How To Apply For Student Loans In 2024 | Federal and Private

With the rising cost of college tuition, it’s important to understand the different options available to you. Federal and private student loans offer different terms and conditions, so it’s crucial to know the ins and outs of each before making a decision.

Navigating the world of student loans can be overwhelming, especially for those who are new to the process. Understanding the differences between federal and private loans, as well as how to apply for each, can have a significant impact on your financial future.

In this article, we will break down the steps for applying for both federal and private student loans, as well as provide tips on how to choose the best option for your individual needs. By the end, you’ll have a clear understanding of the process and be able to make informed decisions about your financial aid options.

Whether it’s completing the FAFSA to get federal student loans or submitting an application to a lender for a private student loan, there are a lot of steps and information needed from students and their families in this guide to help you prepare for and navigate through any student loan application process.

What Are Student Loans?

“While a college degree is still a ticket to a better life, that ticket is too expensive, and too many Americans are still saddled with unsustainable debt in exchange for a college degree.” These were the words of American President Joe Biden.

Student loans are a type of financial aid designed to help students cover the costs associated with their education, including tuition, fees, books, and living expenses. These loans are typically offered by government agencies or private financial institutions. The primary purpose of student loans is to provide individuals with the means to pursue higher education, even if they do not have the immediate financial resources to pay for it.

There are two main types: federal and private. Federal loans typically have lower interest rates and better repayment terms compared to private loans.

Types Of Student Loans

If you need money for college expenses, you need to know what your borrowing options are. The two most common ways to borrow are federal student loans and private student loans.

• Federal Loans – The U.S. Department of Education administers federal student loans. They tend to have lower interest rates and more flexible repayment plans than private loans.
• Private Student Loans – Private student loans come from sources like banks, credit unions, and other financial institutions. They are suitable for students who need more than what the federal loan has to offer or borrowers who fail to qualify for the federal student loan for reasons like citizenship status.

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Types of Federal Student Loans

Here are the four types of federal student loans:

1. Direct Subsidized Loans

Direct subsidized loans are meant for undergraduate students who have shown financial need. These loans do not accrue interest while the borrower is in school, during the six-month grace period, or any deferment period afterward.

2. Direct Unsubsidized Loans

Unlike direct subsidized loans, direct unsubsidized loans are available to undergraduate, graduate, and professional students. Here, students do not need to show financial need. One downside of this loan type is that it accrues interest immediately. This means that you’ll be accruing interest during school after you graduate and during periods of deferment and forbearance.

3. Direct PLUS Loans

Graduate or professional students, as well as the parents of dependent undergraduate students, can apply for Direct PLUS Loans to assist with the cost of their education. In comparison to Direct Subsidised and Unsubsidized Loans, Direct PLUS Loans—also referred to as graduate PLUS Loans and parent PLUS Loans—have higher interest rates and loan origination fees.

Direct PLUS loans are obtained directly by parents, in contrast to other federal student loans. Although students can make their payments, the complete repayment of parent PLUS loans remains the legal and financial responsibility of the student’s parents. The loan will not appear on the student’s credit report; only the parent’s will.

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4. Direct Consolidation Loans

The Direct Consolidation Loan is a fixed-interest loan with flexible options, based on your ability to repay. There is no fee to consolidate student loans, though you can do it only once. It could lower your monthly payments but also extend the amount of time needed to pay off the loan.

If you are one of those students who receive loans from a different borrower every year, if not every semester, it is common to have 8–10 student loan payments due every month when you finally graduate. You can simplify the repayment process by applying for a direct consolidation loan, which can best be defined as one payment to one servicer, once a month.

With the direct consolidation loan, you will reduce the stress attached to having to remember multiple due dates for various amounts to a variety of lenders. It also should help reduce (or eliminate) late fees when you miss a payment.

Types of Private Student Loans

Numerous private student loan businesses exist, but some of the more well-known ones are Sallie Mae, Discover, and Citizens Bank. For qualifying customers with good or exceptional credit, private lenders can provide exceptionally cheap interest rates in addition to a range of repayment plans, incentives, and consolidation alternatives. Private student loans can have fixed or variable interest rates, in contrast to federal student loans, which exclusively provide fixed rates.

