How to Apply for a Student Loan

College is expensive -- applying for student loans can help you manage the cost.
College is expensive -- applying for student loans can help you manage the cost.

Applying for student loans is a lot like applying for a home mortgage. In both cases, there is a lot of emotion involved in the process since getting the best deal can mean the difference between a bright future and years of struggle. And much like a home mortgage, applying for student loans can seem like a daunting task when you're just getting started. But with a little bit of planning and patience, your efforts should soon pay off.

Until recently, a college education was pretty much out of reach for most Americans. In 1940, only about 5 percent of the U.S. population had an education beyond high school. Now, about 70 percent of high school students enroll in college, though a much smaller number actually make it to graduation [source: National Center for Education Statistics]. This dramatic rise in college enrollment represents changing priorities among Americans, but it also has a lot to do with the widespread availability of student loans.


Student lending has been around for centuries, but didn't become commonplace until after World War II. In 1947, a report called the President's Commission on Higher Education proposed sweeping changes to the American system of higher education, including setting up a need-based borrowing system for lower- and middle-income students [source: Truman Library]. It also paved the way for the National Defense Education Act of 1958 and the Higher Education Act of 1965, which established the Perkins Loan and the Stafford Loan, respectively.

The U.S. Department of Education, the branch of government in charge of student loans, lends money to students enrolled in a wide range of educational institutions, including two- and four-year colleges, vocational schools, professional programs, residencies and internships [source: U.S. Department of Education]. Students can also borrow money to pay for coursework that leads to enrollment in an eligible program.

Students from middle- and higher-income families often do not apply for student loans because they assume they do not qualify. This is a mistake. Most students are eligible for some sort of student loan and these programs are almost always the best choice for funding an education. In the next section, we review the factors that determine your eligibility for student loans as well as a few things that can ruin your chances of borrowing.

Who Qualifies for a Student Loan?

Almost everyone qualifies for student loans, though students with the greatest financial need can generally borrow under the best terms. The first step in applying for a student loan is figuring out whether you will be considered an independent student or one who is dependent on your parents. There is some gray area when it comes to dependency status, but generally speaking, you're an independent student if:

  • You are over the age of 24.
  • You are married at the time of applying.
  • You are on active duty or are a veteran of the armed forces.
  • You have children who receive at least half of their support from you.

[source: U.S. Department of Education]


Under certain circumstances, independent status may be granted to students who do not meet the requirements listed above. If you have questions about this, talk to the financial aid administrator at your school. He or she can make the final determination about your status.

Once you've figured out your dependency status, it's time start gathering financial information for yourself (independent students) and your parents (dependent students). This includes tax returns, bank statements and information about other financial assets [source: U.S. Department of Education]. You'll also need social security/immigration cards for everyone on the application.

To qualify for financial aid, you also need to be working toward a degree in an eligible program. In other words, you may be applying to an accredited school, but the underwater basket weaving classes you plan to take could disqualify you for the loan if they do not count toward a certificate or degree. Be sure to talk to a counselor about whether your courses are acceptable under your loan program.

Once you've answered some questions about your dependency status and eligibility, it's time to start comparing student loan programs. There are several different types of student loans, each with its own terms and conditions. You may qualify for more than one type, so it's important to understand how each works in order to make the best decision about financing your education. In the next section, we compare different types of student loans as well as the qualifications for each.

Types of Student Loans

There are several loan programs offered by the U.S. Department of Education. Most students receive either Federal Family Education Loans (FFEL) or Direct Loans, both of which include Stafford Loans for students and PLUS loans for parents and graduate students [source: U.S. Department of Education]. The difference is that FFELs are processed by a lender and Direct Loans come directly from the Department of Education.

In planning for college, many students are anxious to know the dollar amount that they can borrow under each loan program. This is difficult to know in advance since the amount and type of your loan is determined by your financial need and the cost of attending your school of choice. In general, most students receive either a subsidized or unsubsidized Stafford Loan or both. For subsidized loans, the government pays your interest while you are in school. For unsubsidized loans, you are responsible for paying the interest that accrues during your time in school, though you may choose to let it accumulate and capitalize into the loan principal [source: Stafford Loans].


There are also loans for students in specific fields, such as teaching or primary care medicine. The catch is that you may be required to work in that field or a particular region for the life of the loan. There are also Perkins Loans and other loans that are received directly from the school you are attending. Like Stafford and PLUS loans, eligibility for Perkins Loans is determined by your Free Application for Federal Student Aid (FAFSA) [source: Perkins Loans].

Also, there are many private lending organizations -- such as banks and credit card companies -- that loan money to students under terms similar to government student loan programs. However, these are not need-based loans. In other words, students and/or parents who borrow must show good credit histories and, in some cases, apply with a co-signer. The good news is that these programs usually offer low interest rates and no repayment obligation as long as you're in school at least half-time.

Now that you know a bit about the types of student loans available, the next step is to prepare your application. Read on to find out what you will need to complete your FAFSA as well as important considerations when choosing your student loan.

What to Know Before Applying for a Loan

Applying for a student loan can feel like a monumental task when first getting started, but it's actually a breeze once you've done your homework. The important thing is to start early. The deadline for submitting the Free Application for Federal Student Aid (FAFSA) is usually midnight on June 30 for the academic year that begins in August or September [source: FAFSA]. However, the deadline for your state or your school may be much earlier, so apply as soon as you can. Applications are accepted beginning in January.

