How to Take Out Student Loans for CollegeNovember 14, 2022
As you start the college application process, you’ve thought a lot about what you’re looking for. Your preferred living arrangement, dining options, majors, and minors. Have you thought about how to finance your education? Many students don’t give it much thought until they start receiving acceptance letters, but it’s a good idea to start thinking about it.
The majority of college students will end up using student loans to help cover the cost of tuition and other education-related expenses. If you aren’t sure how to take out student loans, this guide will give you what you need to know to apply for private or federal student loans.
What are Federal Student Loans?
When it comes to borrowing money for college, experts recommend starting with federal student loans. These are loans that the government provides and have relatively low fixed interest rates. There are several loan types; for undergraduate students, you may have the following loans:
- Direct Subsidized: These loans are for undergraduate students with limited financial means. The government covers the interest that accrues while you’re in school, for six months after you leave school or graduate, and during any period of deferment.
- Direct Unsubsidized: Subsidized loans are for undergraduate students. Unlike subsidized loans, the borrower is responsible for all the interest that accrues.
- Parent PLUS: If your parents are willing to help you pay for school by taking out loans in their own name, they can use Parent PLUS Loans. While loans for undergraduate students have annual and lifetime maximums, Parent PLUS Loans do not. Your parents can borrow up to 100% of the school-certified cost of attendance at your college.
Federal loans are appealing because they don’t have minimum income requirements, and loans for undergraduate borrowers don’t require credit checks. For college students that are unlikely to have significant credit histories, that’s a major perk.
What are Private Student Loans?
Another financing option is to take out private student loans. These are loans that come from banks, credit unions, and other financial institutions.
To qualify for a private student loan, you (or your co-signer if you have one) will need to have good credit scores and a steady income. Rates and terms can vary between lenders, so it’s a good idea to shop around and look at the interest rate, fees, repayment options, and any perks or discounts the lenders offer.
Private student loans can be a good option if you have maxed out your federal loan options and you still need money to cover school-related costs. Remember that private loans don’t offer the same protections as federal loans, so it’s important to make sure you can afford the monthly payments before taking one out.
How to Take Out Federal Student Loans
Federal loans are a good starting point. If you’re wondering how to take out student loans, here’s what you should know:
1. Apply and Complete the FAFSA
To qualify for federal financial aid, including federal student loans, you first need to complete the FAFSA. The Free Application for Federal Student Aid (FAFSA) is a form that the government and schools use to determine how much aid you’re eligible to receive.
To complete the application, you’ll need your parents’ tax information and your income details. You will also need the federal school code for every college you’re considering, so the FAFSA knows where to send your information.
The FAFSA becomes available on October 1 every year. There are several deadlines to keep in mind:
- Federal: The federal FAFSA deadline is June 30.
- State: State deadlines can vary and may be earlier than the federal deadline. You can view your state’s deadline at studentaid.gov.
- School: Colleges often set their own deadlines, so check with the school’s financial aid office to find out when you need to submit the FAFSA.
Some financial aid, such as federal grants, are issued on a first-come, first-served basis, so it’s wise to complete the FAFSA application early.
2. Review Your Information on the Student Aid Report
After you submit your FAFSA, you’ll receive a Student Aid Report (SAR). The SAR is a document that summarizes the information you provided on your FAFSA. Once you receive your SAR, review it carefully to make sure all the information is correct. If any of the information is incorrect, you can make corrections to your FAFSA form and resubmit it.
3. Review and Understand Financial Aid Award Letters
Colleges will review your application materials and your FAFSA to determine how much financial aid you’re eligible to receive. They will then send you a financial aid award letter that outlines how much money you can expect to receive from the school.
The types of aid offered and the amount of each can vary from school to school. The most common types of financial aid for college students are grants, scholarships, work-study programs, and loans.
When comparing financial aid offers, consider the net price — the school’s cost of attendance minus any grants or scholarships you may receive. The remainder is what you’re expected to cover with savings or loans. You can use the National Association of Student Financial Aid Administrators (NASFAA) aid offer comparison worksheet to compare offers between schools.
