How To Apply For Student Loans: Process And Resources

Applying for a student loan has become a necessary part of the college application process for many Americans. The U.S Department of Education reported that 43.2 million borrowers had student loans by the end of 2023.

Average college tuition for the 2023-2024 school year ranged from $11,260 for public in-state 4-year universities, $29,150 for public out-of-state four-year universities, and $41,540 for private 4-year universities. So if you need help paying for college, you’re certainly not alone.

Securing financial aid in the form of subsidized loans, federal loans or help from federal student aid programs can often help you better offset those education and housing expenses.

Here’s a closer look at how to apply for student loans and what to be aware of when it comes to interest rates, monthly payments and repayment schedules.

Types Of Student Loans

For many students, applying for federal education assistance makes sense; you may have to fill out a Free Application for Student Aid (FAFSA) to get scholarships from your university anyway. Many borrowers may be offered a mix of subsidized and unsubsidized loans. To apply for both subsidized and unsubsidized federal student loans, you’ll need to complete a FAFSA.

But it’s possible that the federal student loan options you’re offered won’t fully cover your tuition and housing expenses. If that’s the case, you may consider a private student loan to bridge the gap.

If you’re considering using student loans to pay for college, it’s important to know the difference between the types of loans.

Subsidized Loans

A subsidized student loan is typically a low interest loan from the government that can be put toward educational expenses and won’t accrue interest until you unenroll or graduate from university. To obtain one, you must prove (by filling out the FAFSA) that you need financial help covering the costs of higher education. The school that you apply to will determine how much money you can borrow in total.

The federal government subsidizes this type of student loan by paying the accrued interest for a period of time. This includes while the student is in school at least half time, for the first 6 months after graduation or if the loans are in deferment.

Unsubsidized Loans

Unsubsidized student loans can be obtained by eligible undergraduate, graduate or professional students in cases where applications are not based on financial need. As with subsidized loans, the total amount that you can borrow will be determined by your chosen college, university or trade school.

Unlike with subsidized loans, you’ll be responsible for the interest that accrues on your unsubsidized loan while you’re in school. That means interest will accrue even while you’re attending school or during grace periods. You won’t be required to make payments on the loan until 6 months after you leave school, though.

Be sure to factor the interest into your repayment plan. You’re also allowed to make payments at any time if you want to stay on top of the interest while you’re still in school.

Private Loans

Private student loans are typically borrowed from a bank, financial institution or your university. Interest rates on private loans may be different from federal loan rates and will have their own set of loan terms.

If you think you’ll need a private student loan to pay the remainder of your education costs, you should shop around to find the best interest rate and terms offered to you. Your eligibility for private loans and the interest rate you’re offered may depend on your financial profile including credit score, debt-to-income ratio, age and citizenship status.

To apply, you can do a search to find lenders and see if you prequalify, or you can use an online tool to compare loan terms. You should also check with the lender to make sure your university is an approved institution. Once you’ve shopped around for loan terms you’re comfortable committing to, you can apply directly with the loan provider. You may be asked to provide information about yourself, your cosigner (if applying with one) and your university.

If your loan application is approved, the money may be disbursed directly to your university and you may receive any leftover funds.

Parent Loan for Undergraduate Students (PLUS)

If you’re a parent of a student, you can apply for a PLUS (Parent Loan for Undergraduate Students) loan. Approval for this type of student loan isn’t based on financial need. To apply for one, borrowers will need to go through a credit check. Additional requirements may be applied if the applicant isn’t deemed creditworthy.

How To Prepare Your Federal Student Loan Application

If you’re applying for a federal student loan, the first thing that you’ll want to do is review the FAFSA form.

The FAFSA form is required to qualify for federal student loans and determines your overall eligibility for federal student loans. It may also help you qualify for federal student aid like work-study programs and grants.

