How to Apply for Student Loans: What You Need to Know

Around 40% of university students take on debt to help fund their college years.[1] This isn’t surprising because college education costs have continued to rise. On average, these educational costs have risen almost five times the inflation rate over the past 50 years.[2]

From 1991-1992 to 2021-2022, the average cost of tuition and related fees at public four-year institutions rose from $4,160 to $10,740. During this same period, the average cost of attending a four-year private nonprofit institution went from $19,360 to $38,070. These figures have been adjusted for inflation.[3]

There are several ways to fund the cost of higher education, including grants, scholarships and work-study programs. It’s important to explore these options before considering loans. But if those aren’t enough, it might be time to consider applying for student loans.

As a prospective (or returning) student, you can use federal or private student loans to bridge any financial gaps in your college education. Before choosing either option, it’s important to understand their differences and how to apply for student loans.

Understanding the Types of Student Loans

Student loans are a type of installment loan students can use to pay for higher education costs. This includes expenses like:

  • Tuition
  • Books
  • Room and board
  • School administration fees
  • Transportation
  • Other school-related expenses

Like other installment loans, such as personal loans, the borrower is responsible for repaying the loan plus interest over a set period of time. Depending on the lender and loan type, the borrower may be able to delay payments until they’re out of school. Interest may still accrue during this time.

The lender typically disburses the funds directly to the university or college rather than the borrower. The school will use the money to cover any necessary school-related costs.

There are two main types of student loans: private and federal. Each comes with benefits and drawbacks.

Federal Student Loans

The U.S. Department of Education provides federal student loans via the William D. Ford Federal Direct Loan Program. There are several types of federal loans for students, including:

  • Direct unsubsidized student loans: Undergraduate, graduate and professional students may be eligible for one of these loans. You don’t need to prove financial need.
  • Direct subsidized student loans: Undergraduate students with demonstrated financial need may qualify for a direct subsidized loan. As long as the student is enrolled at least part-time in an eligible program, they may not have to pay any interest on the loan. Payments may also be deferred.
  • Direct PLUS loans: Professional and graduate students, or parents of dependent undergraduate students, may be eligible for a Direct PLUS loan. These loans are not based on financial need but require a credit check.

Federal student loans have many benefits. It might be a good idea to use these loans if:

  • Grants, scholarships and work-study programs are not enough to cover the full cost of attendance
  • You have demonstrated financial need
  • You’re looking for a loan with a flexible repayment plan and potentially lower interest rates than private options[4]

Private Student Loans

Private student loans are another common financing solution for students, especially when federal funding isn’t enough. Banks, credit unions, online private lenders and some universities offer these loans.

Students may be able to take out a private loan, but they might need to meet certain income and credit score requirements first. Some lenders may require the student to apply for the loan with a cosigner — such as a parent or legal guardian. Applying with a cosigner may improve the borrower’s approval odds or rate. It may also help them qualify for a higher loan amount.

Private student loans can be beneficial in many ways. You might want to apply for one if:

  • The cost of tuition is higher than expected
  • Your federal financial aid package doesn’t fully cover your academic expenses
  • The deadline for federal aid has passed
  • Your household income exceeds the maximum threshold for federal loans
  • The school or program isn’t eligible for federal aid
  • You have a cosigner or good credit (though some lenders work with borrowers with poor credit or limited credit history)
  • You’re an international student who doesn’t qualify for federal student aid
  • You’ve exceeded your federal funding limits but still want to pursue higher education

Private Student Loans vs. Federal Student Loans

Several key differences exist between federal and private student loans:

  • Eligibility criteria: Federal loans are usually based on financial need, while private loans are primarily based on the borrower’s creditworthiness and income.
  • Repayment term: The standard repayment term on most federal student loans is ten years. Private loans usually have a longer repayment term of 10 to 25 years.[5]
  • Interest rate: Federal loans come with fixed interest, while private loans can have either fixed or variable rates
  • Student loan forgiveness: Unlike federal loans, private loans are not eligible for student loan forgiveness programs. However, some lenders may forgive these loans if the primary borrower passes away or has a qualifying disability.
  • Additional fees: Some private lenders charge additional fees, such as prepayment or origination fees. These can add to the total cost of the loan. These fees are not applicable to federal student loans.
  • Self-certification form: With private loans, it’s necessary to complete a self-certification form. This form verifies that you understand all of the available financing options. Contact your lender and the university’s financial aid office for more information.
  • Loan consolidation or refinancing: Federal loans can be consolidated into one loan with a single payment plan. It’s also possible to refinance private loans for a lower rate or better repayment term.

How to Apply for Federal Student Loans

Applying for a federal student loan is straightforward. First, fill out a Free Application for Federal Student Aid (FAFSA®).

Once your university of choice has the FAFSA form, they can review it to determine how much financial aid to offer. Then, they send a form indicating how much of your college expenses are covered through grants, scholarships, work-study programs and federal loans. If loans are part of the financial aid package, you may also need to complete the entrance counseling requirement.

The FAFSA deadline depends on the academic year but is usually the last day of June. 

Federal loans may be eligible for forbearance or payment deferment. This tends to be the case for students who are still enrolled at least part-time in a degree program. During deferment, interest will not generally accrue. Interest may accrue during forbearance, however.

Applying for Direct PLUS Loans

To apply for a Direct PLUS loan, you must complete the online application to determine eligibility for funding.[6] This might require additional information or steps, so review them carefully before getting started.

How to Apply for Private Student Loans

The process of applying for private student loans can vary by lender, but here are the basic steps:

  1. Review your credit. Get a copy of your credit report and see if there are ways to improve your score. This can help you qualify for better rates or terms.
  2. Determine the loan amount. Only borrow what you need. Also, use an online student loan calculator to get an estimate of how much the loan costs.
  3. Compare lenders. Check several lenders' terms, rates, fees and requirements before choosing one. Make sure you meet the lender's requirements, as this can improve your approval odds.
  4. Choose a reasonable repayment term. Pick a term you're comfortable with. Typically, a longer term means smaller monthly payments but paying more interest over time.
  5. Look into forbearance and deferment options. Some lenders might let you temporarily defer payments, particularly if you’re currently in school.
  6. Apply for the private student loan of your choice. You can usually apply online. Be prepared to provide some personal identifying, financial and income information. If applying with a cosigner, you will need their information, too.
  7. Wait for the decision. If approved, the lender will disburse the funds directly to your school where they can be used to help fill any financial gaps.

Bottom Line on Applying for Student Loans

Knowing how to apply for student loans is one thing, but it’s also important to consider your options carefully when deciding on a lender or funding solution. The better informed you are, the better your chances of getting the right loan for your unique situation. Make sure you have a good understanding of the terms of any loans before signing a loan contract. And, if you do go with a private lender, consider choosing one of PNC’s private student loans.