The average public university student in the United States borrows around $32,637 to attain a bachelor’s degree. Besides grants and scholarships, these student loans are another method of funding your college education. However, unlike grants and scholarships, you must pay student loans with interest charges. Students often take out loans after exhausting all financial resources. But before applying, you must consider many factors and their long-term impact on your budget and credit score. Hence, this guide will provide all the fundamentals you must understand about student loans—from application to repayment.
Understanding Student Loans
Student loans are lump sums of money you receive from your state government, the federal government, or a private lender.
How they work
Student loans are similar to other loan types, such as mortgage and car loans. You’ll compare your options before signing an agreement. Once an agreement is finalized, you’ll receive the funds for tuition, student housing, textbooks, university fees, and other educational expenses. In most cases, you won’t repay student loans until after graduation, allowing you to focus on your studies rather than worrying about repayments. Many student loans have straightforward application processes. For example, you only need to fill out the FAFSA form—Free Application for Federal Student Aid for federal student loans. Meanwhile, some lenders may ask for a co-signer—usually a parent or a guardian.
Student loan types
Here are the types of student loans you can choose based on your financial situation:
Federal Direct
Federal Direct Loans have two types: subsidized and unsubsidized. They are U.S. government-backed student aid.
Direct Subsidized:
- Eligibility: Undergraduate students with financial need
- Your university identifies the amount you can borrow, which may not exceed your financial need
- The Department of Education (ED) pays the interest based on the following conditions:
- While you’re attending school at least half-time
- For the first six months after graduation (grace period)
- During deferment (postponement of repayments)
Direct Unsubsidized:
- Eligibility: Undergraduate and graduate students—no need to show evidence of financial need
- Your university identifies the amount you can borrow based on the cost of attendance (COA), like tuition and other financial aid.
- You must pay the interest during all periods.
Direct PLUS
Direct PLUS loans are another federal loan that graduate students (Grad PLUS) and parents of dependent undergraduate students (Parent PLUS) can use to pay for college or career school.
Terms for these loans include:
- The US ED is your lender.
- The ED will conduct credit checks, so your credit score must be good. However, you may still qualify with an adverse credit score if you meet additional requirements.
- The maximum amount you’ll receive is based on the COA minus other financial aid received.
Direct Consolidation
Direct Consolidation loans let you combine multiple student loans to lower monthly repayments or gain access to forgiveness programs. This loan type has no application fees. Most federal student loans, including Direct and Health Professions, are eligible for consolidation. You can switch to any variable-rate loan to receive a fixed interest rate when you consolidate. However, you may prolong your repayment period with this loan setup.
Private
Private student loans are non-federal loans private lenders provide. You can consider taking out these loans if you need additional funding. The interest rates on these loans primarily depend on your credit history and score. You may opt to have a co-signer to receive better rates and terms. If your co-signer has a better credit score, you may get lower fees and interest rates. However, your co-signer will be financially liable if you cannot make repayments. Since these loans are separate from the federal programs, they often don’t feature flexible repayment terms and borrower protections.
Health Professions
Health Professions Student Loans (HPSL) are loans for health-related degrees. You can qualify if you’re pursuing one of these degrees:
- Dentistry
- Pharmacy
- Podiatric Medicine
- Optometry
- Veterinary Medicine
Universities offering these degrees are also eligible for HPSL.
Applying for Student Loans
Here’s the application process for student loans:
Check your eligibility
Check your eligibility before applying for student loans. Examples of basic qualifications include:
For federal loans:
- Must be a U.S. citizen or an eligible non-citizen
- Valid Social Security number
- Retain satisfactory academic progress
- Be enrolled as a regular student in a qualified degree or certificate program
For private loans:
- At least 18 with a high school diploma. Some lenders require 19
- Be enrolled as a regular student in accredited schools
- Credit history and credit score, typically mid-600s or higher
- Cost of attendance (COA)
- Valid social security number
- Must be a U.S. citizen or an eligible non-citizen
Fill out and submit the FAFSA form
If opting for a federal loan, the next step is to submit the FAFSA form. You must include your parents’ or guardians’ information on this application form if you’re a dependent.
The FAFSA deadlines are as follows:
- 2023 to 2024: June 30, 2024, 11:59 p.m. Central Time. You must submit corrections and updates by 11:59 p.m. on Sept. 14, 2024.
- 2024 to 2025: June 30, 2025, 11:59 p.m. Central Time. You must submit corrections and updates by 11:59 p.m. on Sept.14, 2025.
Some states follow the general deadlines, but others have different deadlines. Also, each college and career/trade school may have different deadlines, so check them before submitting.
Review the Student Aid Report
You’ll receive your Student Aid Report (SAR) after submitting the FAFSA. This report outlines the federal aid and how much you’re eligible for. You’ll receive your SAR information via an email link when you provide an email address. If email is absent, you’ll receive a paper SAR acknowledgment. Depending on the mode of application, your SAR may take up to three weeks to arrive. Once you receive it, take the time to review the offers to determine whether you need private loans for remaining education costs.
Determine whether to apply for private loans
If you require private student loans, start researching private lenders’ offers and interest rates. Other conditions to compare include:
- Repayment terms
- Co-signer release
- Discounts
- Perks like principal balance reduction for on-time graduation
After choosing a private loan, prepare and submit all the necessary documents. Once approved, your lender will directly send the funds to your school. The school then applies the money to your tuition and other fees and will disburse the remaining funds.
How To Repay Your Student Loans
Repayment for federal loans usually begins after graduation. Once the grace period finishes, you’re expected to make regular repayments. For private loans, most lenders require repayments before graduation. But you can consolidate or refinance them. Refinancing student loans can lower your interest rates, helping you pay less over time. You can refinance your student loans with reputable private lenders like SoFi to get competitive fixed rates without pre-payment, origination, or late fees. Other student loan repayment methods include:
Loan servicers
Loan servicers are companies the U.S. government assigns to manage your student loans at no cost. They will assist you with everything about federal student loans, such as choosing a repayment plan.
Forgiveness, cancellation, and discharge
Your federal student loans can sometimes be forgiven, canceled, or discharged. Examples of circumstances accepted include:
- You work in public service
- You are permanently disabled
Navigate Student Loans With Confidence
Student loans aren’t just funding sources—they are also a responsibility. Repayments can be challenging if you apply impulsively. So, let this guide equip you with the knowledge to navigate your options confidently. This way, you can make intelligent choices, ensuring sustainable educational investment and financial security.
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