So, you’re heading off to college or grad school and thinking about taking out student loans? You’re definitely not alone—over 42 million Americans are currently in the same boat, according to recent 2024 stats. But before you sign that dotted line, let’s unpack what borrowing for school really means.
Student loans can be a lifesaver—or a long-term headache—depending on how smartly you borrow. You’ve got two main flavors: federal student loans (the government kind) and private student loans (from banks or lenders). If you’re an undergrad, always—yes, always—start with federal loans. They’re more forgiving, come with better borrower protections, and don’t require you to have a perfect credit score or a co-signer.
Think Ahead: What Will Repayment Look Like?
Imagine yourself in the future—degree in hand, ready to tackle the job market. Now, imagine a $400+ monthly student loan bill. Ouch, right? Use a student loan calculator to run those numbers before borrowing a cent. Aim to borrow only what’s essential, and steer clear of loans with interest rates or repayment terms that’ll have you drowning in debt right after graduation.
How to Get a Federal Student Loan (Step-by-Step)
1. Fill Out the FAFSA (Takes About 30 Minutes)
The Free Application for Federal Student Aid (aka FAFSA) is your golden ticket. It’s your all-in-one access point for grants, scholarships, work-study, and federal loans.
💡 Tip: Grants and scholarships = free money. Loans = money you’ll need to pay back. Know the difference.
Each college you apply to will use your FAFSA to build your financial aid offer. The difference between your aid and the school’s total cost? That’s what you’ll need to fund—probably with loans.
2. Prioritize Subsidized Loans First
Subsidized federal loans are designed for students with demonstrated financial need. The best part? The government covers your interest while you’re in school.
Unsubsidized loans are still an option if you don’t qualify for subsidized ones—but interest starts racking up immediately, even while you’re still cramming for finals.
3. Review & Compare Your Award Letters
Every school that accepts you will send a financial aid package. This outlines what you can borrow and includes things like grants, subsidized loans, and work-study opportunities. It also breaks down tuition, fees, and living expenses.
Don’t just pick the school with the biggest aid offer—compare the net cost and your potential debt after graduation.
How to Get a Private Student Loan (If You Still Need More Money)
Once you’ve maxed out your federal aid, private loans can help cover the remaining costs. But tread carefully—these aren’t one-size-fits-all.
1. Shop Around for the Right Lender
Banks, online lenders, credit unions, and even state agencies offer private student loans. Compare options based on interest rates, repayment plans, borrower perks (like deferment or forbearance), and customer service.
2. Know What Lenders Want
Most private lenders expect a credit score above 690 and a low debt-to-income ratio. Don’t have that yet? You’ll probably need a co-signer—usually a parent or guardian.
Some lenders are starting to look beyond credit scores, especially if you’re pursuing a high-earning field like tech or medicine. But beware—these loans often come with higher interest rates.
3. Compare, Compare, Compare
Federal undergrad loans currently come with a fixed interest rate around 6.53%. Private loan rates? They vary wildly and can reach up to 14% or more—especially if you don’t have a strong credit history.
Read the fine print. Know what happens if you default. Ask about repayment protections (or lack thereof).
Loans for Parents & Grad Students
How Parents Can Help Fund College? 👩👧
Parents can either take out loans on behalf of their child or co-sign a private loan. Here are the main options:
🔹 Direct PLUS Loans (Federal)
These are the only federal loans for parents. You’ll need to fill out a FAFSA with your child, then complete a separate application.
🔹 Co-Signed Private Loans
You and your child share responsibility. If they can’t pay, you’re on the hook.
🔹 Private Parent Loans
Some private lenders allow parents to take out a loan solely in their name—no co-signing involved.
🎓 Graduate Student Loan Options
Grad school ain’t cheap—but you’ve got options too:
🔹 Federal Direct Unsubsidized Loans
You can borrow up to $20,500 per year. Just fill out the FAFSA—no credit check required.
🔹 Grad PLUS Loans
Borrow up to your total cost of attendance, minus any other aid. Credit check required.
🔹 Private Graduate Loans
Ideal for students with strong credit (or a co-signer). Some lenders tailor loans for specific degrees, like law or business.
Pros and Cons of Federal vs Private Student Loans
| Feature | Federal Student Loans | Private Student Loans |
|---|---|---|
| Credit Check | Not required for most | Required |
| Interest Rates | Fixed, lower | Fixed or variable, often higher |
| Repayment Flexibility | Generous | Limited |
| Loan Forgiveness | Available (e.g., PSLF) | Not available |
| Co-signer Needed | No | Usually yes |
| Forbearance/Deferment | Yes | Varies by lender |
Quick Stats That Might Surprise You
- As of late 2024, the average student loan balance in the U.S. is around $37,200.
- Borrowers with federal loans benefit from income-driven repayment plans that cap payments at 10–20% of discretionary income.
- Around 8.8 million borrowers are enrolled in such repayment plans as of 2025.
Student Loan FAQ – Updated for 2025 ❓
1. Should I choose federal or private student loans first?
Always start with federal—they’re safer and offer better perks.
2. Is the FAFSA still required every year?
Yes! You need to submit it annually to stay eligible for federal aid.
3. Can student loans be forgiven?
Federal loans may qualify for forgiveness through programs like PSLF. Private loans? Nope.
4. What’s the current interest rate on federal loans in 2025?
Rates change yearly, but undergrad loans are sitting around 6.53% as of now.
5. Can I consolidate student loans?
Yes, federal loan consolidation is available—just make sure you’re not giving up forgiveness benefits.
6. What happens if I miss a payment?
Federal loans offer deferment and forbearance options. Private lenders? Depends on the policy.
7. Can parents take out loans for their child’s education?
Yes, through Direct PLUS Loans or private parent loans.
8. Do private lenders care about my major?
Some do! High-earning potential fields like engineering or healthcare may get better terms.
9. How much should I borrow?
Only what you absolutely need—ideally no more than your expected first year’s salary.
10. Will student loans affect my credit?
Definitely. Good repayment boosts it, but missed payments can hurt.