Before applying for a student loan, it is important to fully understand what you're getting into. Most student borrowers have never had a loan before, so this is important. Like car loans or home mortgages, student loans must be paid back with interest. First payments are usually required six months after graduation, whether or not you've landed your dream job.


As explained earlier, unsubsidized loans begin accruing interest while you're in school. For this reason, the interest rate on an unsubsidized loan should be a key factor in your financial planning. For the academic year that began in summer 2008, the interest rate was 6.8 percent for an unsubsidized Stafford Loan [source: Stafford Loans]. PLUS loans tend to carry higher rates of interest.

There are also fees for most student loans. For example, the loan origination fee was 2percent for subsidized and unsubsidized Direct Loans in 2008 and 2009 [source: Direct Loans]. For PLUS Loans, it was 4percent. Fees for FFEL Loans are set by individual lenders, but tend to be comparable to Direct Loans. Federal Perkins Loans are an exception; students pay no fee for this loan.

This is worth saying again -- because student loans must be paid back, it is very important that you understand all the terms and conditions associated with each loan type before you borrow. In many cases, student loan debt can total well into the six-figure range, especially for graduate students.

Applying for a Student Loan

Many students are overwhelmed by the steps involved in the application for student loans. But it's really quite easy, assuming you've done a bit of preparation in advance. Start by creating a personal identification number (PIN) at - you'll use this PIN throughout the process of applying for and repaying your student loans. Then, visit to download a list of all the documents you will need in completing your Free Application for Federal Student Aid (FAFSA). Gathering these documents may take a bit of time, so do this as early as possible.

You can submit your FAFSA any time between January and June for loans to be distributed in the fall semester, but do so as early as possible. State and school-specific deadlines are often much earlier. Note that it's possible to send your FAFSA by mail, but applying online is faster and easier. Once you hit "submit," you will receive a confirmation number, indicating your application was successfully submitted.


Shortly after receiving and processing your FAFSA -- this usually only takes a few days -- the U.S. Department of Education will send you a Student Aid Report (SAR). Look in the top right corner of your SAR for your Expected Family Contribution (EFC). This number is very important -- it determines the type and amount of financial aid you are eligible to receive.

Having your SAR gives you a good indication of how much aid you can receive, but it does not tell you the exact amount that can be borrowed or what proportion of your loans, if any, can be subsidized. Each school uses your SAR to determine your specific aid package based on factors such as your grade level, the cost of attending that particular school and any special financial circumstances you may have. The details of your financial aid package for each school you've applied to will be sent to you as a Financial Aid Award Notice shortly after your SAR arrives.

It is very important to review your award notices from different schools to determine the best option for financing your education. Also, be sure that your SAR lists every school that you are applying to and that all information is correct. If there are errors, correct them right away online. Any delays can slow down the processing of your student loans.

At this point in the process, there's only one thing standing between you and your loan money. Keep reading to find out what it is.

Receiving Your Loan

The final step in applying for student loans is to accept your financial aid award package and sign your promissory note, which outlines the details of the loan, including the interest rates and terms of repayment. Be sure to save this document. You may need to reference it over the life of the loan. Once these documents are signed, your loan money should be available to you either through the school or from your lender within days.

For first-time student loan borrowers, there is one final requirement before your funds can be distributed. For most schools, you must attend a brief financial counseling session, either online or in person. These sessions not only remind you of your repayment obligations, they also offer helpful tips for managing your money while you are in school. You will probably also receive exit counseling upon graduation to make sure you understand your repayment obligations.


Keep in mind that students receiving federal loans must remain in good academic standing. The definition of this varies from school to school, but generally speaking, this means you need to maintain a certain grade point average or, at the very least, avoid being placed on academic probation. Check with your school for more information on academic progress for student loan borrowers.

Student loans are a binding legal agreement. Not repaying according to your terms and conditions could put you into default status, which has serious implications for your credit rating and could result in you being pursued by collection agencies or even taken to court.

Despite the burden of debt after graduation that comes with student loans, borrowing under these programs is a great way to pay for an education that, for many people, would be otherwise out of reach. Just be sure to make the most of the borrowing opportunity by using the loans with the most favorable terms first, managing your funds wisely while in school and handling your debt responsibly after graduation.

For more information on paying for college and other personal finance topics, visit the links on the following page.

Lots More Information

Related HowStuffWorks Articles


  • Audit to Determine if Cohort Default Rates Provide Sufficient Information on Defaults in the Title IV Loan Programs, U.S. Department of Education-Office of the Inspector General, December 2003 (accessed January 13, 2010)
  • Direct Loans, U.S. Department of Education, March 2009 (accessed January 13, 2010)
  • Free Application for Federal Student Aid, U.S. Department of Education, January 2010 (accessed January 13, 2010)
  • Funding Beyond High School: The Guide to Federal Student Aid 2009-10, U.S. Department of Education (accessed January 13, 2010)
  • National Center for Education Statistics Fast Facts (accessed January 13, 2010)
  • Federal Perkins Loan Program, U.S. Department of Education (accessed January 13, 2010)
  • Stafford Loans (FFELs and Direct Loans), U.S. Department of Education, November 2009 (accessed January 13, 2010)
  • Truman Library, Public Papers of the President (accessed January 13, 2010)
  • U.S. Department of Education Database of Accredited Postsecondary Institutions and Programs (accessed January 13, 2010)