Here are the different types of private student loans:

1. Undergraduate loans

Undergraduate private student loans frequently include flexible payback schedules and can even reduce the principal amount owed by the borrower after graduation. However, co-signers are frequently needed for undergraduate private student loans, in contrast to federal student loans. An adult who agrees to assume complete responsibility for your student loans in the event of default is the co-signer. Co-signers are nearly always needed by private lenders because recent graduates haven’t had time to establish credit.

Private student loans for undergraduates usually have higher interest rates than loans for graduate students. They typically have smaller loan amounts as well.

2. Graduate loans

Private student loan lenders may offer specific student loan options for graduate degree programs like law, medicine, MBA, etc. This type of loan is less likely to require a co-signer than undergraduate loans. They often have higher loan limits, longer repayment terms, and lower interest rates.

Private graduate student loans frequently include additional features tailored to graduate school requirements. For example, some lenders provide extended grace periods, in-school deferment periods, and additional deferment while students finish a residency.

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3. Parent loans

Just like the federal parent PLUS loan, private lenders allow parents to take out loans for their children’s education. To apply for parent loans, you must be the biological or adoptive parent of the dependent undergraduate, though sometimes stepparents may qualify. You also must have a good credit history and meet the general eligibility requirements for federal student aid, such as being a U.S. citizen or eligible noncitizen. The child must be enrolled in a qualified institution for at least half a year as an undergraduate student.

Parents might also consider looking into a private student loan to see if they qualify for a better interest rate. According to Bankrate, the current direct PLUS interest rate is 8.05% for loans disbursed on or after July 1, 2023, and before July 1, 2024. It’s a fixed interest rate. Private student loans can run anywhere between 4 and 15% interest rates, and some may have variable rates.

How To Apply For Federal Student Loans

Receiving federal student loans like direct subsidized and direct unsubsidized loans starts with completing the FAFSA. You can complete the entire process online at the FAFSA website. Some loans are awarded based on your family’s financial needs, Here’s the information you need to provide when applying:

• Name, date of birth, and address
• Social Security and driver’s license numbers
• Federal tax returns, including W-2 tax forms and other recent records showing the income earned by you, your spouse, and your child (if the child is a dependent)
• Federal student aid PIN number, which will allow you to access the application and sign the form
• Name of school (up to 10 can be listed on the application)

Your Student Aid Report, which details your estimated family contribution (EFC), will then be sent to you. The schools indicated on your application will receive the form automatically. You will receive a financial assistance offer letter from those universities’ financial aid offices detailing the aid package they will provide. It is your responsibility to evaluate those offers and select the school that best suits your family’s budget and long-term objectives.

Finally, if you decide to accept the financial aid package from the school of your choice, an itemized list of all potential forms of aid, including grants and federal student loans, will be included in your financial aid offer letter.

After accepting your offer letter, contact the financial aid office at your school to find out what additional paperwork (including completing your Direct Loan Master Promissory Note, or MPN) is required for you to get your financing.

Step-by-step process of how to apply for federal loans

Step 1: Fill out the FAFSA

The first thing you will have to do is fill out the Free Application for Federal Student Aid, or FAFSA. This is a form that helps you identify what programs and loans you can qualify for that will help you attend college. You can apply for the FAFSA online.

Recall that to be eligible for your next semester of study, you must submit your FAFSA as soon as possible. It’s a good idea to gather the information needed before starting, as the form requests a lot of data, some of which must be gathered from financial and tax documents. Every year you attend school, you must complete the FAFSA, but after the first year, it will get easier.

Step 2: Your Student aid report will be sent to you

After you fill out the FAFSA, the schools to which you apply will receive a Student Aid Report containing your expected family contribution, or EFC. This is the amount of money you or your family should be able to pay for your education. If your application is incomplete, your SAR will not include an EFC, but it will tell you what you need to do to resolve any issues.

When you receive your SAR, review it carefully to make sure that it is correct and complete. The school(s) you listed on your FAFSA will use your information to ascertain your eligibility for federal—and possibly nonfederal—financial aid. Schools may ask you to confirm the accuracy of the date you provide on the FAFSA, so you need to be certain that the information provided is correct.

Step 3: Financial Aid Applications

After completing your SAR, the schools involved will send you letters that include information regarding financial aid options and grant programs. You will need to secure those applications and begin the process as soon as possible.

Step 4: Accept or decline the Loan

You should carefully consider the aid offer your school makes after informing you of the loan amounts it is proposing, usually through an “award letter” that includes a description of all the planned financial aid awards (your award package). Remember that you will always have to pay interest on any loans you take out. You might not need to borrow as much as stated in the award letter if your living expenses are not greater than the usual allowance estimated by your institution.

