When borrowing for college, there are different types of student loans available, and each of them have certain requirements. For example, federal student loans require you to fill out the Free Application for Federal Student Aid (FAFSA) to qualify for a federal loan, among other requirements. But for private loans, these eligibility criteria can vary, such as having good to excellent credit and a stable income.
- Federal vs. private loan requirements
- Federal loan requirements
- Private loan requirements
- Consider private loans
- How to apply for a loan
Federal vs. private student loan requirements
Both federal and private student loans have various similar conditions to apply, but they each have unique requirements.
| Requirements | Federal | Private |
|---|---|---|
| Fill out the FAFSA | Yes | No |
| Good to excellent credit | No | Yes |
| Allows cosigner | Not necessary for most federal loans | Generally, yes |
| Verifiable income | No | Yes |
| Demonstrate financial need | Yes, for Direct Subsidized Loans | No |
| Enrolled at least half-time | Yes | Generally, yes |
| Satisfactory academic progress | Yes | Yes |
| U.S. Citizen or eligible noncitizen | Yes | Yes |
| Enrolled in a eligible program | Yes | Yes |
Federal student loan requirements
Once you’ve exhausted your scholarship and grant opportunities, federal student loans are your best option to start borrowing for college. Here’s what’s required for federal student loans:
- Fill out and sign the FAFSA. The information in your FAFSA will be used to calculate your financial need, which is the difference between what your family is expected to contribute and your estimated cost of attending your school.
- Be a U.S. citizen or eligible noncitizen. Note that legal U.S. residents without citizenship might qualify in some cases.
- Have a valid Social Security number.
- Meet the qualifications needed for your academic program. This may be a high school diploma, GED, homeschool program, or equivalent.
- Enroll in an accredited degree or certificate program. Typically, you’ll need to commit to a half-time course load at the very least.
- Maintain the minimum grades your college requires.
What’s the interest rate for federal student loans?
Interest rates on federal student loans are always fixed, meaning they’ll stay the same throughout the life of the loan. The rate you receive will depend on your year in school and the type of loan you select. For the 2022-2023 school year, rates were set at:
- 4.99% for Direct Subsidized Loans and Direct Unsubsidized Loans (undergraduates)
- 6.54% for Direct Unsubsidized Loans (graduate students)
- 7.54% for Direct PLUS Loans (parents and graduate students)
However, interest rates for federal loans were temporarily set to 0% on Nov. 22, 2022. This COVID-19-era relief was set to expire 60 days after June 30, 2023, pending the Supreme Court’s decision on mass student loan relief proposed by the Biden administration.
Types of federal student loans
In most cases, it’s best to take out federal loans first. This is because these types of loans offer federal benefits, like income-driven repayment plans and student loan forgiveness programs. Federal loans also generally offer lower interest rates than private loans.
Here are some more details on the three main types of federal loans you might want to consider and each have limits to how much you can borrow.
- Direct Subsidized Loans: These are designed for undergraduate students with financial need. If you’re eligible, the Department of Education will pay the interest on your loan while you’re in school at least half-time, for the initial six months after you graduate, and during deferment periods.Â
- Direct Unsubsidized Loans: These loans are an option to any student, no matter their financial need. However, they must still meet federal loan eligibility requirements. You may qualify if you’re an undergraduate, graduate, or professional student. But you’ll have to pay for all the interest that accrues on the loan, even while you’re in school. Compared to Direct Subsidized Loans, these loans have higher borrowing limits that let you take out more money to cover your college costs.Â
- Direct PLUS Loans: The two categories of PLUS Loans are grad PLUS loans for graduate students and parent PLUS loans for parents who want to cover their child’s education costs. Unlike Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans require a credit check and usually charge a higher interest rate. With a PLUS loan, you can borrow up to your cost of attendance minus other aid.
Private student loan requirements
Private student loans are offered by a variety of financial institutions, like banks, credit unions, and online lenders. Because of this, each lender has their own requirements. However, most lenders look for the following:
- Good to excellent credit and a stable income: Some lenders are more flexible and willing to accept borrowers with less-than-perfect credit as well as cosigners that can help them qualify for their loan.
- U.S. citizenship or a legal residency with a Social Security number: You’ll also generally need to be at least 18 years old and have a high school diploma or equivalent.
- Educational purpose: While lenders won’t keep tabs on your spending, you should only use your loans for school expenses. Remember, you will have to repay everything you borrow in the future.
- Enrollment in an eligible academic program: Some programs may not be eligible for some lenders.
What’s the interest rate for private student loans?
You can usually choose between a variable or fixed interest rate. Fixed rates never change but variable rates can fluctuate over time based on market conditions and affect your monthly payment.
The average private student loan interest rate ranges from:
- 4.74-15.95% for variable rates
- 3.65-15.68% for fixed rates
It’s a good idea to shop around and compare all your options so you can find the ideal private student loan for your unique situation.
Consider private student loans
If you’re interested in a private loan, you should consider multiple factors:
- Compare rates from multiple lenders. Prequalify with at least three lenders. This way you can choose the offer with the best rate and terms.
- Gather documents and information. You’ll likely need certain information to apply. This may include your Social Security number, your adjusted gross income, and a list of all of the schools you’re applying to.
- Consider a cosigner. If you don’t have the best credit, you may need a cosigner. You’ll need to find a cosigner you know and trust.
What if you have bad credit or no credit?
If you have no credit or bad credit, a student loan cosigner can help you get approved for a private loan. This may be a parent, close friend, or anyone else with great credit who is willing to share responsibility for a private student loan with you.
Even if you can qualify for a private loan on your own, you may be able to lock in a lower interest rate with a cosigner. Just remember that they’ll be responsible for your loan if you don’t make your payments. If you default on your loan, you risk ruining your relationship with them.
Tips for finding a cosigner for a private student loan
It can be difficult to find someone to cosign a private loan. After all, they have to agree to pay back your loan in the event you don’t. Here are some tips to help you find a cosigner.
- Choose someone you know and trust: A cosigner should be a relative or close friend. Don’t put the responsibility on an acquaintance or someone you barely know.
- Create a plan: Work with your cosigner to compile a written plan. It should include when you’ll make your payments and what happens if you can’t keep up with them.
- Be open and honest: Don’t be afraid to explain your current situation to a potential cosigner. Share your credit and income so they know why you need their help.
- Act as a team: Once someone agrees to be your cosigner, go through the loan application process with them. Keep them in the loop at all times so you’re both on the same page.
How to apply for student loans
Once you’re ready to apply, here’s what you need to do:
- Complete the FAFSA first. This should be your first step for federal loans, before applying for private loans. You need to submit the FAFSA before the deadline to qualify. You must apply by June 30 annually for the following school year.
- Look for scholarships and grants. These forms of student aid don’t need to be repaid, but they still have certain requirements that must be met in order to apply. You can find scholarships and grants from the federal government (such as the Pell Grant), local and national businesses, and nonprofit organizations. You can also look for grants and scholarships via tools like Scholarships.com.
- Take out federal student loans. Once you’ve completed the FAFSA, you might be eligible for the three main types of federal loans, as mentioned above: Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans.
- Consider private student loans to fill in the gaps. After you’ve exhausted all other types of student aid, private student loans can cover any gaps in funding for your education. With private loans, there’s no deadline to apply, but it’s best to do so as soon as you know you’ll need them.