How to Pick a Student Loan for College

By Jacqueline DeMarco · July 26, 2023 · 8 minute read

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How to Pick a Student Loan for College

The thrill of opening college acceptance letters and sitting down to decide where to spend the next four years is undeniably special. After making such an exciting decision, making logistical ones may not seem as appealing, especially when it comes time to choose a student loan to help pay for college.

The expense of attending college can be intimidating, but fortunately student loans can help make financing college more manageable. Broadly, students can borrow federal student loans or private student loans to help pay for their education. For the most part, students will rely on a combination of funding, including loans, scholarships, grants, and work-study to pay their way through college. There are a lot of student loan options that may be accessible to students, and it’s worth considering all viable options before making a decision.

Are You Eligible for Federal Student Loans?

Federal student loans are available for students who meet the general eligibility criteria as outlined by the U.S. Department of Education. In addition to demonstrating financial need (for most programs), students must be a citizen of the U.S. or eligible non-citizen in order to apply. Additionally, students need to be enrolled at least half-time in an eligible degree-granting institution.

Types of Federal Loans You Can Get

The U.S. Department of Education issues loans through the William D. Ford Federal Direct Loan (Direct Loan) Program, and each loan has unique benefits and eligibility requirements. They offer four types of direct loans.

1. Direct Subsidized Loans: For eligible undergraduates who demonstrate financial need to help cover the costs of receiving a higher education at a college or career school.

2. Direct Unsubsidized Loans: For eligible undergraduate, graduate, and professional students. Need is not a determining factor.

3. Direct PLUS Loans: For graduate or professional students and the parents of dependent undergraduate students. These loans help pay for education expenses that other forms of financial aid did not cover. This is not a loan based on financial need but requires a credit check, and certain credit history standards must be met to qualify.

4. Direct Consolidation Loans: These loans allow students to combine all of their eligible federal student loans into just one loan serviced by a single loan servicer.

Students may not be eligible for each of these loan types, but the information provided on the SAR is used by college financial aid offices to determine what financial aid to offer to a student. Researching each option carefully before deciding which loan to choose can be a helpful and responsible step to take.

Recommended: Subsidized vs. Unsubsidized Loans: What is the Difference?

How to Apply for a Federal Loan

In order to qualify for federal student loans, students must complete the Free Application for Federal Student Aid (FAFSA®) form. The process is relatively easy and straightforward.

Filling out the FAFSA form will require personal information about the student and their financial circumstances. The following information or documents may be necessary to help fill out the application.

•   Student’s Social Security number.

•   Parents’ Social Security numbers, for dependent students.

•   Student’s driver’s license number, if applicable.

•   An Alien Registration number for non-US citizens.

•   Information regarding federal taxes and tax returns for the student or, for dependent students, their parents.

•   Records of untaxed income for students or, for dependent students, their parents.

•   Information regarding liquid assets, investments, and business or farm assets of the student or, for dependent students, their parents.

FAFSA forms completed online take three to five days to process, while paper applications require seven to 10 days. Post-processing, the student will receive their Student Aid Report (SAR), which summarizes the information provided on the FAFSA, so it’s important to review this report to ensure its accuracy. If a mistake is found, students should correct their FAFSA as soon as they can.

The SAR includes the Student Aid Index number (SAI), which helps colleges determine eligibility for the Federal Pell Grant and other federal and nonfederal student aid such as gift aid and federal student loans.

The Pell Grant is a federal grant awarded to undergraduate students who demonstrate exceptional financial need.

The colleges the student submitted the FAFSA to are responsible for creating their award package and distributing their financial aid. Contacting the financial aid office at each college a student is considering is advisable, as each college may have a unique process for applying for aid.

Each year, the student can renew their FAFSA form using their FSA ID which will allow them to skip some of the more basic questions on the form.

How to Accept a Federal Loan

When the student aid office at your school sends an aid offer, it will include an option for you to select which types of aid you would like to accept or reject. To do this, follow the instructions provided by your financial aid office. If you have any questions, contact the financial aid office at your school.