You have the right to decline the loan or to request a lower loan amount. Your school will let you know how to do this in the award letter.

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Step 5: Receive financial aid offer letter

If you decide to accept the federal student loan, an offer letter will be sent to you. After accepting your offer letter, contact the financial aid office at your school to find out what additional paperwork (including completing your Direct Loan Master Promissory Note, or MPN) is required for you to get your financing.

What Types Of Federal Loans Can I Get?

The federal government issues three types of student loans:

• Direct Subsidized: This type of loan is available to undergraduate students with financial needs. They offer more financial assistance than unsubsidized loans, in most cases. Your college determines the amount you can borrow; the amount just can’t exceed your financial needs. The U.S. Department of Education foots the bill for the interest on a direct subsidized loan while you’re in school.
• Unsubsidized: This type of loan is accessible to both graduate and undergraduate students, and no proof of financial need is needed. Interest on a direct, unsubsidized loan is the borrower’s responsibility. Interest will accrue and be added to the principal amount of your loan if you decide not to pay the interest while enrolled in classes or during forbearance periods.
• Plus Loans: Often referred to as a Parent Plus loan. Parents of dependent undergraduate students as well as graduate or professional students may apply for federal direct PLUS loans to assist with the cost of attending graduate or undergraduate education. Here’s a tip: Make sure you’ve completed your FAFSA form before applying for a PLUS loan. Are you interested in the finances? The cost of attendance (as specified by the school) less any additional financial aid received is the maximum amount of a PLUS loan that you are eligible for.

How To Apply For A Private Student Loan

Even though each private lender for private student loans has a different application procedure, they all need the same data from candidates. The following is a list of details you can expect to submit with your application for a private student loan.

Some private student loan lenders may ask you to submit documents to verify some of this information. Once approved, all lenders require you to sign a promissory note that details every aspect of the loan you’re taking out. Once you’ve accepted the loan and signed all your documents, the lender will typically send the funds directly to your school. If you requested additional funds for school-certified expenses, check with the financial aid office at your school to find out how they handle those funds.

Here is a step-by-step process on how to apply for private student loans:

1. Understand the private student loan requirements

To apply for a private student loan, you must be at least 18 years old with a valid Social Security number and be a U.S. citizen or resident. International students may also qualify for a private student loan if they have a cosigner who is a U.S. citizen.

Next, you must show that you plan on attending an accredited college, university, or trade school. Check with your lender If you’re unsure about your school’s eligibility status.

According to CBS, private student loans typically require a positive payment history and a minimum credit score in the upper 600s or higher.

2. Get a cosigner

If your credit history is low or you have below-average credit, you need a cosigner to qualify for a private student loan. This scenario is quite common, with over 90% of undergraduate students needing a cosigner for private student loans taken out during the 2022–2023 academic year, according to data analytics firm Enterval Analytics.

3. Compare offers from multiple private lenders

As with other types of loans, it’s wise to look around and compare private student loan lenders to find the most suitable one for you. Among other features, compare the interest rates, loan terms, and eligibility requirements to find the best fit.

According to Jack Wang, a college financial aid advisor at Innovative Advisory Group, it’s important to look at the stability of jobs in the industry you’re studying when comparing different private student loan offers.

4. Submit an application

Once you’ve identified the private student loan offer that best fits your needs, the next step is to fill out an online application. Here’s a list of documents and information you need to submit:

• Name of school
• Driver’s license number
• Social Security number (or Alien ID number for permanent residents)
• Gross monthly income and one most recent paystub
• Employer name, phone number, and length of employment (if applicable)
• Monthly rent or mortgage payment
• Anticipated graduation date (MM/YYYY)
• The loan amount requested
• Loan period for which funds are needed (can be an entire academic year or a single semester)
• Co-signer name and valid email address
• Student borrower reference (name, address, and phone number of someone who is not your co-signer)

5. Receive funds

If your private student loan application is accepted, the lender usually sends the funds directly to your school. For their part, the school applies the money to your tuition and other necessary fees. Any remaining funds are disbursed to you.

“Make sure you’re aware of the specific dates that your funds need to be disbursed to your school,” advises Julian. “Coordinate with your lender to avoid any delays or issues in the disbursement process.”

