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How To Take Out a Student Loan: Everything You Need To Know

The process to borrow a student loan depends on the type you choose.

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By Robyn Conti

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Robyn Conti

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Robyn Conti has been helping educate consumers and financial professionals about investing, retirement planning, and personal finance since 1998. Her articles have run in publications including Forbes Advisor, The Motley Fool, and Robb Report, among others.

Edited by Alicia Hahn

Written by

Alicia Hahn

Senior Editor

Alicia Hahn is a student loans editor with more than a decade of editorial experience. She has worked with major finance and lifestyle brands including Mastercard, Forbes, Care.com, The Balance, and others. When she’s not working, Alicia enjoys cooking, traveling, watching true crime documentaries, and doing crosswords.

Updated October 6, 2023

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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If you need help paying for college, student loans are one option worth considering. Borrowing money for school is a hefty financial commitment, so it’s important to understand how to take out a student loan and avoid borrowing more than you need.

Keep in mind, student loan balances have to be repaid in full with interest. Before borrowing, make sure you’ve exhausted funding sources you don’t have to repay, such as grants, scholarships, work-study programs, and any savings.

Types of student loans

There are two broad types of student loans: federal and private. Federal student loans are provided by the U.S. government and typically offer more favorable interest rates and flexible repayment options. 

If you meet the general eligibility requirements for federal aid, you may be eligible for:

  • Direct Subsidized Loans: Available only to undergraduates with proven financial need, the government covers the interest costs while you’re in school and for six months after you graduate.
  • Direct Unsubsidized Loans: For undergraduate, graduate, and professional students, unsubsidized loans have the simplest qualification requirements. These are not based on financial need and you're responsible for interest costs during all periods.
  • Direct PLUS Loans: Open to graduate and professional students, along with parents of undergraduates, PLUS Loans are the only type of federal student debt that requires a credit check. These loans also carry a higher interest rate and fee than other federal loans, but may still be more affordable than private debt.

If you need to borrow money for school, federal loans are many students’ first choice. These loans are easier to qualify for and come with added protections and benefits, such as income-driven repayment plans, debt consolidation options, and loan forgiveness programs.

Alternatively, private student loans are offered by online lenders, banks, credit unions, and other private financial institutions. These loans have varying interest rates, fees, and terms, which typically depend on your credit history. Private student loans generally don’t offer the same borrower protections as federal student loans, and they may come with higher rates — especially if you don’t have great credit.

However, private loans may still have a place in your college funding strategy. Consider private debt to cover any financial gaps after you’ve exhausted any scholarships, grants, work-study programs, and federal loans.

How to take out a student loan

While private student loans have a relatively straightforward application process, applying for federal loans is a bit more involved. Here’s a look at how to take out both private and federal student loans.

1. Submit the FAFSA

The Free Application for Federal Student Aid (FAFSA) is used by both the government and your school to determine your eligibility for financial aid. This form must be submitted annually for each year you’re in school to remain eligible.

You can fill out the FAFSA online at StudentAid.gov. Before you begin, create a Federal Student Aid (FSA) ID, which you’ll use to save and access your application in the future. If you’re a dependent student (most undergraduates are), a parent will also need to create their own FSA ID.

After inputting the requested personal and financial information, you can submit the FAFSA. Once it’s processed, you’ll get a Student Aid Report (SAR). This shows a summary of your financial information, including basic information about your eligibility for federal aid.

Related: How To Apply for FAFSA

2. Review your financial aid award letter

After completing the FAFSA, your school will send you a financial award letter with details about the aid you’re eligible for. The letter will break down the estimated cost of attendance, any scholarships or grants you qualify for, and the federal student loans available to you.

Review your award letter carefully. You don’t have to take all the aid being offered, but it’s generally best to accept grants and scholarships that don’t have to be repaid before borrowing additional funds.

3. Determine how much you need to borrow

If you have to take out student loans, the next step is figuring out how much to borrow.

Before you can do that, however, you need to figure out how much your education will cost, what you can contribute, and how much you need to make up the difference.

Start by estimating your expenses for the school year. Review your financial award letter for cost of attendance details, and consider any additional items you might need. Include other potential sources of funding, such as grants, scholarships, work-study, part-time jobs, or family contributions that might help reduce the amount you need to borrow.

