How to get a student loan?

Learn all about how to get a student loan and apply for federal and private loans, understand the different types, choose the best options and compare them.

Updated by Gowtham Ramesh on 15th July 2019

In the current economy, education is expensive. Tuition and fees for colleges keep on rising and the need for financial aid for college aspirants is never-ending. As of June 2019, 44.7 million people in America are in debt of student loans from either the Federal Government or private lenders. This number also seems to be ever-increasing.

There is no denying that student loans are extremely essential for many individuals to pay for their education. Many people had received their education only because they were offered student loans which would not have been the case otherwise.

If you need funds for your college education and are looking into your options for taking loans, go through this article we explain the details of the several loan options that you have. We will discuss the various offers, loan amounts, requirements, their interest rates, repayment options and a quick comparison between Federal Student Loans vs. Private Student Loans too.

Before getting into details let's first understand these 2 broad types of student loans - Federal Loans and Private Loans.


List of contents


How to apply for Federal student loans

First, you need to apply for the Federal student loan by filling out and submitting a free application from Federal Student Aid (FAFSA) online.

You must submit FAFSA to be considered for a Federal student loan.

Things to keep in mind while applying for FAFSA

  • Remember it's free of cost for submission(if it's charging a fee, then you are on the wrong site)

  • The completion of FAFSA application needs to be done every year as money for tuition fees are paid annually

  • Complete and get it before October, or as soon as possible

  • An early application might give you a chance of getting some grants which are on a first-come-first-served basis

Federal Aid consists of both grants and loans. Stafford loan consists of Subsidized and Unsubsidized loans which are provided to a student, respective to financial needs and also irrespective of financial needs. The amount of loans depends on the funds allotted to the colleges. Direct PLUS Loans are also a part of Federal aid. 


Requirements for Federal student loans

  1. Valid Social Security Number

  2. Male students between 18 - 25 must register with a service to receive loans

  3. Permanent citizens with green cards can apply for aid. Immigrants with T-1, battered-immigrant-qualified alien are also eligible

  4. A student holding a high school diploma or equivalent GED or certificate from the homeschooling program

  5. Enrolled in an eligible school as unaccredited schools might not qualify for a federal loan(Some school has chosen not to receive federal aid)

  6. Filling of FAFSA asks your family's financial information to determine how much of amount are you qualified for. Without FAFSA, you can’t receive Federal loans and grants

  7. Maintain good standing with federal financial aid

  8. Maintaining a minimum of 2.0 GPA or risk losing financial aid until your grades improve

  9. Students must be considered at least half-time to be eligible for loans (The college determines what part-time and full-time status is)


Federal Subsidized Vs Unsubsidized loan

The man difference between subsidized and unsubsidized student loans is that subsidized loans are given on need-based. Students receiving this loan will not be responsible for paying the interest that accrues during the school year(s), grace period or deferment period as the federal government will be paying for them.

Whereas Unsubsidized loans are not need-based and students are responsible for the interest amount that accrues during the school year(s) and grace period and deferment period. Unpaid interests will be capitalized.

Students whose FAFSA does not meet the required financial need can receive an unsubsidized PLUS loan which levy interest during the semester and the six-month grace period following graduation.


[Learn more about Direct Subsidized and Unsubsidized Loans ]


How to apply for private student loans

Since private student loans are offered by banks and financial institutions, you can apply directly to the lender.

  • First, go to the lender's website

  • Check the interest rate of the loan with the repayment flexibility options and benefits

  • Apply through the website. Choose the type of repayment option and interest rate according to your needs

  • Consider adding a co-signer which might boost your chance of getting a loan and decreasing your interest rates

  • The lender will check your credit score and your co-signer, if you have any, and will contact you for further steps

Getting a private loan is not difficult. Contact your university whether they are enrolled in school channel loans. School channel loans are loan programs arranged as collaborations between colleges and financial institutions.

There are several private financial organizations that specialize in direct to consumer private loans by contacting them and under various possibilities, choose the one that fits your needs the best.


Requirements for private student loans

  1. Each private loan service has different requirements so check every lender in detail

  2. Most companies require a minimum income and credit score before they agree to lend you any amount

  3. Private lenders often need a co-signer because a college student typically has no income or credit history

Comparing your private student loan option with review sites and service providers allow you to get a better deal. Beware of scammers who provide a six-figure loan without any necessary document verification


[Also Read: Student loan scams you need to beware of ]


What's your borrow limit?

