Student Loans: How to Borrow Wisely for College
- Federal student loans are almost always better than private student loans, but federal loans have limits.
- Try to get as much as you can in grants, scholarships and work study before turning to student loans.
- You can find good deals on private student loans, but you will likely need a cosigner.
Paying for college is possible with federal student loans from the government and private student loans from banks or other private lenders.
Federal loans are generally the best and safest option due to competitive interest rates and easy repayment options. You can apply for these through the Free Application for Federal Student Aid (FAFSA), but you need to qualify, and there are limits to how much you can borrow.
Private loan rates vary from lender to lender, so you’ll want to shop around for the best deal. Comparing offers from lenders like LendingTree partner College Ave can help you find the loan terms and rates that best fit your needs. You’ll usually need a cosigner — someone to guarantee your loan — if you don’t have established credit.
How to cover the costs of college
- When you apply for federal aid, you may be offered grants, scholarships or other financial aid, depending on your need, by either your educational institution or the government. These are your best options for paying for school since they don’t need to be repaid.
- Consider work study programs, which are job opportunities that can help cover your school bill, sometimes with roles related to your field of study.
- Next, check with your college or university to see if they have any additional school scholarships or loan programs. Some schools will work with you to avoid taking on student debt.
- Try searching online for outside groups related to your field of study that offer scholarships of their own, some based on financial need and some based on merit or other factors.
- After that, you should turn to federal student loans. They usually have the lowest interest rates, and you can ask for a low repayment plan. Loan forgiveness is also possible. However, federal loans have borrowing limits, and some types are only given to those with low incomes.
- Once you’ve exhausted your federal loan opportunities, consider a private student loan with a good rate. Some also come with special features, like the ability to pause repayment if you lose your job.
Federal student loans usually make the most sense
These days, almost half of all college graduates leave school with student debt. And while any debt is a burden, federal student loans have advantages that make them easier to pay off.
Low rates
The interest rates on federal student loans are usually lower than anything you’ll find with a private lender. The rate for each type of loan, along with a one-time origination fee, is set by the government each year and posted on the Federal Student Aid website. Even better: subsidized federal student loans won’t accrue interest while you’re in school.
Repayment plans
Federal loans also have choice when it comes to repayment. Options include “income-driven repayment plans,” which limit your monthly payment to a portion of your discretionary income (not including food and housing), so they should always be affordable. There’s even an online loan simulator to help you pick the best plan for you.
Loan forgiveness
Using federal loans also opens the door to the Public Service Loan Forgiveness program. This will wipe away all your remaining federal student debt after 10 years’ worth of payments while working for a non-profit, the military or any government agency, including state, local and tribal.
Easy credit
While getting a private loan will almost definitely require a full credit check, most federal student loans have no credit check at all. And even those loans that do need a check — PLUS loans for parents and graduate students — only look for bankruptcy or other serious adverse credit events.
Also, you can generally get federal student loans on your own, while private loans may need a cosigner to guarantee them if you already have a great credit history.
Other benefits
Federal student loans also have other perks, such as:
- The government may sometimes offer one-off debt relief, such as when it suspended all loan repayment during the Covid epidemic.
- You don’t need to make repayments until the end of your grace period, usually six months after graduation or leaving school — and with subsidized loans, you don’t accrue interest during this time.
- You may be able to hit pause on repayment (also known as loan deferment) in some situations, such as if you’re unemployed or undergoing cancer treatment.
The FAFSA is the online form you’ll need to fill out to get any federal student loans or other aid.
Applications open at the beginning of October for the following school year, and you should try to submit yours as early as possible, since much federal and state aid is on a first-come, first-served basis.
For your FAFSA, you will need:
- A free account at StudentAid.gov
- Tax info for yourself and any parent or spouse helping you pay
- Your current bank balances, investment amounts and any childcare that you receive
- Your personal information, including your Social Security number
Types of federal student loans
| Direct Subsidized Loans |
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| Direct Unsubsidized Loans |
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| PLUS Loans |
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Private student loans: When you need more
College is expensive, and you might not get enough in federal loans to pay your costs. Or you might not even qualify in the first place, due to your immigration status or other issues. This is where private student loans come in.
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While federal loans have a lot of advantages, private student loans come with some bonuses of their own, such as:
- Choice between fixed rates or variable rates that can rise or fall during the life of the loan
- More options on your loan term (the time length of the loan)
- Potentially higher borrowing limit based on your credit — and the credit of your cosigner, if any
Private loans can also be useful if you choose to refinance your federal student loans with a private lender to obtain a lower interest rate. However, doing so means permanently giving up those federal borrower protections, including income-driven repayment plans and certain loan forgiveness programs.
With private student loans, you’ll likely need strong credit to borrow the large sums of money you might need for school. Unless you’ve already built up a strong credit history (you can check your score for free here), then you’ll need a cosigner for your loan.
The cosigner — usually a parent or friend — agrees to take responsibility for the payments if you default.
Where to find private student loans
Since the interest rate you get on a private loan can be very different depending on your lender, you should try to shop around. Compare multiple offers to save as much as you can. Below are a couple of places to begin your search.
Your own bank or credit union
Check with the bank or credit union where you already have an account. It might be willing to offer a better deal to one of its regular customers, and approval could be more streamlined.
College Ave and other lenders
If you’re eligible, LendingTree can connect you with a private student loan option through College Ave, our partner lender for student loans. You can apply online in about three minutes and get a quick decision.
College Ave lets you borrow up to the entire school cost, and you can pick from multiple loan terms and repayment options. It also offers cosigner support to make that process easier.
Federal vs. private student loans: What’s the difference?
| Feature | Federal loans | Private loans |
|---|---|---|
| Interest rates | Fixed | Fixed or variable |
| Credit check | Limited check, but only for some loans | Required |
| Repayment protection | Strong government protections | Varies by lender |
| Loan forgiveness | Available | Rare |
| Borrowing limits | Annual and lifetime caps | Based on lender criteria |
Frequently asked questions
Private student loans aren’t bad — in fact, they’re good if you can’t get federal student loans. But that said, federal student loans are almost always a better choice than private ones because of borrower protections and generally lower costs.
Yes, you should get as much in federal student loans as you can before turning to private loans. Federal loans have low rates and many special benefits.
Most private student loans will allow you to use the money on whatever you need for school. Note that some lenders may limit your loan amount to your school’s total cost of attendance, which includes a set amount for housing.
If you can’t get enough in federal loans and other aid — and you can’t get the money elsewhere — then consider taking a private student loan. Try to compare multiple loan offers, since private student loan interest rates can differ a lot from lender to lender.
The amount of student debt that is too much to borrow depends on your individual circumstances. Consider how much you expect to earn when you start your career and whether that income will be enough to comfortably repay your loans. It’s also important to factor in unexpected expenses or emergencies that could hinder repayment.
If you think you might be late or default on your private student loan, reach out to your lender as soon as possible. It’s not guaranteed, but the lender may be able to put you on a payment plan or defer (pause) your repayment for a limited time.
Federal student loans, meanwhile, have deferment options and income-driven repayment plans that will cap your monthly bill at a set percentage of your discretionary income (which could be $0 if you have no income).