Guide

How to take out a student loan: A step-by-step guide

How to take out a student loan: A step-by-step guide
Written by Publishing Team

Our goal here at Credible Operations, Inc. , NMLS Number 1681276, referred to as “Credibility” below, is to provide you with the tools and confidence you need to improve your financial position. Although we promote products from our lender partners who compensate us for our services, all opinions are our own.

Start by filling out the FAFSA for Federal Student Loans before you turn to private loans to pay for college. (iStock)

If you’re worried about how you’re going to pay for college, you’ve been up all night, you’re not alone. Today, in-state tuition and fees at a public four-year college or university—the traditionally the cheapest option—cost nearly $11,000 a year, according to the College Board.

A four-year, private, non-profit college or university can cost more than $37,000 per year. Neither of these numbers includes room and board, books and supplies, transportation and other personal expenses.

Not surprisingly, many students apply for student loans, which, unlike scholarships and grants, must be repaid with interest. Not sure how to get a student loan? You can do that. You just have to follow these steps.

What to do before your loan application

Before applying for a student loan to fund your undergraduate studies, ask yourself these questions.

  • What is the true cost of attending college? In addition to tuition, collect all costs, such as room and board if you live on campus, meal plans, books and supplies, transportation to and from campus and any personal expenses you’ll owe.
  • Will you work while in college? Getting a job can help offset the cost of college. Some employers offer tuition reimbursement. Consider a work-study program if your school offers one.
  • Will you live on or off campus? According to Rent.com, the average cost to rent a studio apartment in 2020 was $1,690. Three large bedrooms rented for over $2,000 a month. The average cost of living on campus ranges from $4,000 to $5,000.
  • Are you planning to apply for grants and scholarships? Grants and scholarships are free money to help pay for college. Unlike student loans, you only have to repay them if your enrollment status changes or you withdraw early from the program. Scholarships are usually need-based, while scholarships can be merit or need-based.

How to Get Federal and Private Student Loans

If you’re like most students, you’ll need to apply for federal or private student loans—or a combination of the two—to pay for your education. It is important that you understand your student loan options and the steps you must take to apply.

Credibility makes it easy to research private student loan options and compare rates from many lenders.

Complete the FAFSA

The Free Application for Federal Student Aid is available starting October 1 for the following academic year. Filling out the FAFSA is the first step in applying for student loans and the only way to be eligible for federal student loans.

The FAFSA uses your financial information to determine the types of Federal Student Aid for which you qualify. You will need to fill out the FAFSA each academic year. Once you file your FAFSA, you may be able to access several types of financial aid, including:

  • Federal grants and grants
  • Federal Student Loans
  • Federal work and study programs
  • government aid

The easiest way to submit your FAFSA is online using the myStudentAid mobile app. You can also print and mail the 2021-22 FAFSA PDF.

Review your financial aid offer

After you submit your FAFSA and get approved for financial aid, each school that accepts you will send a letter granting financial aid. This is what you will find in every show.

  • Cost of Attendance (COA): This is what you can expect to pay for one academic year, including tuition, fees, books and supplies, room and board, transportation, and miscellaneous expenses such as costs related to a disability or work-study program.
  • Expected Family Contribution (EFC): This is used to determine how much financial assistance you will receive.
  • college scholarships and Scholarships: Scholarships are usually need-based, but scholarships can be merit or need-based. Neither of them must be repaid.
  • Federal work-study programs: These programs give you a job, in or outCampus, paycheck.
  • Federal Student Loans: Direct student loans may be subsidized (the government pays interest while you are in school) or unsubsidized, and you will have to pay them back when you leave school.

When you have decided where you would like to attend, you will need to contact the school’s financial aid office and tell them which loans you want to accept or decline.

Get Federal Student Loans

If you need to take out student loans to cover all or part of the cost of college, you have two options: federal and private. Because the government subsidizes federal loans, they are often less expensive than private loans, do not require a credit check, and have income-driven repayment plans and fixed interest rates.

Federal loans can qualify for loan forgiveness, so if you’re struggling to make your payments, you have more options for forgiveness than private loans.

Federal direct loans may or may not be subsidized. Both offer benefits such as low interest rates, flexible repayment options, forbearance programs, deferral programs, and the option to consolidate your loans. But there are some key differences between the two.

supported

  • Only for undergraduate students
  • Requirements as needed
  • lower borrowing limits
  • Interest is supported during deferment

not supported

  • Undergraduate and postgraduate students are eligible
  • No requirements based on need
  • Higher borrowing limits
  • Interest is not supported during deferment

There are three main types of federal student loans: Direct Subsidized, Direct Unsubsidized and Direct Plus Loans.

Subsidized Direct Loans

Students who can demonstrate financial need can apply for Direct Subsidized Loans. These loans usually do not charge interest while you are in school or during probation or slack periods. The interest does not accrue if you are in school at least half the time but will start as soon as you finish school or drop to less than half the time.

Direct Subsidized Loan Grant Limits: Up to $5,500 per year (subject to change)

Unsupported direct loans

Unsubsidized direct loans are unsecured (which means you don’t need collateral to qualify) and are federally funded. You do not have to demonstrate financial need or have a good credit score to qualify for one. The interest rates depend on your level of education and you start collecting by the time you get your loan. You make monthly payments to the US Department of Education after a grace period of six months, which gives you time to find a job.

Limits of granting an unsubsidized direct loan: Up to $20,500 per year, minus any subsidized loans you may receive during the same time period (subject to change)

Direct PLUS Loans

Direct PLUS loans help you pay for costs related to your education that are not covered by other financial aid. It is available to both graduate students, professionals, and parents of dependent undergraduate students. You do not have to show financial need but your credit score is taken into account when calculating loan amounts. You will make your payments to the US Department of Education.

Direct PLUS Loan Limits: Cost of attendance (as determined by the school) minus any other financial aid received

Consider cosigner

It’s no secret that students who need a loan to pay off all or part of their education are more likely to get better rates and terms if they have a cosigner.

Borrowers who checked rates with a cosigner pre-qualified for loans with interest rates that were 2.36 percentage points lower, on average, than those available to borrowers without cosigners, according to an analysis of data by Credible.

Although you don’t usually need a cosigner to get a federal student loan, getting a loan can help you secure a better interest rate.

And because banks, credit unions, and other financial institutions offer private student loans, your credit matters. If you have little or no credit history, it can be difficult to qualify for a private student loan. A cosigner with good or excellent credit can help because it makes it easier to get your loan approved, often at a lower interest rate. Choose someone you know and trust, such as a parent, guardian, spouse, brother, or friend.

Compare private student loans

Before getting a private student loan, it is best to exhaust all federal loan options, scholarships, work and study programs before applying. Interest rates are generally higher for private student loans than for federal student loans.

Private lenders have their own methods for evaluating applications, so comparison shopping is the only way to know if you qualify. It’s also the easiest way to make sure you get the best interest rates. By shopping around, you’re also showing your cosigner that you’ve put in the time and effort, which can help them feel more comfortable accepting the risks that come with signing your student loans.

With Credible, you can compare private student loan rates from multiple lenders.

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