The Financial Aid Office will account for your maintenance costs and you can turn down a loan or request a lower amount if you the offer amount is higher than you actually require. Borrow only the amount which you require and can handle. It is always better to calculate your estimated living expenses yourself and get the loan amount adjusted accordingly.

Applying for Federal Loan fill out FAFSA

Source - pexels.com

Always make sure not to take more loans than the expected annual salary in your field. You are expected to pay back the loan even if you can't get a job in your field or your plans changes.


Interest rates

Interest is the money paid to the lenders for a particular rate in exchange for borrowing. The interest rate is being calculated as the percentage of your unpaid loan amount which is also called as the principal amount. You are responsible for paying interest on unsubsidized loans during school days, grace period and during deferment period too.

How does interest work?

Example-

A loan with a 5% interest rate (.05 divided by 365.25) will give you a daily rate of 0.00013689253.

With this interest rate factor, you can find how much interest accrues on your loan from month to month.

Let us consider that your student loan is around $33,000, which is the average debt of a student graduated in 2014. It has been 30 days since your last payment and you have a 5% interest rate.

33,000 (principal) X 30 (unpaid days) X 0.00013689253 (Interest rate) = about 135.5 or $135.50 is interest that will accrue during that month.


[ Learn more about Student loan interest deductions ]


Federal loans vs Private loans

The key point of student loans is in the cost and use of credit score in determining the eligibility.

  • Undergraduate students applying for Federal loans will not have to go through the credit check

  • The interest rate on the Federal Student loan is fixed and the interest rate on the Private Student loan can be variable or fixed and they are usually higher

  • Undergraduates students who can demonstrate financial need could receive a federal subsidized loan where the government will pay their interest until you graduate whereas Private loans are never subsidized and you need to pay all the interest

  • Federal loans offer flexible repayment options and loan forgiveness programs while the private loans have few repayment options and no loan forgiveness programs.

  • Federal loans don't have to be paid until you are graduated or dropped below half time as student status but many private loans ask for repayment while you are still in school, right after the first disbursement of the loan


Conclusion

While looking for getting a student loan either from federal or private institutions, always make sure to be aware of the terms and conditions. Choose the action which will be suitable for you in the long term, you will be repaying the loan amount that you have taken for over years after your graduation.

Plan for the student loans accordingly and check the repayment plans as well. Decide on a co-signer with a good credit history and you are good to go. 


FAQ's

  How do I apply for a student loan?


To get a Federal student loan you need to follow these steps - Submission of an Application for Federal Student Aid (FAFSA). With the information from the college or school, they will send an offer which consists of Federal financial aid. To get a private loan, you have to apply for it at the lender's website.

  Who can qualify for a student loan?


To be eligible for a student loan, you require to prove that you have been enrolled in a particular school. You must be a U.S. Citizen or a permanent resident of a legal age.

  Can I apply for a student loan in the middle of the semester?


Yes, applying for a student loan can be done during a year in college. Until you have not filled the FAFSA before the deadline closes. 

  How much can I get in student loans?


The money that you borrow depends on several factors such as Federal or Private loans and the school. Undergraduates can get up to $12,500 annually and in total, they can get up to $57,500 for Federal student loans. Graduate students can get up to $20,500 annually and in total, around $138,500.

  Can an 18-year old take out a student loan?


As a minor, the education loans and other responsibilities are tied up to your parents as they are responsible for your education. A co-signer for your Federal student loan is not required and your parents don't need to get it if you are 18 years old. Defense of Infancy doesn't apply to Federal student loans.

  Are student loans worth it?


A student loan can be seen as a problem as it leaves you with thousands of dollar as a debt. Even though it leaves you with debts, it's a great investment for your education which can help you get a good income and career in the future.

  Can you apply for student loans before being accepted?


You can apply for your loan by filling the FAFSA before getting admission to a school or college. It will generally get processed until you have been admitted in the school. The information will be forwarded to the college but will not process anything until you are enrolled in a degree program.

  Do I have to apply for student loans every year?


Yes, you are required to submit a new application at the starting of every academic year. The financial situation changes every year, hence, a new assessment is required to process in order to provide a loan in a specific academic year.

  How quickly can you get a student loan?


Generally, the money will be sent to the college directly which will take around 1-2 years before the remaining amount is sent to you. From the date the loan is allocated, it can take over 3-10 weeks to receive the student loan money from a private student loan lender.

  How much can a freshman borrow in student loans?


The Direct Unsubsidized Loan gives you an annual limit based on the undergraduate students year in school. For the year 2015-2016, the limit was $5,500 for the freshmen and $6500 for sophomores. It varies and moves depending on the students and the year of their college.