Most students, about 7 out of 10, take out student loans to pay for college. Student loans are generally offered as part of your school’s financial aid package. They can either be federal loans or private (offered by banks, credit unions, and other financial institutions). Federal loans usually have lower interest rates and more flexible repayment terms than private loans.
Federal loans
Federal student loans are usually preferred because they have benefits like low fixed interest rates and income-driven repayment (IDR) plans. A federal loan does not require a credit check or a cosigner, plus you don’t have to start paying the loan back until you finish college or if you drop out midway.
To get a federal student loan:
Complete and submit the Free Application for Federal Student Aid (FAFSA®) form. This takes about 30 minutes. (The FAFSA form is used by colleges to determine how much financial aid you qualify for including grants, scholarships, work-study, and federal student loans.)
Your college will send you a financial aid offer based on the information in your FAFSA form. If there is a gap between the aid offered and the cost of attendance you have to cover it out of pocket or get a private student loan.
- Complete entrance counseling, which explains your rights as a borrower and responsibility for loan repayment.
- You will also need to sign a Master Promissory Note agreeing to the terms of the loan and repayment.
You can either get a subsidized or unsubsidized loan based on financial need. With subsidized loans, the interest is covered while you are in school or during deferment periods. Interest begins to accrue immediately with unsubsidized loans.
Private loans
You can consider getting a private student loan for any costs not covered by your federal loans and scholarships/grants. You or your cosigner must have a good credit score to qualify for a private student loan. About 87% of all new undergraduate private student loan borrowers had a cosigner in the 2020-21 academic year. Your debt-to-income ratio must also be low for banks, credit unions, and online lenders to consider granting you the loan.
Look at multiple lenders before settling on the terms that best suit your needs, such as low-interest rates and flexible repayment options.
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