How to Apply for a Student Loan

Applying for student loans is a bit like starting a relationship: things can quickly become complicated.

But unlike dating, you can’t afford to give your potential lender the cold shoulder when things get tough. Put simply, you need the money to get through college — $37,172 on average — so you can hope for a better financial future. While we aren’t dating experts, we’ve got plenty of tips on how to apply for student loans so your relationship with your lender can get off to a great start.

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In this article

    Types of student loans

    When it comes to student loans, the main distinction you’ll hear bandied about is whether the loan is federal or private. It’s important to understand these borrowing sources before you apply for student loans because they use different eligibility criteria and have different benefits. Both types can be used to cover education expenses such as tuition, fees, room and board, computer, books and supplies as well as transportation.

    Federal student loans 

    There are three types of federal loans — Direct Subsidized, Direct Unsubsidized and Direct PLUS. What you can apply for will depend on your family situation and financial need.

    Federal loans are the “go-to” for most students because they are not credit-based, making them accessible even if you have little borrowing history. Rates are generally lower — and they’re fixed, so you’ll know exactly what your repayments are throughout the loan period.

    Another benefit of federal loans is repayment flexibility, as there are options to defer payments if you experience financial difficulties and income-based repayment plans.

    So what’s the catch? There’s a limit on how much you can borrow. More on this later.

    [ Read: Eight Employers That Will Help You Pay Off Your Student Loans ]

    Private student loans

    Private loans are offered by banks and other financial institutions. Eligibility is based on your credit profile. If you can’t demonstrate a history of borrowing and repaying money, then you’ll likely need a cosigner for your application to succeed.

    Unlike federal options, you can borrow up to 100% of the cost of your education. There’s a lot more choice with private loans too. For example, you can choose among lenders for the student loan that best suits your needs. You can also decide whether to borrow on a fixed or variable rate basis. However, private loans generally come with higher interest rates, particularly if your credit isn’t strong.

    How much can I borrow in federal student loans? 

    As mentioned, the main drawback of federal student loans is the amount you can borrow each year is capped.

    Undergraduates can borrow between $5,500 to $12,500 each year — a mix of Direct Subsidized or Direct Unsubsidized loans. Your actual limit will depend on the year you’re in school and your dependency status.

    Parents of undergraduates can borrow the amount necessary to fund college costs not covered by other financial aid using Direct Plus loans.

    Graduates and professional students can borrow up to $20,500 each year.

    [ Read: Federal Student Loan Forgiveness: Four Ways to Wipe Out Your Debt ]

    Federal student loan interest rates

    Interest rates on federal loans are set by federal laws and are fixed, so they stay the same throughout your loan. For student loans taken out between 1 July 2020 to 30 June 2021, undergraduates can expect a rate of 2.75% for both Subsidized and Unsubsidized loans. Graduates or professional students are charged 4.3% on Direct Unsubsidized loans. Parents, graduates and professional students receiving Direct PLUS loans will pay interest at 5.3%.

    If you’re eligible for a Subsidized loan, you won’t have to pay interest until you’ve completed your undergraduate studies.

    How to apply for federal student loans

    1. Check that your school participates in the federal student aid program. This can be done through online tools like the College Navigator.
    2. Gather your paperwork together. You’ll need information like your Social Security number, driver’s license, federal tax information and other financial information.
    3. Complete the Free Application for Federal Student Aid (FAFSA) form. Online applications are processed within three to five days, while paper applications will take around seven to 10 days.
    4. Once your form is processed, you’ll receive a Student Aid Report detailing your eligibility for financial aid. Identify and fix any inaccuracies.
    5. You’ll then receive a financial aid offer from the college you’re going to. Respond to the offer.
    6. Once you have accepted the aid you would like, you will receive aid through your school.
    7. Reapply annually by completing the FAFSA form each year.

    Check Your Student Loan Rates

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    How to apply for private student loans

    1. As soon as you know what school you’ll attend and how much you’ll need to borrow, you can make an online student loan application.
    2. Application requirements differ between lenders, but you’ll be asked for basic personal and financial information.
    3. As part of your application, you’ll need to indicate whether you want a fixed or variable rate loan and to choose your repayment option.
    4. If you’re applying with a cosigner, include their financial information with your application.
    5. Wait for credit approval after submitting the form. The amount of time this takes will vary among lenders.
    6. If you’re approved, you’ll be asked to review and accept your loan terms.
    7. Funds will be disbursed to the school when the school certifies your loan amount.

    Student loan FAQs

    You do not need strong credit or a cosigner for federal loans. Private student loans are credit-based, meaning your credit history will be a factor in whether your application is approved and the interest rate you’re offered. If you have little borrowing history, then having a cosigner with good credit will strengthen your private loan application.

    The answer depends on the amount you borrow and your repayment schedule. Under a standard repayment plan, it’ll take 10 years to pay off your federal loans. If you owe more than $30,000 in federal loans, you could be eligible for the extended payment plan, but you’ll incur more interest as the plans extend up to 25 years.

    Since federal loans are more accessible and generally offer cheaper interest rates, a popular approach is to apply for federal financial aid then supplement funding gaps with private student loans. However, if you have strong credit, private loans offer a quick application and more choice, including the ability to take out variable rate loans.

    Kristie Kwok

    Contributing Writer

    Kristie Kwok is a finance content writer with in-depth knowledge of the banking industry from her previous work experience in banks such as UBS, Lloyds Banking Group and Royal Bank of Scotland. She is a qualified accountant with a Bachelor of Commerce degree, specializing in Accounting and Finance.

    Reviewed by

    • Adam Benjamin
      Adam Benjamin

      Adam Benjamin is an editor for The Simple Dollar,, and Freshome. He covers everything from finance to internet providers and hopes to make it accessible for all readers.