In addition to applying for FAFSA initially, you’ll need to fill out the form every year that you’re enrolled in college to continue to receive federal student aid or loans. The FAFSA can be quite comprehensive and complicated, so get an early start if you can. It will require you to submit a considerable amount of information including tax returns.

Know that the FAFSA will ask for personal information such as your name and date of birth, plus extensive details about your financial situation. If your parents filed you as a dependent on their most recent tax return or if you don’t meet any of the independent student requirements, you’ll need to include your parents financial information on your FAFSA application and any of your own.

You’ll need to compile several documents, including federal tax returns, records of untaxed income and information on your parents’ financial assets, if you’re a dependent. You may also need to include balances in financial accounts, any investment holdings and other assets.

Apply Through The FAFSA

Before you apply for FAFSA, check your timing. The FAFSA deadline is set to June 30 of every year. You’ll need to apply beforehand if you want to obtain potential student loan funding for the fall semester of the current school year. After the deadline date, students will no longer be eligible to submit their application.

The FAFSA opens on October 1 for the following school year. So for the 2024-2025 school year, the FAFSA opened on October 1, 2023. Student aid is awarded on a first-come, first-served basis, so you’ll want to submit your application as soon as possible. Waiting to the last minute means you could miss out on thousands of dollars in federal loans, grants and/or scholarships.

The U.S. Department of Education further recommends filling out the FAFSA form online to save time and effort. As part of the application process, you’ll need to list at least one school to receive your information. Then you'll need to determine your dependency status and input your parents' information. Afterward, you'll add all other relevant financial information.

After completing the form, you can submit your application through the FAFSA website or app. You’ll then wait for the school’s financial aid office to send you a letter detailing what, if any, federal student loan programs you qualify for.

Afterward, you’ll have 3 days to review your information and fix any mistakes present in the form. In some cases, you’ll need to submit documentation for verification purposes such as income tax returns. You’ll want to provide any requested details or documents in a timely fashion prior to the deadline.

How To Apply For Private Student Loans

Students can also apply for private student loans, which are available as an alternative or supplement to federal student loans. Typically, you might apply for a private loan because you’re unable to qualify for a government-based loan program or have maxed out on the total amount of federal loans you can borrow.

Lenders often dictate terms of private student loans, and no two private student loan options are created equal. Keeping this in mind, you’ll want to do your homework and compare the upsides and downsides of each loan type or offer when doing your research.

Shop Around For Lenders

It’s usually unwise to accept any private student loan offer that is made to you outright. It’s important to shop around for lenders and consider the many types of loans and terms available to you.

On the upside, private student lending is a competitive business – meaning you may enjoy a variety of lenders to pick from. Generally, you’ll want to research and consider options from three to five lenders.

Your goal is to review different student loan providers to find a lender that offers the rates and terms that best suit you. Consider asking the financial aid office at your college for a list of potential options or read third-party reviews online as you’re thinking about how to apply.

As you go about reviewing different private student loan options, consider these variables:

• Interest rates
• Fees
• Repayment options
• Loan terms and conditions
• Customer service
• Responsiveness
• Flexibility
• Loan deferment/forbearance

Gather The Paperwork And Apply

When applying for a private student loan, often less paperwork is required than when applying under FAFSA. Private loan application requirements will differ from lender to lender, but you’ll typically need to provide personal details such as your college of choice, address and Social Security number. Keep financial documents, such as your federal tax returns, W-2 forms and financial account handy before applying as well.

Once you proceed with the full application, the lender will conduct a hard credit inquiry, which could affect your credit score. After that, it’s simply a matter of waiting to see how much you’ve been approved for and then signing your loan documents.

