The Complete Guide to Student Loans

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Making the decision to receive a higher education can help you in many different aspects of your life. In addition to the knowledge you will gain from your studies, you can gain access to higher-paying job fields that require a college degree.

With that being said, attending college or a university in the U.S. is anything but cheap. Tuition to attend college can be anywhere from $10,000 to upwards of $40,000 for each school year. That’s a lot of money!

In order to reap the benefits of receiving a college education, you will most likely need to take out a student loan to help you pay for your schooling. But what are student loans and how can you get the most out of them?

This article covers everything there is to know about the process. You will be able to learn a bit about what student loans are, how they work, what options are out there for you, and how to set yourself up for success.

What Are Student Loans?

In simple terms, student loans are funds that are granted to individuals in order to pay for tuition and other expenses associated with higher education. These expenses can include books, school supplies, and housing while the student is in the process of getting a degree.

Oftentimes payments on student loans are deferred while the individual is attending college. Depending on the lender, the payments can even be deferred for an additional six-month period after earning a degree.

To put it into perspective, the Federal Reserve reports that the average monthly payment for student loan borrowers is $222 per month. This will fluctuate depending on your loan terms and how much you choose to borrow.

Federal Student Loans Vs. Private Student Loans

There is a wide variety of student loans, but they can be broken up into two primary categories – federal student loans and private student loans. Federal student loans are supplied by the U.S. Department of Education, while private loans are offered by private lenders. The two types have different terms, interest rates, and qualifications. Here’s a quick breakdown.

Federal Student Loans

Most students are best served by finding federal student loans because they typically have better repayment terms along with lower interest rates when compared to private lenders.

In most cases, federal loans will cover the entire cost of tuition as well as student housing, books, and food. They also carry a more manageable interest rate of around 4-6% annually. To qualify for a federal loan, you will need to complete the Free Application for Federal Student Aid (FAFSA). Anyone can apply and there are very few restrictions for eligibility. As long as you’re a U.S. citizen or have the necessary documentation, you should be able to receive aid in one form or another.

Private Student Loans

Some individuals may choose to seek funds from a private lender if they need to cover any costs that are not covered by a federal loan. With that being said, it is generally recommended that new students exhaust all their potential federal funding options before taking on a private loan.

You can get a private loan from many different sources including banks, credit unions, and other financial institutions. The money you receive can be used for different expenses such as tuition, room and board, computers, and living expenses.

Private loans are different from federal loans because they are not based on financial needs. Instead, they rely on your ability to pay the loan back. During the application process, you may have to pass a credit check and/or prove your creditworthiness.

How to Apply for a Federal Student Loan

Applying for student loans is just as important as applying to schools that you’d like to attend. If you are accepted at your dream school but have no way to fund your education, what was the point of applying to the school in the first place? Here are four steps to applying for a federal student loan.

Step 1: Collect all the Necessary Financial Documentation for Your Application

As mentioned earlier, you will need to fill out the Free Application for Federal Student Aid (FAFSA) in order to get access to federal financial aid.

The FAFSA becomes available each year on October 1st and financial aid is offered on a first-come-first-serve basis. Since this form contains a lot of information, students who want to get a head start on the process should begin gathering the necessary information in September.

Here’s an overview of what information you or your parents will need to have ready for the FAFSA:

  • Federal Student Aid (FSA) ID
  • Driver’s license number (optional)
  • Social Security Number or Alien Registration Number
  • Federal income tax returns and any record of untaxed earnings, including private financial aid
  • Bank Statements and Investment Account Statements
  • A list of ten schools you would like your FAFSA submitted to

Due to the fact that aid is awarded to those who apply first, it is extremely important to be prepared to apply as soon as you can.

Step 2: Fill Out the FAFSA

When October 1st rolls around and it’s time to apply for the following school year, you will be best served by filling out your FAFSA online. You and your parents can register for access to the FAFSA through the Federal Student Aid website.

After registering, you can fill out the entire FAFSA online and have the ability to edit the information later if you need to. In addition, the FAFSA has a mobile app that allows prospective students to apply for aid.

Step 3: Review Your Student Aid Report

Once you’ve filled out the FAFSA, you’ll receive a Student Aid Report (SAR). This report summarizes all the information you have provided. You should receive this report in three days to three weeks.

Once you get it, it is crucial to review the information to ensure that it is accurate. If it isn’t accurate, you will need to edit your FAFSA as soon as possible. It is important not to delay correcting any errors that come up on your FAFSA.

FAST FACT : According to the National College Attainment Network (NCAN), 61% of 2021 high school graduates completed the FAFSA.

Step 4: Await Your Financial Aid Award Letter

Once you’ve completed your FAFSA, you should receive a financial aid award letter from the colleges you listed on the form. When you receive this letter will differ depending on the college or university.