In general, you should borrow only what you need to fill any gaps in your family’s ability to pay for college.

4. Research private student loans

If you’ve maxed out scholarships, grants, and federal loans and still need help covering your expenses, you may need to consider private student loans. Start by researching and comparing lenders, as each will offer you different rates and terms. Take note of the available interest rates, fees, repayment terms, eligibility requirements, and the lender’s policies if you have trouble making payments later on.

Comparing multiple lenders helps ensure you’ll find the right loan for you. You can apply anytime, and you might be able to borrow more than you could with a federal loan.

5. Apply for your chosen student loan

The application process differs depending on whether you get federal or private student loans.

Federal student loans

Once you submit the FAFSA and get your financial aid award letter, you’ll be able to see which federal student loans you qualify for and how much you can get for the academic year.

Follow your school’s instructions to select the loans you want and in what amounts. If you’re a first-time borrower, you’ll complete entrance counseling, which walks you through how loans work and your repayment options. The financial aid office will also reach out with next steps, such as signing a Master Promissory Note (MPN).

Private student loans 
You don’t need to fill out the FAFSA to borrow private student loans. Instead, you can apply directly on the lender’s website.

You must be enrolled in school to get a private education loan. Lenders typically also evaluate you based on:

  • Your income
  • Your credit score (and your cosigner’s, if you have one)
  • Your citizenship status (many lenders require that you or your cosigner be a U.S. citizen or permanent resident)

If you have no or poor credit, you’ll likely need to add a cosigner to your application. Cosigners — typically a parent or other relative with a stable income and good credit history — agree to share equal responsibility for your debt if you can’t repay it. Having a cosigner can help you get approved for a loan or access better rates and terms.

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After you submit an application

If you’re approved for either a federal or private student loan, you’ll need to sign final paperwork to complete the process. Review the terms and electronically sign the form to accept.

Most lenders require the loan amount to be certified by your school first, after which funds are disbursed directly to your school before the start of the term. Typically, the loan money is first applied to any outstanding tuition, fees, and room and board. If there’s money left over, your school will distribute it to you to use for other education or living expenses.

At some point, you’ll have to repay the entire loan in full — plus interest. If you’ve taken out a federal loan, you’re eligible for multiple repayment options, including standard payment over 10 years, extended payment up to 25 years, and income-driven repayment plans.

There are generally fewer repayment options for private loan borrowers, although some lenders offer more flexibility than others. Some private lenders may require you to start repayment as soon as funds are disbursed, while others offer the option to make interest-only payments or defer payments entirely until you leave school. Check with your lender to see what’s available.

Tips for taking out a student loan

As you navigate the ins and outs of how to take out a student loan, keep the following in mind:

  • Borrow only what you need: Resist the temptation to borrow more than necessary, and think ahead about how you’ll pay it back. Minimize your debt as much as possible by keeping your expenses in check and seeking alternative funding sources when possible.
  • Research and compare loan options: Shop around to find the best loans and terms for your situation so you can set yourself up to pay your student loans back responsibly.
  • Keep track of your loans and payments: By the time you graduate, you may have a mix of federal and private loans with different repayment periods, interest rates, and payment due dates. Maintaining detailed records can help you stay organized and ensure you make your payments on time.

Alternatives to student loans

While student loans can be a valuable resource, they aren’t the only option for financing your education. Consider these alternatives:

  • Scholarships and grants: Search and apply for scholarships and grants that match your qualifications and interests. These awards generally don’t have to be repaid, and they can help cover some of your education costs.
  • Work-study programs: Take advantage of part-time job opportunities on campus through work-study programs, which allow you to earn money while gaining valuable work experience.
  • Part-time jobs or internships: Working part-time during college or doing paid internships can help cover some of your smaller expenses while building your skills and resume.

Borrowing money for college is a big financial decision. Understanding how to take out a student loan can help you make more confident choices about how to finance your education. Explore all of your financial aid options, consider how you’ll repay your student loans over the long term, and learn how to use debt as a tool to wisely invest in your future.

Find Your Student Loan

Meet the expert:
Robyn Conti

Robyn Conti has been helping educate consumers and financial professionals about investing, retirement planning, and personal finance since 1998. Her articles have run in publications including Forbes Advisor, The Motley Fool, and Robb Report, among others.