Look Into Grants And Scholarships

Prospective students should also apply for as many scholarships as they’re eligible for. Doing so may provide you with free money to help offset tuition, housing and living expenses. To find grants and scholarships, resources you might turn to include:

• Your school’s financial aid office
• Federal agencies and offices
• State or national scholarship search tools
• State or national grant agencies
• Charities and nonprofits
• Foundations and civic groups
• Religious, ethnicity-based or community organizations
• Professional associations and industry organizations
• You or your parents’ employers

Pros And Cons Of Federal Student Loans

Be advised that federal student loan offerings typically provide considerably more flexibility than private student loan options. With the exception of PLUS loans, borrowers don’t necessarily need to pass a credit check to be considered for a federal loan, which could make them easier to qualify for.

Likewise, if you receive a subsidized loan, you won’t need to pay interest while you’re in school, during the grace period or deferment. Another key perk is that interest rates on federal student loans are fixed, meaning that they’ll remain the same throughout the lifetime of your loan.

The single biggest benefit you may recognize with a federal student loan pertains to its repayment plan. Overall, federal loans offer borrowers more options when it comes to paying off their loans. If you can’t afford your current payments, you can apply for deferment or forbearance, which allows you to temporarily stop making payments.

Federal student loan repayment plan options are offered based on your current income. With some repayment plans, like the Saving on a Valuable Education (SAVE) Plan, you may not be required to make a payment at all, or may not be required to pay all of the accrued interest.

The federal government also offers loan forgiveness programs to those who qualify – potentially saving borrowers thousands in student loan payments. Under the terms of the Public Service Loan Forgiveness (PSLF) program, eligible borrowers are those who have made 120 consecutive qualifying payments while working full-time for a qualifying employer under a qualifying repayment plan. Qualifying employers include government organizations and certain not-for-profit organizations.

The main disadvantage of federal student loans is that there is a cap on the amount you can borrow based on your financial need which may limit your options. There may also be limits to what you can borrow to pay for summer terms based on how much you have already borrowed during the regular school year.

While a federal student loan may be the best option for many students, it is still debt and can make your financial life more complicated after graduation. It is also important to note that student loans are one type of debt that may not be discharged even in bankruptcy, so it’s important to borrow wisely and commit to repayment.

Pros And Cons Of Private Student Loans

On the flip side, private loans offer some benefits that federal student loans don’t. Perhaps the most prominent is that there’s no cap on private loans, which makes it possible to borrow more money for tuition, housing, books and other common educational expenses.

You may find the opportunity to take out a larger loan helpful, depending on your school and situation. Similarly, private student loan options may come in handy as an option for those who’ve already explored options for federal student loans, grants and scholarships.

Interest rates for private student loans can also be fixed or variable. This means that you’ll enjoy the option to pick between more predictable monthly payments or opt for variable payment opportunities which may come with lower interest rates attached. Private student loan borrowers can also access repayment plan options such as making fixed or interest-only payments while still enrolled in school, which can help lower overall loan costs.

Repayment plans for private student loans aren’t generally as flexible as those offered by federal student loans, however. For example: You cannot receive an income-driven repayment plan under the lending terms of a private student loan, nor will you be able to ask a private lender to have these loans forgiven.

As private student loans are based on your credit financial situation, you could be subject to higher interest rates if your credit isn’t ideal. In fact, if your credit score is on the lower side, you may need to ask a co-signer (such as parents or other loved ones) to co-sign onto the loan to qualify.

The Bottom Line: Know That Money is Available, But Be Responsible

Discovering how to apply for student loans doesn’t have to be a difficult or time-consuming process. But it does require you to do some upfront budgeting, planning and research, and you’ll have to compile necessary documentation and information.

Federal student loan programs offer opportunities in the form of flexible repayment plans and lower interest rates if you qualify. Private student loans can be a helpful stand-in if you don’t qualify for federal loans or need to go above the federal loan cap.

Whichever student loan program you pick, avoid overborrowing and apply for as many grants and scholarships as you can. By doing so, you can ensure that you’re getting started on the right foot after graduating and minimize the burden of student loan payments down the road.

If you’re planning on applying for student loans, it’s a good idea to understand your existing financial situation to know what you can afford. Sign up for the Rocket Money^SM app today to get a better view of your financial life.