If you’ve been accepted to a school and still haven’t received the award letter, you can call that school’s financial aid office to ask about your letter’s status.

The financial aid award letter will give you a detailed overview of everything you qualify for. This can include loans, grants, and/or work-study opportunities.

4 Things to Know Before Getting a Student Loan

After you have applied for student loans and have been given an offer, it’s important to take a few things into consideration before accepting that financial responsibility. Here are a few things to know before signing off on a student loan.

1. Know How Much You Need to Borrow

It can’t be stressed enough how important it is to only borrow what you need when it comes to student loans. They are meant to cover your tuition, books, housing, and other basic expenses.

Student loans need to be paid back, so using the money on frivolous spending is definitely not a good idea. With this in mind, you will need to plan ahead and calculate how much money you will need to cover the necessary expenses.

2. Opt for Federal Loans Over Private Loans

When seeking financial aid in the form of a loan, you should always opt for federal financial aid. In most cases, loans from the government will carry a lower interest rate compared to loans offered by private lenders.

If you apply for federal loans and the amount awarded to you will not cover your expenses, then it makes more financial sense to consider a private loan. Again, be sure to only borrow what is necessary. When looking into private lenders, be sure to compare interest rates and pick the option with the best loan terms.

3. Your School Can Help with Financial Aid

When seeking out a student loan, you should know that the school you plan on attending is an excellent resource for information. If you have any specific questions about the process or your loan options, you should contact the school’s financial aid office.

Not only will they be able to accurately answer your questions, but after you’ve been approved for the loan, the financial aid office usually takes care of everything from there. If you’re awarded a federal student loan, they will collect the money from the loan and directly apply it to your tuition and student account. Any excess money will then be distributed to you as necessary.

Knowing that the financial aid office is there to assist students with the process can give you some peace of mind in the sense that you won’t have to worry about the intricacies of the loan disbursement process.

4. Loans Come with Fees and Interest

Something that is often overlooked with student loans is the fact that there are fees and interest that need to be paid in addition to the loan amount itself. Unfortunately, students looking to borrow money to fund their education will end up paying more money than they originally borrowed.

While the interest rate on student loans is relatively low compared to high-interest credit card debt or personal loans, it is still nearly 4% for federal student loans. This needs to be taken into consideration when calculating how much you are going to borrow.


Filling out the FAFSA may seem intimidating – especially if it’s your first time applying for federal student loans. It’s important to take your time and make sure you have all the information you need before you submit your application.

Here are some of the most commonly asked questions about the FAFSA. For additional questions and background information, be sure to check out this article dedicated to the topic: FAFSA 101: What You Need to Know About the Free Application for Federal Student Aid.

How Much Aid Can I Expect to Receive from the FAFSA?

Unfortunately, the U.S. Department of Education doesn’t share how they decide the amount of aid you will be eligible for. The formula they use to determine the amount of aid you can receive is intentionally withheld in an attempt to prevent people from taking advantage of the system.

Should Student Income be Included in the Family Income Section?

Most definitely not. In many instances, families make the mistake of including student income in the FAFSA application process. People who put down student income are claiming the same income twice. This means that you should only include family income to give yourself the best chance at receiving the highest possible amount of aid.

What Can I Do if I Miss the Filing Deadline?

If you get yourself into a situation where you think you might miss the deadline for filing FAFSA, you should contact the school immediately to request an extension. In some cases, the school may allow an extension.

With that being said, if the school is not willing to grant you an extension, you will no longer be eligible to receive benefits and will need to wait for the following year to re-apply.

Should I Accept my FAFSA Offer as Soon as Possible?

When receiving an offer for financial aid, you shouldn’t immediately accept all of the funds offered to you. It is recommended to accept the financial aid offered to you in this order:

  1. Free money first (scholarships or grants)
  2. Earned money second (work-study opportunities)
  3. Borrowed money last (student loans)

Make sure you are aware of the conditions you are required to meet for the scholarships and grants that you apply for. It’s always best to accept funds that you will not need to pay back first. After that, only borrow what you need.


Getting a student loan may seem like a huge task, but knowing how to use the loan to your advantage can benefit you greatly down the line. When you’re preparing to attend a school or if you are already in school, research what student loan options are available to you and compare what’s out there.

Always remember to accept money that you do not have to pay back first (i.e. grants or work-study opportunities). If you need to take out a student loan to cover the remaining expenses, take some time to draw out a budget and only borrow what you need.

Student loans are a huge responsibility, so do not take them lightly. Be diligent with your studies and work hard to earn your degree. After you finish up with your schooling, make sure to keep an eye on your monthly loan payments.

May you have the best of luck and great success in the future!

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