A Student's Guide to Student Loans in 2022

Introduction

Student loans are just one of the many options that students have at their disposal in terms of ways to pay for college. Here at Access Scholarships, it makes sense that so much of our content revolves around scholarships - aka, free money, aka, the hands-down BEST way to pay for college! 

But, as a student making a big monetary investment in your higher education, it’s important to make sure that all paying for college options are explored, understood, and compared. After all, the ultimate goal is to get YOU across that graduation stage with as little debt as possible.

What’s our student loan guide all about?

In this student loan guide, you’ll find everything you need to know about, well, student loans! 

The guide starts slow, by introducing and explaining the basics on student loans, including everything they ARE and everything they ARE NOT. Then, we move on to discuss different types of student loans (hint: there are tons of federal and private student loan options out there). 

Next, we’ll set you up with all of the information and resources you need to compare student loan packages, so that if you do take out loans, you are making the best possible choice. Finally, we will conclude by answering some of the most common and frequently asked questions about student loans, including how to apply for them, how they affect your credit score, and more.

Jump ahead to...

    What even IS a student loan?

    To put it simply, a student loan is money that students borrow from an entity (a bank, the government, an individual, etc) to pay for your college costs. When you take out a loan, you are borrowing this money. Therefore, the expectation is that, at some point in the future, you are to pay back the money that you borrowed from the given entity, with interest. 

    Now, what does interest mean? 

    Interest is the additional money that you owe a given lender for actually giving you the money to borrow in the first place. When it comes to all types of loans (not just student loans), it’s important to keep in mind that a lower interest rate (all else aside) is optimal, because this means that you will owe less additional money back to the lender at the end of the loan’s term.

    Types of student loans

    Student loans can most easily be recognized as falling into one of two categories: federal or private. Generally speaking, federal student loans have more benefits for students than the majority of private student loans (given out by banks and other sources). 

    Despite this, it’s important to learn about each so you can be fully in the know and accurately compare your options. Keep reading to learn more about each loan type and everything that comes with it.

    Federal student loans

    What is a federal student loan?

    A federal student loan is one that you may choose to take out through the federal government. In this case, the Department of Education is your lender. 

    What are my options for federal student loans?

    There are four main federal direct student loan offerings. Since the StudentAid.Gov website summarizes this information best, here is a screenshot listing each loan and the basics behind it:

    Federal loan options

    The current interest rate for both Direct Subsidized and Direct Unsubsidized Loans is 3.73%, and this percentage is fixed for the entire life of the loan. Here are a few important differences between Direct Subsidized and Direct Unsubsidized loans to keep in mind:

    1. Subsidized loans are only for students who demonstrate financial need, whereas Unsubsidized loans are not based on financial need. 
    2. When you take out a Subsidized loan, you will not be charged interest on the loans when you are enrolled in school at least half-time. With Unsubsidized loans, you are responsible for paying the interest during all periods, including when you’re enrolled in school. 

    How much money can I borrow through federal student loans?

    Your higher education institution determines which loans you’re eligible for as well as the maximum amount that you can hypothetically take out through each in a given year (this is called the annual loan limit).

    However, the amount of loans that you personally are eligible to take out ultimately depends on your year in school and your dependency status (independent or dependent). 

    How do I apply for federal student loans?

    To apply for federal student loans, all you have to do is make sure you file your FAFSA each and every year that you’re in school (you start as a high school senior though!).

    Once you file the FAFSA, your school will send you a financial aid package that is customized to fit your financial needs. This may or may not include federal loans, among other things such as scholarships and grants and federal work-study options. If it does include federal loans, you’ll want to follow the designated steps to learn more about the loans you qualify for, which ones are best for you, how you can go about accepting them, and everything that comes next. 

    Private student loans

    What is a private student loan?

    A private student loan is a loan that is taken out from any institution that is not the Department of Education, such as a bank, credit union, or school, just to name a few.

    What are my options for private student loans?

    There are dozens and dozens of options out there for private student loans, which, to be honest, can make the process of choosing the right one(s) stressful. 

    A few popular private student loans options include loans by Sallie Mae, Ascent Funding, Discover, MPower, and Earnest. Use the widget below to compare private student loan offerings to see which is the best choice for you: 

    How much money can I borrow through private student loans?

    As with federal student loans, the amount that you can borrow from any given private lender varies depending on several factors, such as your/your co-signer's credit history and income and school’s cost of attendance.

    Unlike with federal loans though, there are some private loan lenders that will allow you to take out loans in the full amount of your tuition. Just because you CAN do this, though, certainly does not mean that you should! After all, the aim of the game is to graduate with as little student debt as possible, which means taking out loans for only the amount that you truly need

    How do I apply for private student loans?

