How to Use Student Loans to Pay for College

Resources to help you pay for college.

As you consider your college options and determine which college is the best fit, you may realize you need to borrow funds to pay for college. This article will review things to consider when borrowing, different loan options, and tips for making informed decisions about investing in your education.

How to think about taking out a student loan

While many students borrow money to attend college, it’s not a decision that you should take lightly. You should consider borrowing after exploring all other financial aid and payment options.

  • File the Free Application for Federal Student Aid (FAFSA®), CSS Profile® (if required), and other financial aid applications to ensure you receive the grants and scholarships you’re eligible for.
  • Apply for outside scholarships throughout college.
  • Talk with your family and see if savings can help cover your costs.
  • Consider how a work-study or part-time job can help decrease the amount you need to borrow.

Once you have leveraged these other ways to pay, if you have a remaining bill to cover, you can consider the different loan options available and how they can help make college costs more manageable for you and your family.

The different loan options available for college

When taking out a student loan, you will have a few options available. These include the following:

  • Federal Direct Loans – Offered by the federal government and usually included in your financial aid offer. The federal government offers student loans for undergraduate and graduate students as well as for parents.
  • Institutional loans – Offered by the college you plan to attend; however, not all colleges offer them.
  • Private loans – Offered by private banks and other financial institutions. These should be the last option to pay for college.

When reviewing your loan options, first consider federal student loans and institutional loans before exploring federal parent loans or private loans. Federal student loans usually have lower interest rates, more repayment options, and fewer borrowing requirements. If your college offers institutional loans, you should explore them further. While the borrowing terms will vary from college to college, many institutional loans offer better terms than private loans. Private loans, for most students, should be the last option.

Key questions to ask when borrowing money for college

No matter the type of loan you’re considering, there are specific questions you should ask to learn about the loan and the commitment you’re making.

What are the requirements for student loans?

Each loan will have different requirements. If you take out federal student loans, you’ll need to fill out the FAFSA, complete loan counseling, and sign a Master Promissory Note before you can receive the loan. Private loans will likely require a credit check and a cosigner, who will be responsible for paying back the loan if you cannot. Institutional loan requirements will vary based on your college and its requirements. For each of these options, check with the loan provider before committing.

How much can I borrow?

Loans may have certain borrowing limits. For example, Federal Direct Loans have limits depending on your year in college, dependency status, and college costs. Private lenders may cap what you can borrow based on income and credit checks. The amount you need to borrow to cover college costs may determine the different loans you’ll need, but make sure you have maximized your federal subsidized and unsubsidized student loans before considering others.

What is the interest rate?

Interest rates determine how much more than the amount borrowed you’ll have to repay. The lower the interest rate the better, so it’s essential to understand the interest rate for each loan. For most loans, except Federal Direct Subsidized Loans, interest begins to accrue as soon as you take the loan out. Federal Direct Loan interest rates are updated annually. Private loan interest rates vary based on the bank and individual factors.

What are my repayment options?

Most student loan repayment can be delayed until after you’re no longer a student, but repayment upon graduation will vary based on the loan type. Federal Direct Loans provide several different repayment plans, including options that allow you to lower your payments based on your income. Depending on your profession, you could also be eligible for federal loan forgiveness programs. Private loans have less flexibility regarding repayment, and different lenders have different repayment options.

How much will I have borrowed by the time I graduate?

For most students, if you need to borrow during the first year of college, you will likely need to borrow for each year until you graduate. Before you decide where you’ll apply for a loan, use a loan calculator to calculate repayment, so you know what to expect when you graduate.

Common questions about student loans

How do I know how much I’ll need to borrow for college?

You should review your financial aid offers and decide which college you will attend. By reviewing the financial aid offer and calculating your estimated bill for the college you plan to attend, you’ll better understand how much money you’ll need. Use the estimated bill and consider other available resources before deciding how much you need to borrow.

What is the best student loan?

For most students, the best student loan is the Federal Direct Subsidized Loan. The subsidized loan does not accrue interest while you attend college and has all the repayment benefits of other federal student loans. If you can, make sure you maximize this loan first before considering others.

How do I know which student loans I should apply for?

We recommend you maximize your Federal Direct Subsidized and Unsubsidized Loans before considering others. If you need to take out private student loans, you should contact multiple lenders and ask the key questions listed above when borrowing. Then you can compare your options and determine which student loan provider offers you the best deal.

What are the main differences between federal student loans and private loans?

Here are three differences between federal student loans and private loans:

  • Borrowing requirements: Federal Direct Subsidized and Unsubsidized Loans do not require a cosigner or credit check, making it easier for students to borrow them independently. Most private lenders require a particular level of credit and income.
  • Interest rates: All federal student loans have a fixed interest rate set annually, which stays the same throughout repayment. Private lender interest rates will vary for each lender and can be fixed or variable, meaning they can change during repayment. 
  • Repayment: Federal student loans have flexible repayment options, while private loans usually don’t.

To learn about the other differences between federal student loans, parent loans, and private loans, check out
As you start to figure out how you will cover college costs, this might be the first time you have ever considered borrowing funds. Investing in your higher education can be worth it if you borrow money wisely. Going to college can lead to increased income, better future employment options, and other positive impacts. Leveraging other resources and limiting the amount you need to borrow can help set you up for success.