How to take out a student loan: A step-by-step guide

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as "Credible" below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.


Start by filling out the FAFSA for federal student loans before you turn to private loans to pay for college. (iStock)

If worrying about how you’ll pay for college has you up all night, you’re not alone. Today, in-state tuition and fees at a public four-year college or university — traditionally the cheapest option — costs close to $11,000 per year, according to the College Board.

A private nonprofit four-year college or university can cost more than $37,000 per year. And neither of those figures includes room and board, books and supplies, transportation and other personal expenses.

It’s not surprising that many students apply for student loans, which, unlike scholarships and grants, must be paid back with interest. Not sure how to take out a student loan? You can do this. Just follow these steps.

What to do before your loan application

Before applying for a student loan to fund your college education, ask yourself these questions.

  • What’s the real cost of attending college? Beyond tuition and fees, add up all costs, like room and board if you live on campus, meal plans, books and supplies, transportation to and from campus and any personal expenses you’ll owe.
  • Will you work while attending college? Getting a job can help offset the cost of college. Some employers offer tuition reimbursement. Consider a work-study program if your school offers one.
  • Will you live on- or off-campus? The average cost to rent a studio apartment in 2020 was $1,690, according to A large three-bedroom rented for more than $2,000 per month. The average cost to live on campus is between $4,000 and $5,000.
  • Do you plan to apply for grants and scholarships? Grants and scholarships are free money to help pay for college. Unlike student loans, you don’t have to pay them back unless your enrollment status changes or you withdraw early from a program. Grants are usually need-based, while scholarships can be merit- or need-based.

How to take out federal and private student loans

If you’re like most students, you’ll need to apply for either federal or private student loans — or a combination of the two — to pay for your education. It’s important to understand your student loan options and the steps to take to apply.

Credible makes it easy to research your private student loan options and compare rates from multiple lenders.

Complete the FAFSA

The Free Application for Federal Student Aid is available starting on Oct. 1 for the following school year. Filling out the FAFSA is the first step in applying for student loans and the only way to be eligible for federal student loans. 

FAFSA uses your financial information to determine which types of federal student aid you qualify for. You’ll need to fill out the FAFSA every academic year. Once your FAFSA is submitted, you might have access to several types of financial aid, including:

  • Scholarships and federal grants
  • Federal student loans
  • Federal work-study programs
  • State-based aid

The easiest way to submit your FAFSA is online with the myStudentAid mobile app. You can also print out a 2021-22 FAFSA PDF and mail it in.

Review your financial aid offer

After you submit your FAFSA and get approval for financial aid, each school that accepts you will send a financial aid award letter. This is what you’ll find in each offer.

  • Cost of attendance (COA): This is what you can expect to pay for one year of school, including tuition and fees, books and supplies, room and board, transportation and miscellaneous expenses like costs related to a disability or work-study program.
  • Expected Family Contribution (EFC): This is used to determine how much financial aid you’ll receive.
  • College grants and scholarships: Grants are usually need-based, but scholarships can be merit- or need-based. Neither has to be paid back.
  • Federal work-study programs: These programs give you a job, on or off-campus, and a paycheck.
  • Federal student loans: Direct student loans may be subsidized (the government pays the interest while you’re in school) or unsubsidized, and you’ll have to pay them back when you leave school.

When you decide where you’d like to attend, you’ll need to call the school's financial aid office and let them know which loans you want to accept or decline.

Take out federal student loans

If you need to take out student loans to cover all or part of the cost of college, you have two options: federal and private. Because the government backs federal loans, they’re often less expensive than private loans, don't require a credit check and have income-driven repayment plans and fixed interest rates.

Federal loans can be eligible for loan forgiveness so if you’re struggling to make your payments, you have more relief options than with private loans.

Federal Direct Loans may be subsidized or unsubsidized. Both offer benefits like low interest rates, flexible repayment options, forbearance and deferment programs and the option to consolidate your loans. But there are some key differences between the two.


  • Only for undergraduates
  • Need-based requirement
  • Lower borrowing limits
  • Interest is subsidized during deferments


  • Undergraduate and graduate students are eligible
  • No need-based requirement
  • Higher borrowing limits
  • Interest is not subsidized during deferments

There are three main types of federal student loans: Direct Subsidized, Direct Unsubsidized and Direct PLUS loans.

Direct Subsidized Loans

Students that can show financial need may apply for Direct Subsidized Loans. These loans usually don’t charge interest while you’re in school or during deferment or grace periods. Interest doesn’t accrue if you're in school at least half-time but will kick in once you’ve completed school or drop below half-time.

Direct Subsidized Loan award limits: up to $5,500 annually (subject to change)

Direct Unsubsidized Loans

Direct Unsubsidized Loans are unsecured (meaning you don’t need collateral to qualify) and are federally funded. You don’t have to show financial need or have a good credit score to qualify for one. Interest rates are based on your level of education and begin accruing at the time you take out your loan. You make monthly payments to the U.S. Department of Education after a six-month grace period, giving you time to find a job.

Direct Unsubsidized Loan award limits: up to $20,500 per year, minus any subsidized loans you might receive over the same time period (subject to change)

Direct PLUS Loans

Direct PLUS Loans help you pay for costs related to your education not covered by other financial aid. They’re available to both graduate and professional students, and the parents of dependent undergraduate students. You don’t have to show financial need but your credit score is considered when figuring loan amounts. You’ll make your payments to the U.S. Department of Education.

Direct PLUS Loan award limits: cost of attendance (as determined by the school) minus any other financial aid received

Consider a cosigner

It’s no secret that students who need a loan to pay for all or part of their education are more likely to get better rates and terms if they have a cosigner.

Borrowers who checked rates with a cosigner prequalified for loans at interest rates that were 2.36 percentage points lower, on average, than those available to borrowers without cosigners, according to a data analysis by Credible.

Although you typically don’t need a cosigner to get a federal student loan, having one could help you secure a better interest rate.

And because banks, credit unions and other financial institutions offer private student loans, your credit matters. If you have little or no credit history, it can be difficult to qualify for a private student loan. A cosigner with good or excellent credit can help because it makes it easier to get your loan approved, often at a lower interest rate. Pick someone you know and trust, like a parent, guardian, spouse, sibling or friend.

Compare private student loans

Before taking out a private student loan, it’s best to exhaust all federal loan options, scholarships and grants, and work-study programs before applying. Interest rates are generally higher for private student loans than for federal student loans.

Private lenders have their own methods to evaluate applications, so comparison shopping is the only way to know if you’ll qualify. It’s also the easiest way to make sure you’re getting the very best interest rates. By shopping around, you also show your cosigner that you put in the time and effort, which may help them feel a bit more at ease accepting the risk that comes with cosigning your student loans.

With Credible, you can compare private student loan rates from multiple lenders.