The Complete Guide to Applying for Student Loans
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By Kristen Kuchar

June 1, 2020

Student loans can help you pay for college, but there is a lot you need to know before deciding to borrow.

How to Reduce What You Need to Borrow

Student loans must be repaid, with interest. This means before you borrow one dollar, you should use other resources. Apply for scholarships and grants and consider choosing a more affordable school. Keep costs as low as possible during college and work a part-time job, if you can. There are many ways to even get free tuition – such as employer-paid tuition assistance, working at a college that offers free tuition for employees, and even going to colleges and cities that offer free tuition.

Student Loan Basics

Before you borrow student loans, you should completely understand what is required, how the process works, and how student loans will impact you down the road.

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Student Loan Interest

All student loans – both federal and private – will have an interest rate. This means not only are you paying back the total amount you borrowed, but you are also paying back an additional percentage.

The interest rate for federal student loans is set every year and is the same for all undergraduate borrowers, regardless of your credit history. Interest rates for federal loans are always fixed, which means they will stay the same for the total life of the loan.

The interest rate for private student loans differs per borrower. The interest rate depends on the current rate offered as well as your credit history (and your cosigner’s credit history). The interest rate on private loans can be fixed (staying the same) or variable, which means the interest rate can go up or down as often as every month.

Student Loans and Credit

Credit and student loans are very related. If you are borrowing private student loans, your credit will be factored in during the application process. Your credit will also determine your interest rate. Having student loan debt will impact your credit. Student loan debt increases your debt-to-income ratio, which is determined when you apply to rent an apartment or when you apply for a mortgage. If you miss student loan payments after repayment begins, your credit will also be negatively impacted.

How to Apply for Student Loans

Federal student loans are funded by the government and are a better option than private loans since they offer many benefits.

To apply for federal student loans, you start by filling out the Free Application for Federal Student Aid, or better known as the FAFSA. You can file online.

Filing out the FAFSA also gives you the possibility of qualifying for grants as well as the option to participate in a work-study program.

Undergraduate federal student loans don’t require a cosigner or a credit check.

Applying for a private student loan is completely different than applying for federal loans. Private student loans are funded by banks and other financial institutions. You do not need to fill out the FAFSA to apply for private loans. Instead, private loans are based on your credit. Most private borrowers are not approved without a cosigner due to a limited credit history.

Federal Student Loans

Federal loans are generally preferred over private student loans because there are many benefits – the potential for student loan forgiveness, an option to make payments based on your income, more options to temporarily pause payments if you lose your job, and the possibility of subsidized loans (where interest does not accrue during payment pauses).

Private Student Loans

When a borrower exhausts their college savings and they reach their federal student loan limits, they may turn to private student loans to help fund college.

What Can You Use Student Loans For?

There is much more than tuition to pay for in college. Student loans should only be used for necessary expenses. That means don’t use your student loans for nights out with friends, vacations, gadgets and a new wardrobe. Here are some commonly asked questions on whether or not you can use student loans to pay for something.

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