    The process for applying for federal student loans is quite simple - all you have to do is file your FAFSA (make sure you do it before the deadline!). Conversely, applying for private student loans requires a few different steps:

    Step 1: Start by comparing the private loan options that are at your disposal, using the tool above.

    Step 2: Once you have compared your options and determined which ones might be best for you, make sure that the loans you’re considering work with the school that you’re attending. 

    Step 3: At this point, once you have confirmed that the lender is compatible with your institution, you can apply directly on the company or organization’s website. 

    Private vs federal loans, and how to compare student loan packages

    While private and federal student loans both accomplish the same goal of providing you with money to help you cover your college costs, there are several key reasons why federal student loans should be your first option if you decide to take out loans. 

    Federal student loans generally offer the best deal in terms of interest rates (they are usually fixed) and repayment plans (often are driven by your post-graduate income). Plus, with federal loans, there’s even the potential for student loan forgiveness. 

    Bottom line: always explore your federal student loan options before looking at private offerings. If you have exhausted all of the federal loans at your disposal, you can then start researching and comparing private student loans - enter your school name above to get started!

    Frequently asked questions about student loans

    How do student loans work?

    When you take out student loans, you are borrowing the money to pay for your education, with the expectation that you will pay that money back to the lender in full, plus interest, at some point in the future. 

    What can I use my student loans for?

    According to the Student Aid website, “Federal student aid from ED covers such expenses as tuition and fees, room and board, books and supplies, and transportation. Aid can also help pay for other related expenses, such as a computer and dependent care”. 

    While, in theory, you can use student loans (federal or private) to pay for most things related to your education, you should limit your usage of your student loans to things that are strictly crucial to your education. 

    Taking a film class and need to pay to rent some expensive equipment? This can, and should, be covered by your student loan if you have no other options. 

    Feeling hungry and deciding to order a bunch of pizzas for you and your roommates? This should NOT be paid for with your student loans. Aside from the fact that it is simply not allowed, even if these actions go undetected, spending your student loan money in frivolous ways will only lead you to having to pay back even more money later on down the line to the entity you borrowed it from.

    Do student loans affect credit score?

    To put it simply, yes. If you fail to pay your student loans back according to the designated schedule (say you are late to submit a payment or can’t make a payment entirely) your credit score will unfortunately suffer the consequences.

    However, it’s important to note that different loan options have different terms of repayment. For the most part, federal loans are much more lenient than private loans; federal loan servicers usually wait 90 days before reporting a late payment, whereas private servicers usually only wait 30 days.

    How can I apply for student loans?

    You can apply for federal student loans by filing your FAFSA, and you can apply for private student loans through each individual lender’s website. 

     

    What is student loan forgiveness? Will student loans be forgiven?

    One of the major bonuses to taking out federal loans is that there is opportunity for your loans to be forgiven, meaning you will no longer be required to make payments back to the Department of Education, the entity that you borrowed money from to pay for school. 

    There are different types of student loan forgiveness for each type of federal loan. Also, due to the impacts of COVID-19, the White House and Administration has moved to extend the pause on student loan repayment through May 1, 2022.

    Tips and things to keep in mind when taking out student loans

    Taking out loans for school is a big step. Before you make any big moves in one direction or another, make sure you know and understand the following tips and tricks:

    • Although taking out loans of any kind is extremely common, they should be considered a last resort. Before you take out loans, spend some time mapping out your college costs and determining what is or will be covered through scholarships, your family or personal income/savings, a federal work-study program if you’re eligible, and other outlets. 
    • If you need to take out loans to pay for school, federal student loans should be exhausted before private ones
    • Before you take out a loan of any kind, make sure you read the terms and conditions very carefully to understand when you need to start paying it back. 
    • Stay organized throughout the process. Use an Excel spreadsheet to keep track of how much you’re borrowing, and make a folder on your computer to keep track of all loan documents that you accumulate. 

    Make your payments on time! Make sure you know how much of your loan needs to be paid each cycle, when it’s due, and how to pay it.

    Conclusion

    While this page heavily revolves around student loans, it’s important to remember that taking out loans is just one of the many paying for college options that are out there.

    Ultimately, due to the fact that loans are money you borrow (and must be repaid with interest!), we will always suggest that you explore all of the options at your disposal (scholarships, work-study programs, using money saved) before going straight to the loan office. 

    By starting early in having those important paying for college discussions and figuring out your options, you will give yourself the best chance to graduate from college as close to debt-free as possible. 

    Looking for scholarships (free money!) to help you pay for college?

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    Open to high school, college and graduate students in the US, including undocumented students and international students in the US.

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    Sources: Student Aid, Sallie Mae, Citizens Bank, White House