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Tips For Private Student Loan Application

Before you fill out your application for private student loans, it will be helpful to know how to go about the application process.

• Finding a cosigner, or endorser: Not all private student loans require a cosigner, sometimes referred to as an endorser. If you have little to no credit history, haven’t built sufficient credit history, or have a negative or poor credit score, you may need a cosigner on your student loan.
• Researching rates: This step is a “must-do” on your checklist. The interest rates for a government loan are fixed and usually lower than those on private loans. For private loans, talk to a loan officer at a bank or at the school you choose to attend. Also note that with variable and fixed loans, the rates are affected. Variable-rate student loans adjust the interest rate at a determined frequency (monthly or annually) over the loan term. Fixed-rate student loans are exactly how they sound, offering the same interest rate over the loan term. Compare offers from multiple lenders to see which will offer you the lowest interest rate, and check whether your degree program or state affects the type of loan you are offered.
• Improving credit: Often, the rate you qualify for with your student loan can depend on your creditworthiness. The higher your credit score, the lower the interest rate you’ll likely receive. Please note that no matter how good your credit score is, certain loan programs always ask for a cosigner for undergraduate borrowers.

Once you’ve done all your homework on how to apply for a student loan, you may feel ready to apply. Keep in mind the turnaround times for federal and private student loans. It can take weeks to Processing times for private student loans can take up to a few weeks, so ensure that you apply in advance of when your tuition bills are due.

How To Choose A Private Student Loan

While shopping around for a private student loan, consider these factors:

• Compare annual percentage rates (APRs). Your APR is a better measure of how expensive a loan is since it includes the interest rate a lender charges plus fees. Some lenders allow you to prequalify without, which allows you to compare estimated rates and terms without harming your credit, though prequalifying doesn’t guarantee approval.
• Your school’s eligibility. Contact the lender before applying to see if your school is on its approved list.
• Perks. Some student loan companies offer benefits, such as co-signer release and lengthy grace periods.
• Loan amounts. Make sure the lender offers your desired loan amount before applying.

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What Are The Differences Between Private And Federal Student Loans?

Private student loans are post-secondary education loans offered by private financial institutions, such as banks and online lenders. Lenders typically perform a credit check when you apply for a private loan, and the rate you receive depends on your credit profile and financial situation. By comparison, the U.S. Department of Education funds federal student loans. Most federal student loans don’t require a credit check, and they come with standard eligibility requirements. Each type of federal loan has the same rate for each applicant.

Here are a few notable differences between private and federal student loans:

Federal Student Loans	Private Student Loans
1. Private student loans don’t require FAFSA for application.	1. Private student loans doesn’t require FAFSA for application.
2. You apply through FAFSA.	2. You are expected to apply directly with a bank or credit union
3. For federal loans, your credit score does not affect eligibility.	3. For private student loans, consider your credit history.
4. The borrowing limit is determined by FAFSA	4. The borrowing limit is not determined by FAFSA
5. Federal student loans have lower interest rates	5. Have higher interest rates.
6. Lower borrowing limit.	6. Higher borrowing limit.

Can I Decline A Student Loan Offer?

You can decline a student loan offer if you already have enough cash for college. Although it can be tempting to accept all the loan money offered in a school’s financial aid offer, experts will always advise students to take what they need for tuition, fees, and living expenses.

Dean Obenauer, assistant director of financial aid for financial literacy at Creighton University in Nebraska. “We can’t camp on their doorstep to see how they spend that, but we’re always preaching that they really should only borrow what they need.”

Before you accept any student loan offer, take your time to figure out a budget. Check for your “cost of attendance,” which in most cases includes estimates for books, transportation, and personal expenses, and work around it.

The process of declining a student loan offer differs from school to school, but you’ll generally get the information you need on how to accept, decline, or decrease your student loan offer in the financial aid award letter that you receive from your college or university.

If you’re having trouble or you’re not sure how to decide, contact your school’s financial aid office to talk about your options and determine the best step forward. 

FAQs On How To Apply For Student Loans

Conclusion

Many factors go into deciding where to go to college. Now that you have the essential tools needed to apply for student loans, you’ve already taken a step in the right direction. Whether you take public, private, or a mix of both to cover your education expenses, you’re putting your best foot forward toward a bright future.

References

• salliaemae.com – Types of student loans
• internationalstudentloan.com – Federal Student Loan Application Process
• citizensbank.com – How to apply for Student Loans: Federal and Private

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