start accruing until you graduate, whereas the interest on unsubsidized loans starts accruing immediately. Some people may refer to Direct Subsidized or Unsubsidized Loans as Stafford or Perkins loans, but technically these no longer exist.
Parent PLUS and Grad PLUS loans
If subsidized and unsubsidized loans are not enough to pay for college, you can access PLUS loans from the government.
Parent PLUS loans are in a parent’s name, and the parent is responsible for paying for them. Depending on the situation, these loans might be eligible for some income-driven repayment options.
Similarly, if graduate school costs more than what you can get with regular federal graduate student loans, it is possible to get Grad PLUS loans, also called Direct PLUS loans, to cover the remaining costs.
If you are considering applying for a PLUS loan to pay for school, remember that in some instances, private loans may have better terms than Parent PLUS or Grad PLUS loans. Also note that a good credit score is important if you want to take out a PLUS loan.
Private loans
If your financial aid package is not enough to cover all your costs, you can take out a loan from a private lending institution, like a bank or credit union. In some instances, private student loans may have better terms than federal PLUS loans. However, not all private loans are created equal, as some lenders make use of predatory lending practices that can leave you in much more debt that you originally planned.
Direct Consolidation Loans
A Direct Consolidation Loan is offered by the federal government as a way to move all of your loans into 1 payment and 1 interest rate. With a Direct Consolidation Loan, you are eligible for certain income-driven repayment programs, as well as for federal loan forgiveness programs.
Private vs federal student loans
There are several key differences between private and federal loans. Before taking out a loan, make sure you consider their advantages and disadvantages carefully.
Private loans
Lower interest rates set by market interest rates
Offer hardship forbearance of up to 24 months
No student loan forgiveness options
Harder to get and might need co-signer
Require good credit
Federal student loans
Higher interest rates set by Congressional formula
Option to choose from 4 different repayment options
Availability of student loan forgiveness programs
Easier to get because of lack of credit requirements (except PLUS loans)
What can student loans be used for?
Student loans must be used only for specific expenses. If your school finds out you have used your loan to pay for nonmandated expenses, you may be reported and become liable for the money spent.
» Read: Guide to financial literacy for students
How much can I borrow in student loans?
Federal student loans come with caps on annual borrowing amounts. The cap is based on your year in school.
» Read: Student loan horror stories
Paying back student loans
Unless you are eligible for a loan forgiveness program, the loans you take out for college will need to be paid back.
Remember that there are a variety of ways to pay off your student loans depending on your income and loan profile. If you have a lot to pay back, you may want to consider loan refinancing or federal student loan consolidation. The primary difference is that loan refinancing turns your loans into a single private loan, whereas with federal student loan consolidation you will be paying a single loan back to the government.
There are many things you can do to make the loan repayment relatively smooth: remember to plan ahead, be frugal, and set up automatic payments when you can.
» Read: Alternative ways to pay for college
Final thoughts
Although grappling with student debt is a giant hurdle on the road to financial stability, a college education remains a worthwhile investment. To avoid excessive debt, students need to think very carefully about the loans they take out and whether the degree they wish to pursue is worth the money. In college, careful budgeting is key. Do research on the earnings various colleges and degrees generally offer – this could spare you years of paying off debt down the road.
FAQ
What are my options for repaying student loans?
For federal loans, there are a range of options available depending on your specific situation. These include standard repayment, graduated repayment, income-based repayment, and extended repayment plans. For private loans, you need to contact your lender to find out your options.
What determines how much I receive in subsidized and unsubsidized loans?
The amount you’re eligible to receive for Direct subsidized loans depends on your demonstrated financial need determined by the FAFSA. For Direct unsubsidized loans, you are typically offered the maximum annual amount as long as you are eligible to receive financial aid. If you are close to reaching your lifetime limit for direct subsidized/unsubsidized loans, the amount you are eligible to receive might be less than the annual limit. The lifetime limit for subsidized loans is $23,000 while the combined limit for subsidized/unsubsidized loans is $31,000.
What determines how much I receive in Parent PLUS/Grad PLUS loans?
Once you are approved for a PLUS loan, you are eligible to borrow up to the cost of attendance minus any other financial aid you have received (scholarships, other loans, etc.). Cost of attendance varies by school and is based on tuition, fees, and other factors.
What if I can’t repay my loans?
The U.S. Department of Education provides deferment and forbearance options for students who need to take a break from paying student loans. If you have private loans, you should reach out to your lender to discuss options. It is important to note that interest still accumulates while you are not making payments for all types of student loans except direct subsidized loans.