Generally speaking, aid that does not need to be repaid, such as scholarships or grants, should be prioritized over loans, which will need to be repaid.

What if Your Federal Loans Aren’t Enough?

If your student loans aren’t enough to pay for college, you have a couple of options. One is to explore scholarships and grants from your school or local community. This guide to unclaimed scholarships has information on finding additional free money to help you pay for college.

Another option is to look into borrowing a private student loan. Federal and private student loans have a few important distinctions. Federal student loans are provided by the United States government, whereas private loans come from private lenders.

More specifically, federal student loans have terms and conditions that are pre-determined by law. Federal student loans have benefits that private lenders are not guaranteed to offer, such as having fixed interest rates and offering income-driven repayment plans. For this reason, federal student loans are generally prioritized over private student loans when students are creating a plan to finance their education.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

Understanding Private Student Loans

Private student loans can be found through private organizations like a bank or credit union, as well as certain state-based or state-affiliated organizations. The lender will set the terms and conditions, and these types of loans are typically more expensive than federal ones.

Interested students will apply for private student loans directly with the lender of their choice. When applying for private loans, it’s important to understand any credit requirements. Most federal student loans don’t require a credit check, but private lenders often require a minimum credit score and income, and typically want to see a history of on-time loan repayments.

Using a co-signer with a more established credit history — which most students don’t have — can make qualifying for a private undergraduate loan easier. The co-signer will have to assume responsibility for the loan if the student misses payments. This private student loan guide has even more detailed information.

How to Pick a Private Student Loan Lender

Most private lenders will allow you to find out if you prequalify for a loan and at what terms and interest rates. This can allow you to effectively compare interest rate types (fixed vs variable), the interest rate amounts, repayment options, loan terms, hardship options, and any perks or discounts the lender may offer before making a final decision.

Once you have selected a preferred lender, you can fill out a formal application. At this point, the lender will conduct a hard credit inquiry (which may impact your credit score).

Determining How Much to Borrow

Determining what to look for when picking a student loan will vary greatly by the student’s financial and educational needs, including how much to borrow. When it comes time to choose how much money to borrow through student loans, the amount will depend on what types of loans the student chooses. For example, federal student loan amounts vary greatly.

•   Undergraduate student loans borrowed through Direct Subsidized Loans and Direct Unsubsidized Loans range from $5,500 to $12,500 per year, varying by what year of school the student is in and their dependency status.

•   Graduate and professional students can borrow up to $20,500 annually in Direct Unsubsidized Loans. These funds can also help cover the remainder of college costs not covered by other financial aid.

•   Parents of undergraduate students can utilize a Direct PLUS Loan to cover the remainder of their child’s education costs that financial aid didn’t cover.

Which of these options a student and their family pursues will vary based on how much financial aid they receive and how much of their education costs they want to cover out of pocket.

Typically, students and their families turn to private student loans if their federal financial aid and loan options don’t cover all of their academic expenses. To determine how much in private loans to take out, students should aim to cover the following expenses for the entire school year: tuition, fees, housing, food, textbooks, school supplies, and travel.

To find the final amount required in private student loan funding, students can subtract any money they’ve received from gift aid such as scholarships and grants, financing they will receive from work-study programs, any college savings they or their families have, and whatever federal loans they received.

Private Student Loans With SoFi

In addition to banks and credit unions, students can turn to online lenders for private student loans. SoFi offers private student loans that students can apply for from the comfort of their own homes in a quick and easy online application. Students can choose what type of interest rate they prefer and can add a cosigner, if necessary.

They never have to worry about fees — that means zero origination, late, and insufficient fund fees. SoFi student loans can cover the entire cost of attendance, so students can take a deep breath and focus on hitting the books instead of worrying about paying for school.

Learn more about SoFi’s easy application process and flexible repayment plans.

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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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