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Learn how to get a student loan, from the steps to filling out the FAFSA to comparing federal versus private loans. (iStock)
If you’re considering taking out a student loan to fund your higher education, you’re not alone. Nearly 70% of all graduates left school with a bachelor’s degree and student loan debt in 2016, according to The Institute for College Access. Six years later, it’s possible that percentage is even higher.
Securing a student loan is a relatively quick and easy process for most undergraduate and graduate students. But before you take out any student loan, it’s important to understand how student loans work, the difference between federal and private student loans, and your repayment options.
If you’re considering a private student loan, comparison shopping could help you find the best rate and terms available to you. Credible makes it easy to see your personalized rates from multiple student loan lenders in minutes.
The first step to understanding how student loans work is to discover how academic institutions determine how much aid you’re eligible for. The Free Application for Federal Student Aid (FAFSA) is the starting point your school will use to determine how much you can get in student loans and aid from the federal government.
Here are the steps required to get a student loan, including filling out the FAFSA.
Step 1. Complete the FAFSA
The first step to securing federal student aid, including loans, is to complete the FAFSA. You don’t need to be accepted, or even apply to a school, before filling out this form.
After you complete the FAFSA, you’ll receive a Student Aid Report — typically in three to five business days if you submit your application electronically, or seven to 10 if you submit a paper form. The report will include your Expected Family Contribution — the amount the Department of Education calculates your family can afford to put toward your education. That number determines your eligibility for federal aid, including grants and loans.
For the 2021-22 academic year, the deadline to submit the FAFSA is June 30, 2022, with updates and corrections to the form due by Sept. 10, 2022. For the 2022-23 academic year, the deadline is June 30, 2023, with updates or corrections due by Sept.10, 2023. Keep in mind that each college or university may have a different aid deadline.
Follow these six steps to complete the FAFSA:
- Create an FSA ID, which is a unique username and password that allows you to sign your FAFSA, and other documents related to your federal student loans, electronically.
- Gather documents needed to apply for the FAFSA, including your Social Security card, driver’s license, Alien Registration number, federal tax information, and banking information. If you’re applying as a dependent student, you’ll also need this information for your parents.
- Fill out the basic information on the FAFSA, including listing up to 10 schools you plan on applying to.
- Answer questions to help determine your dependency status and report your parents’ information if you’re considered a dependent student.
- Provide your and your parents’ financial information, including your most recent federal tax returns.
- Sign and submit your FAFSA.
The Federal Student Aid website also has a helpful video which shows you how to fill out the FAFSA.
2. Decide which federal loans to accept
Once you submit your FAFSA, you’ll receive information regarding which loans you qualify for. Undergraduate students will have a choice of subsidized, unsubsidized, and PLUS loans; graduate students will be eligible for different loans.
Subsidized vs. unsubsidized loans
The U.S. Department of Education offers both Direct Subsidized Loans and Direct Unsubsidized Loans to undergraduate students. Direct Unsubsidized Loans are also available to graduate students. In both cases, your school will determine the amount you can borrow.
For Direct Subsidized Loans, you can’t borrow an amount that’s higher than your financial need. The benefit is that the Department of Education pays the interest on this loan as long as you’re enrolled in school at least half-time. It'll also cover the interest for the first six months after you leave school and if you have to postpone payment of your loans during a period of deferment.
One key difference between the two is that there’s no requirement to demonstrate financial need to secure a Direct Unsubsidized Loan. The drawback is that you’re responsible for paying interest on this loan from the moment your lender disburses the loan funds.
3. Consider taking out private student loans
Although many students will be eligible for subsidized or unsubsidized loans, or even both, that doesn’t mean these federal student loans will cover the full cost of attendance. Some amounts may only cover some expenses like tuition and books, leaving you to pay for other materials and housing on your own. Private student loans present a good opportunity to cover the remaining expenses.
Private student loans aren’t facilitated by the federal government. Instead, financial institutions like banks and credit unions, as well as private lenders, make these loans available to students. Private lenders set their own terms and conditions for each loan. If you’re a graduate student, you might discover that the interest rate for a private student loan with a cosigner is lower than the interest rate for a federal Direct PLUS Loan.
Although the application process is the same for most students, your loan terms and conditions will be unique to your financial situation. That’s why it’s helpful to compare multiple lenders at the same time. Credible makes it easy to compare rates from more than one lender, without hurting your credit score.
Chances are good you’ll consider using both federal student loans and private student loans to fund your education. Both have similarities. For example, when you begin repaying your loan, all or some of the interest on your loans may be tax deductible. Federal student loans offer fixed interest rates, and many private student loans do as well.
But these loan types also have significant differences. Private student loans aren’t subsidized, often require an established credit history to qualify, and will likely require you to make payments while you’re still in school.
Keep in mind that these differences become more complex when comparing specific loans, such as a federal PLUS loan and a private loan from a specific bank. It’s important to not only identify these differences, but also to understand how they’ll affect your financial future.
For example, federal loans have a variety of repayment plans available and can be consolidated into a Direct Consolidation Loan. Private lenders may offer limited repayment options. And you can’t consolidate private loans into a Direct Consolidation Loan, even if you have other federal student loans.
The right student loan is one that helps you pay for a higher education, and that you’ll be able to repay comfortably after you’ve graduated.
Before applying for a student loan, you should consider all the terms, including your repayment schedule and any federal loan forgiveness programs you could qualify for. Most importantly, remember you should only borrow as much as you need, so you can start your post-collegiate life with as little financial strain as possible.
A student loan calculator can help you understand how much a loan will cost until you pay it off. And if you’re considering a private student loan, start by comparing rates from multiple lenders through Credible.