4. Choose and Accept a Financial Aid Offer
Once award offers come in, it’s time to make a decision about which school you want to attend. Once you know how much aid each school is offering, compare the total cost of attendance and the net price to see how much money you’d need to take out in loans at each school. Review your offers carefully before making your final decision.
The offer letter should include instructions on how to accept the financial aid options listed. Be sure to notify the school of your decision and submit your answer by the deadline. If you need help or aren’t sure how to proceed, contact the college financial aid office.
5. Complete the Entrance Counseling and Master Promissory Note
If you are taking out federal student loans, you’re required to complete entrance counseling to help you understand the terms and conditions of the loan. You will also have to sign a master promissory note that outlines the loan’s terms, fees, interest, and consequences of late or missed payments.
How to Take Out Private Student Loans
Private student loans work differently from federal loans. While federal loans usually have annual and lifetime borrowing maximums, private student loans are less restrictive. To take out a private student loan, follow these steps:
1. Research and Compare Student Loan Lenders
Before applying for a loan, compare multiple lenders to find the best interest rates and repayment terms. It’s important to compare the interest rates, fees, in-school repayment options, and loan terms. You can use the private student loan calculator when comparing options.
2. Consider Having a Cosigner
Unlike federal undergraduate loans, private student loans have stricter eligibility criteria. Private student loan requirements include good to excellent credit and a stable source of income, so most college students will need a cosigner to qualify for a loan. Even if you can qualify for a loan on your own, adding a cosigner may help you qualify for a lower interest rate.
Cosigning student loans is a big responsibility, so make sure both you and your cosigner understand the loan terms and the cosigner’s obligation to repay the loan.
3. Choose a Private Student Loan Offer
You can often compare rates from multiple lenders without affecting your credit. But once you find a loan that works for you, you will fill out the full loan application and undergo a hard credit check, which can impact your credit.
Once you submit the application, the lender will review your information and make a decision. The lender will also contact your college to ensure that the amount requested matches the school-certified cost of attendance.
5 Things to Know Before Applying for Student Loans
Before taking out student loans, make sure you take into consideration the pros and cons of student loans and these five things:
- There are restrictions on how student loans can be used: After your lender pays the school for your tuition and other required fees, the remainder of your loan is issued to you. However, you can’t spend that money on anything you want. If you’re wondering how student loans can be used, they are designed for education-related expenses, such as textbooks, transportation, and room and board.
- You should use gift aid first: Make sure you maximize all sources of gift aid to avoid student debt. While you may be eligible for federal grants or institutional scholarships, you can also search for grants and learn how to get a scholarship on your own. Useful search tools include FastWeb and Scholarships.com.
- Interest charges can add to your cost: The loan principal — the amount you take out in the first place — is not the only cost to consider when taking out student loans. Student loan interest charges can significantly add to your cost over time, especially if you take out loans with high-interest rates. For example, a $10,000 loan with a 5% interest rate and a 10-year term will end up costing you $12,728 over the course of your repayment.
- Payments may be due sooner than you think: You may have to think about making payments toward your loans earlier than you expected. For federal student loans, you have a six-month grace period after you graduate before payments are due. But for private student loans, you may have to make full or partial payments while you’re in school.
- It can take 10 years or more to repay your loans: Depending on the type of loan and the repayment plan you choose, the length of time to repay student loans can be 10 to 25 years. If you’re 21 and on a repayment plan with a 25-year term, that means you’d make payments well into your 40s. Borrowing only what’s absolutely necessary will make the payments more manageable and allow you to pay off your debt faster.
Apply for a Private Student Loan with ELFI
Now that you know how to take out loans for college, you can start researching your options. With ELFI, you can borrow up to 100% of the school-certified cost of attendance.* You can have up to 15 years to repay the loan, and ELFI offers both variable and fixed interest rates.
Need more help paying for college? Learn how to get more financial aid.
What is a financial award letter? Learn more about understanding how financial award letters might affect your choice of school.