Figuring out how to pay for college can feel like a puzzle, and taking out student loans can impact your finances šfor years after graduation. But by borrowing the right type of debt and managing it properly, you can set yourself up for success today.
Review the differences between federal and private student loans and see the steps to apply for each.Ā
- 2 types of student loans
- How to take out a federal student loan
- How to take out a private student loan
- Alternatives to student debt
- Borrowing responsibly for school
Review the 2 types of student loans
When it comes to borrowing for college, there are two types of student loans available: federal andā private.
The Department of Education offers federal student loans. These have fixed, standardized interest rates, and benefits like flexible deferral and forbearance, income-driven repayment plans, and loan forgiveness programs. Plus, most federal loans donāt require a credit chį£eck or cosigner. Because of these perks, they are the preferrešd option for many students.
Private student loans, on the other hand, are offered by banks, credit unions, and online lenders. These loans are based on your credit profile, and you may need a cosigner if you don’t have strong credit. In addition, the interest rates you qualify for are also based on your credit.
While private student loašns can sometimes have higher rates and fewer perks, they may be necessary for borrowers wšho donāt receive enough funding from federal loans and other financial aid to cover the total cost of their education.
How to take out a federal student loan
While federal loans are pąµ²referable ā±to many students, the application process can be complex. Hereās what youāll need to do.
1. Start with the FAFSA
The Free Application for Federal Studeą“nt Aid (FAFSA) is a crucial first step in securing federal loans. You must fill out this form each year ą¦you attend college to determine your eligibility for federal grants, work-study programs, and student loans.
The FAFSA asks for detailed information about your fiš¦nancial situation, including your income, assets, and family size. If youāre a dependent student (many undergraduates are), a parent will also need to fill out some sections of the form.
The newest FAFSA typically becomes available annually on Oct. 1 ā though itās possible that the 2š°024-25 FAFSA wonāt be released until December. Schools and states can set their own submission deadlines, and some financial aid is awarded on a first-come, first-serve basis. For these reasons, submit your application as close to the October openinš¦g as possible to maximize your aid.
Tip: Fill out and submit the FAFSA on the website. |
2. Review your Student Aid Report
After submitting the FAFSA, youāll receive your Student Aid Report, or SAR, within a few days or weeks. This includes a summary of your financial and personal information, so review it carefully for mistakes. If necessary, submit corrections to yošur FAFSA by logging into your Federal Student Aid account.
3. Wait for your financial aid award letter
After į©į©į©į©į©į©ā¤ā¤ā¤ā¤į©ā¤ā¤ā¤ā¤į©ā¤ā¤ā¤ā¤į©š±į©į©į©you submit the FAFSA, your information will be sent to your desired school(s). Each college youāve been accepted into will use your data to calculate your eligibility for aid before sending you a financial aid awašrd letter. This outlines any federal loans, grants, or work-study options that you qualify for, as well as any school-based scholarships youāve been awarded.
Review this letter to see what financial support you can get and how much youāll have to pay out of pocket. Decide which aid you want to accept and alert your school by the dšeadline it has set. Typically, youāll want to first accept awards that donāt have to be repaid, such as grants and scholarships. Then you might borrow loans to cover remaining expenses.
Exactly when you receiveš your financial aid letter depends on the school. You might receive it the winter bšefore your fall semester, or it might arrive just before you start school. Contact your collegeās financial aid office for more details about timing.
4. Finalize your student loans
After youāve accepted or declined the aid you were offered, youāll need to finalize a fewļ·ŗ things.
When taking out federal loans, start by completing entrance counseling. This is a requirement for all first-time borrowers and provides important information about your rights and responsibilities. You can complete enštrance counseling on the Federal Student Aid website in about 30 minutes.
Next, review and submit your Master Promissory Note (MPN). The MPN is a leš§gal document that outlines the terms and conditions of your loan, including the interest rate, repayment plans, and loan fees.
Once you’ve completed these tasks, your school will certify your loan, and the Department of Education will disburse funds to your school. After paying any applicable tuition, fees, and room and board, your school will issue any remaining loan money to you.
How to take out a private student loan
Private student loans have a simpler application process but stricter eligibility requirements. Hereās what to expect.
