The Ultimate Guide To Student Loans


Student loans is the primary way people fund their college education. In fact, over 43.5 million Americans today have taken out some form of student loan as a means of paying for their school tuition. 

The average cost of annual tuition for universities in the U.S. is $30,000 and are on the continual rise. This number doesn’t include books, dorming, or additional class fees that are included in most degree audits. 

While loans serve the purpose of providing the funds for present expenses, that money does eventually need to be repaid unless stated otherwise by the lender. As a student, you should know as much about student loans as you can before taking on debt.

How do student loans work?

A college loan is very similar to a car or home loan. It is money lent to you by the government to pay for tuition and other college expenses during your time in school. 

Most students don’t start paying off their loans until they graduate, as interest doesn’t start being added to balances until 6 months post-graduation. This allows students to focus on their studies and coursework rather than worrying about school finances.

What types of loans are out there?

There are several different categories of loans, each having different subtypes within them. The 4 most common forms of loans Americans have include the following:

  • Federal student loans
  • Private student loans
  • Parent plus loans
  • Direct consolidation loans

Let’s now take a closer look at each one of these and how they work and the requirements for each one!

1. Federal student loans

Including Stafford and Perkins loans, federal loans are dispersed from the government through an online application system called FAFSA. The U.S. Department of Education gives out these funds in the form of direct subsidized and unsubsidized loans. 

Direct subsidized loans are loans that are available for any undergraduate students with financial needs. These loans are given out based on primarily a student’s expected family income (EFI). Interest for these loans are paid by the Department of Education while you’re in school for as long as 6 months post-graduation or even indefinitely. 

Direct unsubsidized loans are available to both undergraduate and graduate students. Students do not need to show financial need in order to be eligible to receive these types of loans. The catch, however, with these loans is the interest that comes with it is not paid for by the Department of Education. Therefore, unless students pay off the interest as it is added, your loan total will be much more than the initial amount you signed for. 

The amount you can borrow in unsubsidized loans is decided by your school based on their cost of attendance and financial aid package available. 

2. Private student loans

Private student loans are offered to students by banks and other financial institutions. Fees and rates vary depending on the loan company, and loan availability can be limited as well.

Private loans are known for their low interest rates, and while take some digging and researching to find can be very financially rewarding.

3. Parent plus loans

These forms of loans are offered to parents with dependent undergraduate students. As long as the students are enrolled in school at least part-time, they are eligible for financial help. 

Unfortunately, legal guardians and grandparents cannot be accepted for loans. Only the biological parent, step-parent, or or adoptive parent of the child can apply for this type of loan. 

Unlike federal subsidized and unsubsidized loans, parent-plus loans require a credit check as part of the application process. With this loan, you must make consistent payments soon after the loan is dispersed unless you have a special arrangement with the lender. 

4. Direct consolidation loans

Any current borrower of student loans can qualify for direct consolidation loans. This combines all of your current loans into one single payment. There are also no additional fees to worry about by consolidating your loans.

Direct consolidation loans can be made up of several other various loans, including:

  • Supplemental student loans
  • Perkins loans
  • Health education assistance loans
  • Loans for disadvantaged students
  • National direct student loans
  • Parent loans for undergraduate students

One thing to be mindful of, however, is the name the previous loans are under. Students cannot consolidate loans in their name that were made under their parent’s name.

Federal vs. Student Loans

Federal loans are from the government, and include rules and conditions based on law. Whereas private loans are from state banks and private organizations that have terms and conditions set by solely the lender. 

While certain federal loans don’t require you to make payments while in school, most private loans do. Additionally, federal loans do not require a credit history while private loans ask for borrowers to either have an established credit or a cosigner.

For more information regarding other differences between these two loans, see this student loan website for more!

How to Apply for Student Loans

Applying for a loan is a much easier process than you might think. There are 3 main steps to doing so:

1. Check your eligibility 

In order to qualify for a loan, you must meet certain criteria and requirements. Some universal requirement among most loans include the following:

  • Be a U.S. citizen or eligible noncitizen
  • Have a valid and traceable social security number
  • Have a high school diploma or some equivilant 
  • Be enrolled and accepted to a university or school of some kind
  • Have a proficient academic record

2. Submit the FAFSA

Each year, the federal student loan application opens October 1st for people to apply. You can access the application here, and the sooner you can complete it the better! If you’re a claimed dependent, you will need to provide your parents information regarding annual income and other finance-related details.

If eligible, you can receive loans, grants, federal work-studies, and more.

3. Review financial aid offers

Afterwards, you will receive a confirmation email from the department of education that they received your application. Within a few months, you will be notified through either text or email regarding whether or not you qualified for any financial assistance!