Federal student loans are the most common source, and you access them through the Free Application for Federal Student Aid (FAFSA)
The U.S. Department of Education runs the federal student loan program. To borrow, you must complete the FAFSA, which opens October 1 each year and determines how much federal aid you can receive. You do not apply directly to the Department of Education — instead, your school's financial aid office processes your FAFSA results and tells you what loans are available to you.
Federal loans come in several types: Direct Subsidized Loans (the government pays interest while you are in school), Direct Unsubsidized Loans (interest accrues immediately), and Direct PLUS Loans (for parents or graduate students). The interest rates and borrowing limits differ for each type. Your school will list these options in your financial aid package after you submit the FAFSA.
The FAFSA also determines your Expected Family Contribution (EFC), now called the Student Aid Index (SAI). This number affects not only federal loans but also whether you may have access to for grants, work-study, and some state and private aid. Filing the FAFSA is free.
Key Takeaways
- Federal student loans require you to complete the FAFSA through your school's financial aid office, not through a separate lender.
- Private student loans come from banks, credit unions, and online lenders, and typically require a credit check or a cosigner.
- State loan programs exist in some states and often have lower interest rates or income-based repayment options tied to that state's workforce needs.
- Your school's financial aid office can tell you which federal loans you may have access to for and whether your state offers additional loan programs.
- Private loans should be considered only after you have exhausted federal options, because federal loans offer more protections and flexible repayment plans.
Private student loans come from banks, credit unions, and online lenders
Private lenders issue student loans based on creditworthiness. Most require either a credit score in the mid-600s or higher, or a cosigner (usually a parent) with good credit. Unlike federal loans, private loan terms vary widely by lender: interest rates, repayment periods, and fees differ between Sallie Mae, Earnin, SoFi, Discover, and others.
You apply directly to the private lender, not through your school. The lender will pull your credit report, verify your income or your cosigner's income, and make a decision within days to weeks. Private loans disburse directly to your school, which applies the funds to tuition and fees, then sends any remainder to you.
Private loans do not offer income-driven repayment plans or loan forgiveness programs. If you stop paying, the lender can pursue collection action and report the default to credit bureaus. Most private lenders do not pause payments if you return to school or face hardship.
State loan programs exist in some states and have different rules
A small number of states run their own student loan programs or partner with lenders to offer state-specific loans. Examples include the New York State Higher Education Loan Program (NYHELP) and the Massachusetts Educational Financing Authority (MEFA) loans. These programs often have lower interest rates than private loans and may offer income-based repayment or forgiveness tied to working in the state after graduation.
may be able to access and terms depend on the state. Some require you to attend school in that state; others require you to live there. Interest rates and borrowing limits vary. Your school's financial aid office will tell you whether your state offers a loan program and how to apply.
State loans are typically a middle ground: more flexible than private loans but less widely available than federal loans. If your state offers one, compare the terms to federal and private options before deciding.
How to start: contact your school's financial aid office
Your school's financial aid office is the entry point for all loan types. They process the FAFSA, tell you which federal loans you may have access to for, and inform you of state programs available to students in your situation. Many schools also have a list of preferred private lenders, though you are not required to use them.
Call or visit your school's financial aid office in person or online. Ask for a financial aid package that shows all loans available to you, the interest rates, and the terms. Ask whether your state has a loan program. Request an explanation of the difference between subsidized and unsubsidized federal loans, because this affects how much interest you will owe.
Your school must provide this information free of charge. Do not pay a third party to help you complete the FAFSA or find loans — the FAFSA website (fafsa.gov) and your school's financial aid office provide this service at no cost.
Federal loans should be your first choice because of protections and flexibility
Federal loans offer income-driven repayment plans that cap your monthly payment at a percentage of your discretionary income. If you work in public service or certain nonprofit fields, you may be may be able to access for Public Service Loan Forgiveness (PSLF), which forgives remaining balance after 120 may have access to payments. Federal loans also offer deferment and forbearance options if you face hardship, return to school, or become unemployed.
Private loans do not offer these protections. If you cannot pay, your only options are to negotiate with the lender or default, which damages your credit and can lead to wage garnishment. Private loans also charge origination fees (typically 1 to 3 percent) that are added to your balance, increasing what you owe.
Borrow federal loans first up to the annual limit, then consider private loans only if federal loans do not cover your costs. The federal loan limit for dependent undergraduates is $5,500 to $7,500 per year depending on your year in school; for independent undergraduates and graduate students, limits are higher.
Comparing federal, private, and state loans side by side
| Loan Type | Where to Apply | Credit Check Required | Interest Rate Range | Repayment Flexibility |
|---|---|---|---|---|
| Federal Direct Subsidized | FAFSA through your school | No | Fixed (set by Congress, currently 5.5%) | Income-driven plans, deferment, PSLF |
| Federal Direct Unsubsidized | FAFSA through your school | No | Fixed (currently 5.5%) | Income-driven plans, deferment, PSLF |
| Federal PLUS (Parent or Grad) | FAFSA through your school | Yes (soft check) | Fixed (currently 8.5%) | Income-contingent repayment, deferment |
| Private Student Loan | Directly to lender | Yes (hard check) | Variable or fixed (typically 4% to 14%) | Limited; varies by lender |
| State Loan Program | Through your school or state agency | Varies by program | Varies (often lower than private) | Varies; some offer income-based options |
What happens after you receive a loan
Once you accept a loan offer, the lender disburses the funds to your school. Your school applies the money to tuition, fees, room, and board. Any leftover amount is sent to you, usually by check or direct deposit. You are responsible for using this money to cover education-related costs.
For federal loans, you enter a grace period after you graduate or drop below half-time enrollment. The grace period is typically six months, during which you do not have to make payments. After the grace period ends, repayment begins. You will receive a bill from your loan servicer (the company that collects your payments) with your monthly payment amount and due date.
For private loans, repayment terms vary. Some require payments while you are in school; others offer a grace period. Check your loan agreement to understand when payments begin.
Frequently Asked Questions
Do I have to borrow the full amount my school offers?
No. You can accept part of a loan offer and decline the rest. Borrow only what you need, because every dollar you borrow must be repaid with interest. Review your school's cost of attendance and your other funding sources (grants, scholarships, work-study) before deciding how much to borrow.
What is the difference between a cosigner and a co-borrower?
A cosigner signs the loan but is not the primary borrower; the lender can pursue the cosigner for payment if you default. A co-borrower is equally responsible for the loan from the start. Private lenders use different terms, so ask which role the lender is asking your parent or relative to take on before signing.
Can I get a student loan if I have bad credit?
Federal loans do not require a credit check, so bad credit does not disqualify you. Private lenders typically require good credit or a cosigner with good credit. Some private lenders specialize in borrowers with lower credit scores, but they charge higher interest rates. Exhaust federal options first.
What if I do not may have access to for federal loans?
Most students may have access to for at least federal Unsubsidized Loans, which do not require financial need. If you are ineligible for federal loans, it is usually because you are not enrolled at least half-time, do not have a high school diploma or GED, or have defaulted on a previous federal loan. Talk to your financial aid office about your specific situation and whether private or state loans are an option.
Can I change my mind after accepting a loan?
Yes, within a limited time. Federal loans can usually be declined or reduced within a few days of disbursement. Private loans vary by lender. Contact your lender or school immediately if you want to cancel or reduce a loan after accepting it.