A federal student loan is financial aid issued by the Department of Education. Unlike private loans, federal loans tend to have lower, fixed interest rates and more borrower protections like eventual loan forgiveness or income-based repayment plans.
Below are the steps for how to take out a loan for college.
1. Fill out the FAFSA
To start the application process, create an account on the Federal Student Aid website and fill out the Free Application for Federal Student Aid (FAFSA) online. The application typically becomes available in October. This year, the College Board made some updates, and it’s now available in December.
It can take 30 minutes to an hour to complete the form if you have your supporting documents and info ready. Gather your list of schools, social security number, driver’s license, federal tax return, proof of income like a W-2, bank statements, and records of investments (if applicable). Many students won’t have proof of income, so you’ll just need the same information from your parents if you’re a dependent.
Once you’ve applied, you’ll receive your Student Aid Report (SAR) within two weeks. The report summarizes everything you entered so you can review it for accuracy – this report does not outline any offers.
You will resubmit your FAFSA form each year through your Federal Student Aid account for the new school year.
2. Compare your offers
Once you have chosen a handful of schools to receive your FAFSA information, you’ll start to receive your financial aid award letters from each individual institution. And don’t worry — while you can automatically send your information to a few schools via the FAFSA website as you complete the application process, there is no limit to how many colleges you can apply to or send your financial aid information to in general.
In your award letters, you’ll see the cost of attendance, work-study opportunities, grants, scholarships, and loans you are eligible to receive. Your offers will vary by school, so it may help to create a spreadsheet with breakdowns of each offer so you can easily compare. Here are a few key reminders as you consider offers:
Figure out the cost of attendance
A school’s cost of attendance, which can often be found on the university’s website, will include tuition and fees, books, room and board, transportation, personal expenses, and other costs. Once the school determines how much aid you’re eligible for, you can calculate the gap between your offer and the cost of attendance: the difference is what you’ll have to cover financially.
Understand the difference between direct subsidized or unsubsidized loans
There are two types of federal student loans:
- Direct subsidized loans: These loans are for undergraduate students with demonstrated financial needs. The Department of Education pays the interest on these loans while you’re in school at least part-time, for the first six months after you leave school (your grace period), and during deferment (also known as the postponement of your loan payments).
- Direct unsubsidized loans: These are not based on financial need, and while you do not have to make payments while in school or during deferment, your interest starts accruing immediately. You can make interest-only payments while in school to help lower your loan principal. This would make it a little easier when you have to start paying off your student loans.
Apply for grants and scholarships
Grants and scholarships are known as “gift aid” – they do not require repayment. For example, Pell Grants are federal grants awarded to students with financial need. You may also qualify for scholarships or grants through your chosen university based on academic performance. Using scholarship search engines, like Scholarships.com or Fastweb, is another way students can find and apply for gift aid.
If you demonstrate enough financial need, you could be eligible for a work-study program: working part-time to pay for school. Sometimes, the school will assign you a job. In other cases, you may have to find the job yourself. Use our College Finance Guide to help prepare you for your financial life as a college student.
3. Choose your school
After carefully reviewing your options, it’s time to choose your school! Then, contact the institution to accept their financial aid offer. At this point, you’ll know how much additional money you’ll need to borrow to fully pay for your yearly college costs.
Your loan mix could include a Parent PLUS loan, another federal loan made to the parent or legal guardian to help cover your costs. Or, you could take out a private student loan.
