University students in the United States borrow around $32,637 to obtain a bachelor’s degree.

Students often apply for loans after exhausting financial resources. However, before applying, you must consider many factors that could affect your budget and credit score over time.

This guide will provide all the fundamentals to help you navigate student loans—from your options and the application process to management and repayment.

How Student Loans Work

Student loans are similar to other loan types, such as auto, mortgage, and personal. You borrow a lump sum from a private lender, the federal government, or your state government.

After finalizing a loan agreement, you’ll receive funds based on the cost of attendance (COA), which involves tuition, textbooks, student housing, university fees, and other educational expenses.

Most of the time, borrowers won’t repay student debts until after graduation, letting you focus on your studies rather than worrying about debt management.

Many student loans also have straightforward applications. For instance, you must only submit the FAFSA form—Free Application for Federal Student Aid—for federal student loans.

Meanwhile, some private lenders may require co-signers—usually parents or guardians.

Student Loan Types

Student Loan TypesThe types of student loans available include:

Federal Direct

Federal Direct loans are U.S. government-backed student aid with two types: subsidized and unsubsidized.


Direct subsidized is eligible for undergraduate students with monetary needs. Your university determines the amount you’ll receive based on the COA, which won’t exceed your financial requirements.

The U.S. Department of Education (ED) covers the interest based on the following terms:

  • You at least attended the university half-time
  • A grace period of six months after graduation
  • When you postpone your repayments (deferment)


Direct unsubsidized are eligible for undergraduate and graduate students. You won’t need to present evidence of monetary needs.

Your university determines the amount you can receive based on the COA. However, unlike direct subsidized aid, the U.S. ED won’t cover the interest—you must pay for it throughout the loan period.

Direct PLUS

Direct PLUS aid is another federal student loan for parents of dependent undergraduates (Parent PLUS) and graduate students (Grad PLUS).

Parents can use this aid to pay for their children’s college, while graduate students use it to fund their career school.

The U.S. ED will perform credit checks, so your credit score must be high. However, you can still qualify with a poor credit score if you meet specific requirements.

The maximum amount you’ll receive is based on the COA minus other monetary aid received.


Non-federal loans are private student aid provided by private lenders.

If the amount you receive from federal aid is insufficient to fund your education, you can consider getting a private student loan.

Private loan interest rates primarily depend on your credit history. You may opt to have a co-signer with a good credit score to receive better terms and lower fees and interest rates.

However, the co-signer will be financially accountable if you cannot make repayments.

Since the U.S. government doesn’t back these loans, they typically don’t provide borrower protections and flexible repayment conditions.

Health Professions

Student aid for health-related degrees is called Health Professions Student Loans or HPSL. You are eligible for this aid if you’re enrolled in one of these degrees:

  • Dentistry
  • Pharmacy
  • Optometry
  • Podiatric Medicine
  • Veterinary Medicine

Universities offering these health-related degrees are also eligible for HPSL.

Steps for Applying for Student Loans

The application process for student loans is as follows:

Ensure you meet the qualifications

Before applying, you must review your qualifications to ensure you meet all the requirements for approval.

Some examples of basic qualifications for federal and private loans include:

Federal student aid:

  • U.S. citizen or a qualified non-citizen with a valid Social Security number
  • Must maintain satisfactory academic standing
  • Enrolled as a regular student in a qualified degree or certificate program

Private student aid:

  • U.S. citizen or a qualified non-citizen with a valid Social Security number
  • At least 18 years old (some lenders require 19)
  • A high school diploma
  • COA
  • Enrolled as a regular student in accredited schools
  • Credit score (mid-600s or higher)

Complete and submit the FAFSA form

If taking out a federal loan, the next step is to fill out and submit the FAFSA form.

Take note of these FAFSA submission deadlines:

  • 2023 to 2024: June 30, 2024, Sunday, 11:59 p.m., Central Time. Corrections and updates must be submitted on Sept. 14, 2024, 11:59 p.m.
  • 2024 to 2025: June 30, 2025, Monday, 11:59 p.m., Central Time. Corrections and updates must be submitted on Sept. 14, 2025, 11:59 p.m.

Some states follow these general deadlines, but others have different deadlines.

Moreover, each college and career/trade school may have different deadlines, so review them before submitting.

Thoroughly review the Student Aid Report

Your Student Aid Report (SAR) outlines the federal aid you’re eligible for. You’ll receive this document after submitting the FAFSA form.