1. Research and compare lenders
While federal loans have standardized interest rates and policies, each private student lender sets their own rates, fees, and terms. Thatās why it’s so important to compare lenders and find the best deal for your financial situation.
As you review your options, take note of the followinš¤Ŗg factors that eź¦ach lender offers:
- Available APRs
- Applicable fees
- Repayment terms
- Eligibility requirements
- Loan amounts
- Cosigner options, including the ability to release a cosigner later
- Hardship programs, if you later have trouble affording your payments
- Rate discounts, graduation bonuses, or other perks
2. Prequalify, if possible
Many private lenders allow yź§ou to prequalify for a student loan. To do so, submit a few pieces of personal information and the lender will provide an estimate of the interest rates and loan terms you may qualify for. Prequalifying usually only involves a soft credit check, which doesnāt impź¦act your score.
While a prequalification doesnāt guarantee your approval or loan terms, it can be a useful way to more accurately compare lender offerings ā without hšaving to submit a full application.
3. Submit an application
Once šyouāve completed your research and determined your preferred lender(s), itās time to submit an application.
Most lendersš„ offer online applications whichź¦ will ask for your personal and financial information. Youāll likely need to provide proof of income, such as recent pay stubs or tax returns. If youāre applying with a cosigner, theyāll need to provide the same details.
After you submit your application, the lender will review it to determine whetheš¦©r you qualify. Some lenders can approve loans in minutes, but others may take several days or weeks. During this time, the lender may request additional information or documentation. Respond to these requests promptly to avoid delays.
4. Select your terms and finalize your loan
Once youāve been approved for a private student lošan, review the terms and conditions offered by the lender. Carefully compare offers from various lenders to ensure you get the best deal possible.
Once you have selected a lender and reviewed the details, finalize the loan by sź¦igning the agreement.
Once youāve completed your part, the lender will ź¦work with your school to certify your enrollment and the cost of attendance. Like federal loans, the money will likely first be sent to your college, which will apply the funds to your outstanding fees before sending any remaining cash to you.
Alternatives to student loans
While federal and privateš loans can be a helpful way to finance your education, there are other options available.
- Scholarships and grants. These generally donāt need to be repaid, making them an ideal source of funding. You can earn these awards for a variety of reasons, including academic achievement, athletic ability, or financial need. Many resources are available to help you find and apply for scholarships and grants, including online databases, your school’s financial aid office, and community organizations.
- Work-study. The Federal Work-Study Program provides qualifying students with part-time jobs, allowing them to earn money while attending school. Work-study is typically run by the school and may provide valuable work experience in addition to helping you pay for your education. You must have a documented financial need to qualify.
- Apprenticeships or internships. If you have a specific career path in mind, consider apprenticeships or internships. These programs provide hands-on training in a particular field and may offer a stipend or other financial assistance.
- Employer programs. Education benefits are becoming increasingly common among employers, and major companies like Amazon, Starbucks, and Target have joined the trend. You could get a free or discounted degree if your workplace has a tuition reimbursement program.
- Crowdfunding. Many online platforms allow you to raise money for your education by soliciting donations from friends and family. Perhaps you wonāt fund your entire education with this strategy, but it could be useful to cover smaller funding gaps.
How to responsibly borrow for school
It can be easy to borrow a student loan ā until itās time to start paying it back. Consider these strategies to lower your debt burden and set yourself up for success after graduaź¦Ætion.
- Max out free sources of financial aid: Scholarships and grants donāt need to be repaid. While these can take extra effort to search and apply for, every award you earn means youāll have to borrow less.
- Maximize federal student loans first: Before considering private loans, explore your federal loan options. Federal loans often have lower interest rates and more favorable repayment terms than private debt.
- Only borrow what you need: It may be tempting to borrow a little extra and buy some small luxuries, but you’ll have to pay interest on every dollar. Before signing any loan agreement, determine how much money you need and borrow only that amount. If you accidentally borrow too much, consider returning the extra cash to the lender.
- Minimize interest costs: Most student loans will accrue interest while youāre in school. Those costs can eventually capitalize, meaning that the interest is added to your loanās balance. This increases the amount youāll owe once you graduate, and interest will continue accruing on this larger amount. If you can afford to, consider making interest-only payments while youāre in school to minimize this.