Student loans are one of the options students and their families have to help pay for college, but they are a serious financial commitment. It’s important to learn how to take out a student loan so you can make sure you’re borrowing only what you need.
Remember, a student loan is paid back with interest so before committing, make sure you secure as much funding as you can from sources you do not have to repay, such as scholarships, grants, or savings and income.
Taking Out Federal Student Loans vs. Taking Out Private Student Loans
There are two kinds of student loans you can get, federal and private. Federal loans are underwritten by the U.S. government and private loans are offered by private entities, such as a bank.
- To take out a federal student loan, you file the FAFSA, or the Free Application for Federal Student Aid.
- To take out a private student loan, you have to choose a lender and complete their application process.
Consider federal loan options in the student’s name first since they tend to have low fixed interest rates and special benefits only available on federal loans. Then use a private loan to help fill the gap.
Let’s take a closer look at how the process works for each.
How to Take Out a Federal Student Loan
There are three main kinds of federal student loans – Direct Subsidized, Direct Unsubsidized, and PLUS Loans – and the borrowing process is similar for all of them.
1. Fill Out the FAFSA
The first step in taking out a loan for college is completing the FAFSA. The government and some schools use the FAFSA to determine which aid you’re eligible for including grants, work-study, and loans. States and schools also use the FAFSA to determine financial aid offers.
Can student loans be taken out at any time? Well, much of federal, state and school aid is awarded on a first-come, first-serve basis so make sure to complete the FAFSA as soon as it becomes available on October 1st the year before you will enroll. Each school and state have their own deadlines so take note of those important dates.
If taking out a PLUS Loan, there is an additional PLUS loan application that you will file along with FAFSA.
2. Review your Student Aid Report (SAR)
Shortly after filing the FAFSA, you will be mailed a student aid report, which is a summary of the information you provided on FAFSA. Double check the information and make any corrections.
3. Understand Your Financial Aid Award Letters
Schools mail your financial aid offers, which include federal student loans, around the same time they send their acceptance letters.
Review all of the aid you were offered, including which loans you qualified for and for how much. If you applied to more than one school, compare your offers. They may not be the same for every school.
4. Choose Your Loans
Once you’ve compared your options, it’s time to choose a school and decide which loans you want to accept (or decline). Let your school know before the deadline stated on the award letter.
If you have additional questions about your loan options, reach out to your school’s financial aid office for more help on taking out student loans.
How to Take Out a Private Student Loan
If you still need help financing your college education after securing scholarships, grants and federal loans, a private student loans can help cover the difference. Here’s how to take out a private student loan.
1. Research Private Student Loan Lenders
There are many different private student loan lenders, but they all have their own offers. Look for lenders with low interest rates and flexible repayment terms. Do your due diligence by reading reviews and asking for recommendations.
To help you shop, use a student loan calculator to estimate costs based on available interest rates. Another way to get an estimate without impacting your credit is to prequalify, which uses a soft pull of your credit report that does not affect your score. Not all lenders offer this benefit.
2. Find a Cosigner
Having a cosigner with good credit can help you qualify for a private student loan and secure a lower interest rate.
Not everyone who takes out a private student loan needs a cosigner, but it can help if you don’t have credit or good credit. Most undergraduates need one because eligibility for private loans is credit-based and younger students usually haven’t had the time to build up qualifying scores.
3. Choose a Private Student Loan Option
After you’ve shopped around, found a cosigner, and estimated costs, it’s time to apply. Remember that you can apply and take out a loan for school. Remember that you can apply to multiple lenders to see who offers the best rate, but try to apply for private loans within a short period of time.
Each time you apply for a student loan it can count as an inquiry on your credit. Having a lot of inquiries can have a negative, short-term impact on your credit score. But if you apply to several lenders within a few weeks, it will be seen as shopping for the best lender and best rates, and may only count as one inquiry.
Taking Out Student Loans
College is a significant investment. Student loans can help you cover the cost so you can earn a degree and start your career, but they are paid back with interest so it’s important to only borrow what you need.
Before you take out a student loan, make sure to carefully review your repayment options and think ahead about how you will pay it back. Create a budget and stick to a plan so you can repay your student loans responsibly.
If you have additional questions about how to take out student loans, please visit our FAQ page, or feel free to contact us with any concerns.
Now that you’ve learned how to take out student loans, it’s time to learn how to choose the right student loan for you.