You’ll receive your SAR via email if you provide an email address. If not, you’ll receive a paper SAR acknowledgment. Depending on the mode of application, it may take up to three weeks to arrive.

Once you receive the document, thoroughly review the offers to determine whether you need a private student loan to cover the remaining costs.

Determine whether to apply for a private student loan

If taking out a private student loan, research the offers and interest rates. Other essential terms to compare include:

  • Co-signer release
  • Repayment conditions
  • Discounts
  • Perks (e.g., principal balance reduction for on-time graduation)

After choosing a private lender, prepare and submit the requirements. Once approved, the lender will send the funds directly to your university.

Your university will then use the funds for your tuition and other fees and disburse the remaining amount.

How To Manage and Repay Student Loans

Steps for Applying for Student LoansHere are the tips to manage and repay your student debts:

Calculate the total and understand the terms

The first thing you should do is calculate the total amount.

Students typically graduate with several loans (federal and private combined) because they finance each year they are in university.

Knowing the amount you owe lets you devise a tailored plan to repay, consolidate, or apply for forgiveness.

At the same time, understand the terms of each loan, as they may have different repayment rules and interest rates, to avoid extra fees and penalties.

Review the grace periods

Grace periods are the time you have after graduation before you’re required to make repayments.

Since each loan has different grace periods, you must review them to plan accordingly.

For instance, some federal loans, like direct subsidized loans, have a six-month grace period. Perkins Loans, a type of direct subsidized aid, allows one initial grace period of nine months.

Meanwhile, grace periods for private lenders vary, but most offer six months.

Create a debt repayment budget

Your debt repayment budget must include the following:

  • Utilities
  • Housing (if applicable)
  • Transportation
  • Groceries
  • Smartphone plan
  • Cable and internet
  • Medical expenses
  • Emergency fund
  • Recurring memberships and subscriptions

After listing these expenses, identify where you can cut back. This could mean eating out less, reducing car use to minimize gas expenses, or canceling unused memberships and subscriptions to create a realistic monthly repayment schedule.

Pay the monthly minimum

Ensuring minimum payments is crucial in every loan.

Minimum payments are your lowest monthly repayment threshold. You can avoid late charges and other penalties by making punctual minimum repayments.

However, paying more than the minimum helps lower your interest rates. As soon as your income upsurges, you can gradually increase the amount you allocate for repayments.

Remember that the goal is to pay a little more each month when possible.

Explore repayment plans

Some repayment plans for federal student loans include:

  • Extended – This plan lets you stretch out your loan for an extended period, such as 20 years rather than 10 years, resulting in lower monthly payments.
  • Graduated – This plan accommodates entry-level salaries by allowing early low payments. However, it increases your monthly repayments every two years over the loan’s 10-year life by assuming you’ll get raises or switch to higher-paying jobs.
  • Pay as you earn – This plan caps repayments for up to 20 years (10 percent of your monthly income) if you show evidence of financial hardship. The requirements can be challenging, but you may continue paying under the plan without financial difficulties if you qualify.
  • Direct consolidation – This plan lets you combine multiple federal loans to lower monthly payments or access forgiveness programs.

You can contact your loan servicer to choose the repayment plan that best fits your lifestyle. This government-assigned company will provide the comprehensive student loan help you need at no cost.

For private student loans, you must contact your lender to inquire about the options they offer. If requesting relief, you may need to present proof of financial hardships so the lender can help you stay out of default.

One option for private loans is refinancing, which can provide more flexible terms. You can also refinance federal student loans.

Although these plans help lower your repayments, you may also pay the interest for an extended period.

Navigate Student Loans With Smart Choices

Understanding student loans requires attention to detail. With the appropriate knowledge, you can develop a proactive management approach that ensures financial freedom and stability.

Remember, your choices today can significantly impact your student loan management after graduation. It’s imperative to actively educate yourself and seek guidance to make decisions that benefit your long-term financial health.


Ethan Lee

Ethan Lee, an MBA graduate from Harvard Business School, has over two decades of experience in finance and real estate. He joined our platform as a freelancer in 2021, bringing wealth of knowledge from his time as a financial analyst and real estate consultant. Ethan's insights into market trends and investment strategies are invaluable to our readers. Ethan's articles provide in-depth analysis and practical advice, reflecting his deep understanding of the financial world. His hobbies include golfing and volunteering for financial literacy programs for youths.

Write A Comment