How to apply for student loans: Federal and private

Whether it’s completing the FAFSA to get federal student loans or submitting an application to a lender for a private student loan, applying for student loans can seem like a complicated process. There are a lot of steps and information needed from students and their families, so this guide can help you prepare for and navigate through any student loan application process.

Receiving federal student loans like the Direct Subsidized and Direct Unsubsidized Loans starts with completing the FAFSA, or Free Application for Federal Student Aid. You can perform the entire process online. In preparation, you can start by creating your studentaid.gov account and gathering personal and financial information that you may need when applying, including:

• Your Social Security number
• Tax returns
• Records of child support received
• Current balances of cash, savings and checking accounts
• Net worth of investments, businesses, and farm
• Names of schools to receive your FAFSA information

In addition to you completing the FAFSA, other individuals may need to provide personal and financial information, such as parents or a spouse (if applicable).

After your FAFSA is submitted and processed, you'll be able to access a summary of the information you reported and the schools you listed on your FAFSA will get access to your FAFSA information too. The financial aid offices of those institutions can then send you a financial aid offer outlining the type and amount of aid you could receive. It’s your job to compare those offers, determine the final cost, and choose the school that best fits your future goals and family budget.

Lastly, you can decide which financial aid you choose to accept from your chosen school. Your financial aid offer will have an itemized list of all available types of aid, including grants and federal student loans. Remember, even after you've accepted your offer, you should check with your school's financial aid office to see what other forms or documents you will need to complete in order to secure your funding (for example, completing your Direct Loan Master Promissory Note, or MPN).

The federal government issues three types of student loans:

• Direct Subsidized Loans: Available to undergraduate students with financial need, direct subsidized loans offer more financial assistance than loans that are unsubsidized, in most cases. Your college determines the amount you can borrow; the amount just can’t exceed your financial need. The U.S. Department of Education foots the bill for the interest on a direct subsidized loan while you’re in school.

• Direct Unsubsidized Loans: Available to undergraduate and graduate students and there is no requirement to demonstrate financial need. Borrowers are responsible for paying the interest that accrues on a direct unsubsidized loan. If you choose to not pay the interest while you are in school or during forbearance periods, interest will grow and be added to the principal amount of your loan.

• Direct PLUS Loans: Often referred to as a Parent PLUS loan — Direct PLUS loans are federal loans that graduate or professional students and parents of dependent undergraduate students can use to help pay for college or graduate school. Here’s a tip: before applying for a PLUS loan, be sure you’ve filled out your FAFSA form. Curious about the financials? The maximum PLUS loan amount you can receive is the cost of attendance (determined by the school) minus any other financial aid received.

While every private lender has its own application process for private student loans, they all require similar information from applicants. Here is a list of information you’ll likely need to provide when applying for a private student loan:

• Name of school
• Driver’s license number
• Social Security number (or Alien ID number for permanent residents)
• Gross monthly income and one most recent paystub
• Employer name, phone number, and length of employment (if applicable)
• Monthly rent or mortgage payment
• Anticipated graduation date (MM/YYYY)
• Loan amount requested
• Loan period for which funds are needed (can be an entire academic year, or a single semester)
• Cosigner name and valid email address
• Student borrower reference (name, address, and phone number of someone who is not your co-signer)

Some private student loan lenders may ask you to submit documents to verify some of this information. Once approved, all lenders require you to sign a promissory note that details every aspect of the loan you’re taking out. Once you’ve accepted the loan and signed all your documents, the lender will typically send the funds directly to your school. If you requested additional funds for school certified expenses, check with the financial aid office at your school to find out how they handle those funds.

Before you fill out your application for loans, it can be helpful to get all your ducks in a row. Below are a few “ducks” that will help make your application process more streamlined.

• Finding a cosigner, or endorser: If you have little to no credit history, haven't built sufficient credit history, or have a negative or poor credit score, you may need a cosigner on your student loan.

• Researching rates: This step is a “must-do” on your checklist. The interest rates for a federal student loan are fixed and usually lower than that on private loans. For private loans, speak to a loan officer at a bank, or at the school you choose to attend. Also note that with variable and fixed loans, the rates are affected. Variable rate student loans adjust the interest rate at a determined frequency (monthly or annually) over the course of the loan term. Fixed rate student loans are exactly how they sound, offering the same interest rate over the loan term. Compare offers from multiple lenders to see which will offer you the lowest interest rate, and check whether your degree program or state affects the type of loan you are offered.

• Improving credit: When applying for a private student loan, the lender reviews your credit history (and cosigner’s credit history, if applicable) and other factors.  Having a higher credit score could help increase the likelihood of being approved for the loan at a lower interest rate.

Once you’ve done all your homework on how to apply for a student loan, you may feel ready to apply. Keep in mind the turnaround times for federal and private student loans. Processing times for private student loans vary by lender, so make sure that you apply in advance of when your tuition bills are due.

There are many factors that go into deciding where to go to college. Now that you have the essential tools needed to apply for student loans, you’ve already taken a step in the right direction. And whether you take federal, private, or a mix of both to cover your education expenses, you’re putting your best foot forward toward a bright future.