Understand the different ways you can borrow money to help pay for college. One of the biggest problems is that not enough students understand how student loans really work. After you’ve explored free money for college (scholarships and grants), you may want to look into federal student loans. which provides students an alternative way to pay for their careers.
Don’t forget, with student loans, you’ll have to pay back the money you borrow plus interest.
Types of student loan borrowing options
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 and private student loans.
Types of federal student loans
There are three types of federal student loans. They’re all provided by the government through the Federal Direct Loan Program.
- Direct Subsidized Loans are based on financial need.
- Direct Unsubsidized Loans are not based on financial need. They’re not credit-based, so you don’t need a cosigner. Your school will determine how much you can borrow, based on the cost of attendance and how much other financial aid you’re receiving.
- Direct PLUS Loans are credit-based, unsubsidized federal loans for parents and graduate/professional students.
It’s important to consider federal student loans before you take out a private student loan, because there are differences in interest rates, repayment options, and other features.
Learn more about federal student loans
Types of private student loans
Most importantly, when you’ve explored scholarships, grants, and federal loans, and still need money for college, you can consider a private student loan. Certainly, it might not be the best option but is another alternative that will help you continue with your education.
- They’re issued by a bank or other financial institution.
- Private student loans are taken out by the student; they’re often cosigned by a parent or another creditworthy individual.
- Parent loans are another way to get money for college. A parent or other creditworthy individual takes out the loan to help their student pay for college.
How to apply for a federal or private student loan
There are different application processes to follow, depending on which type of student loan you’re looking for.
The application process for a federal student loan
You apply for a federal student loan by filling out and submitting the Free Application for Federal Student Aid (FAFSA®). You MUST submit the FAFSA to be eligible for a federal student loan.
Financial aid tip
Almost everyone who applies for financial aid is eligible for some form of aid. File the Free Application for Federal Student Aid (FAFSA®) to see how much you qualify for. Embark makes it easy with a simplified process and step-by-step guidance—plus it’s free.
To submit the FAFSA for federal student loans (and for all types of federal financial aid), there are a few things to keep in mind:
- Remember that there’s no cost for submitting it. (If you’re asked to pay, you’re not at the right website.)
- Complete the FAFSA every year you need money for college.
- Get it in as soon after October 1 as possible. The earlier, the better, since some grant money is awarded on a first-come, first-served basis.
You’ll find out about how much you’re eligible for in federal student loans when you receive your financial aid offer.
How to apply for a private student loan
Since private student loans are offered by banks and financial institutions (as opposed to the federal government), you apply directly to the lender.
Follow these instructions to apply for a private student loan:
- Go to the lender’s website.
- Check the interest rate of the loan, along with the flexibility of repayment options and other benefits.
- Apply directly on the website. You’ll be asked to choose the type of repayment option and interest rate type you want.
- You may want to consider adding a cosigner which may improve your chances of getting the loan.
- The lender will check your credit (and your cosigner’s, if you have one), and will communicate the decision to you.
How to accept your federal or private student loan
You accept your federal student loans by signing and returning your financial aid offer. You may be asked to take part in entrance counseling at your school to make sure that you understand your loan obligations. Plus, you’ll sign a Master Promissory Note (MPN) to agree to the loan’s terms.
You accept your private student loans after you’ve been approved. Here’s our process:
- You’ll choose the type of interest rate and repayment option for your loan.
- You or your cosigner will accept the terms of your loan and sign it electronically.
- Your school will be asked to certify your eligibility, including verifying your enrollment and the loan amount you’ve requested.
Both federal and private student loans are legal agreements. When you agree to a loan and sign or e-sign for it, you’re committed to paying it back, along with interest.
Repaying federal and private student loans
- Federal student loans: Following a six-month grace period, you generally begin to make principal and interest payments.
- Private student loans: You’ll generally have a six-month grace period. If you elected to make in-school fixed or interest payments with our Smart Option Student Loan, you’ll continue to make those payments during your grace period. After that, you’ll begin to make principal and interest payments.
How much money can I borrow in federal student loans?
It depends on whether you’re an undergraduate student, a graduate or professional student, or a parent.
- If you are an undergraduate student, the maximum amount you can borrow each year in Direct Subsidized Loans and Direct Unsubsidized Loans ranges from $5,500 to $12,500 per year, depending on what year you are in school and your dependency status.
- If you are a graduate or professional student, you can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs, as determined by your school, not covered by other financial aid.
- If you are a parent of a dependent undergraduate student, you can receive a Direct PLUS Loan for the remainder of your child’s college costs, as determined by his or her school, not covered by other financial aid.
How to borrow responsibly for college
When you’re borrowing money for college, it’s important to borrow responsibly. We recommend these three steps:
- Start with your college savings and “free” money that you won’t have to pay back—scholarships, grants, and work-study.
- Use federal student loans.
- Consider a responsible private student loan.
Other tips for borrowing responsibly: Consider what your salary will be after you leave school, remember that you’ll have to pay back your loans with interest, and don’t borrow more than you’ll need for school costs.
