Bankrate's Guide to Student Loans

Take our crash course and learn everything you need to know about student loans.

Student Loans Guide

For first-time college students, the world of higher education is full of new and exciting possibilities. However, it can also be a little hectic and we’re not just talking about all that newfound freedom. Figuring out how you’re going to afford a college education can be just as time-consuming and stressful as applying to admittance.

That’s why we put together this helpful guide on student loans for college. Through this guide, you’ll learn everything from the various types of loans to how to get a student loan. We’ll also dispel some of the more common myths associated with financial aid.

By the time you’re finished, you’ll have a solid understanding about student loans for college so you can make an informed decision moving forward. Let’s dive in!

Student Loans Guide

For first-time college students, the world of higher education is full of new and exciting possibilities. However, it can also be a little hectic and we’re not just talking about all that newfound freedom. Figuring out how you’re going to afford a college education can be just as time-consuming and stressful as applying to admittance.

That’s why we put together this helpful guide on student loans for college. Through this guide, you’ll learn everything from the various types of loans to how to get a student loan. We’ll also dispel some of the more common myths associated with financial aid.

By the time you’re finished, you’ll have a solid understanding about student loans for college so you can make an informed decision moving forward. Let’s dive in!


Lowering expected family contributes header image

Federal student loans

While there are many ways to pay for college, from scholarships to grants, our primary focus is on student loans. Not only do these loans offer flexible payment options, but they can also feature reasonable interest rates. The U.S. Department of Education has two federal student loan programs: the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program.

Under the Direct Loan Program, there are four types of loans available to students:

Direct Subsidized Loans vs. Direct Unsubsidized Loans

Direct subsidized and direct unsubsidized loans are two very different types of loans. When considering student loans for college, it’s important to realize these key differences.

Direct subsidized loans are available to undergraduate students who have demonstrated financial need. These loans do not accrue interest while the borrower is in school nor during the six-month grace period afterward. Furthermore, borrowers are not responsible for paying interest during a period of deferment.

Direct unsubsidized loans are almost the exact inverse of direct subsidized loans. These are available to graduate and professional students in addition to undergrads. Financial need does not need to be demonstrated but these loans do accrue interest immediately. This means you’ll be gathering interest during school, post school, and during periods of deferment.

Direct PLUS Loans

Direct PLUS Loans are available to graduate or professional students and/or parents of dependent undergraduate students to help pay for education expenses in the event that other sources of financial aid fall short. Direct PLUS loans (aka “Graduate PLUS loans” and “Parent PLUS loans”) carry higher interest rates and loan origination fees compared to Direct subsidized and unsubsidized loans.

Unlike other student loans, Parent PLUS loans are taken out by parents directly. While students can make payments themselves, their parents will still be legally and financially responsible for those payments.

Direct Consolidation Loans

Made possible by the Health Care and Education Reconciliation Act signed by President Obama in 2010, Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer. The interest rate for the new single loan is a fixed rate and is determined by the weighted average of the interest rates on all of the loans being consolidated.

While you also may be able to extend your repayment period for up to 30 years, you might want to avoid this if possible. Your monthly payments will lower as a result, but the downside is that you’ll spend more time paying off your loan. The amount of interest you’ll pay over your life will also increase.

Federal Perkins Loans

The Federal Perkins loan is another option only available to undergraduate, graduate, and professional students with high financial need. Unlike Direct federal loans, the student must repay the school, not the federal government.

Not all universities offer the Perkins loan program and the amount of funding available at each school is limited and offered on a first come, first serve basis.

Lowering expected family contributes header image

Federal student loans

While there are many ways to pay for college, from scholarships to grants, our primary focus is on student loans. Not only do these loans offer flexible payment options, but they can also feature reasonable interest rates. The U.S. Department of Education has two federal student loan programs: the William D. Ford Federal Direct Loan (Direct Loan) Program and the Federal Perkins Loan Program.

Under the Direct Loan Program, there are four types of loans available to students:

Direct Subsidized Loans vs. Direct Unsubsidized Loans

Direct subsidized and direct unsubsidized loans are two very different types of loans. When considering student loans for college, it’s important to realize these key differences.

Direct subsidized loans are available to undergraduate students who have demonstrated financial need. These loans do not accrue interest while the borrower is in school nor during the six-month grace period afterward. Furthermore, borrowers are not responsible for paying interest during a period of deferment.

Direct unsubsidized loans are almost the exact inverse of direct subsidized loans. These are available to graduate and professional students in addition to undergrads. Financial need does not need to be demonstrated but these loans do accrue interest immediately. This means you’ll be gathering interest during school, post school, and during periods of deferment.

Direct PLUS Loans

Direct PLUS Loans are available to graduate or professional students and/or parents of dependent undergraduate students to help pay for education expenses in the event that other sources of financial aid fall short. Direct PLUS loans (aka “Graduate PLUS loans” and “Parent PLUS loans”) carry higher interest rates and loan origination fees compared to Direct subsidized and unsubsidized loans.

Unlike other student loans, Parent PLUS loans are taken out by parents directly. While students can make payments themselves, their parents will still be legally and financially responsible for those payments.

Direct Consolidation Loans

Made possible by the Health Care and Education Reconciliation Act signed by President Obama in 2010, Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer. The interest rate for the new single loan is a fixed rate and is determined by the weighted average of the interest rates on all of the loans being consolidated.

While you also may be able to extend your repayment period for up to 30 years, you might want to avoid this if possible. Your monthly payments will lower as a result, but the downside is that you’ll spend more time paying off your loan. The amount of interest you’ll pay over your life will also increase.

Federal Perkins Loans

The Federal Perkins loan is another option only available to undergraduate, graduate, and professional students with high financial need. Unlike Direct federal loans, the student must repay the school, not the federal government.

Not all universities offer the Perkins loan program and the amount of funding available at each school is limited and offered on a first come, first serve basis.


Private student loans

Popular private student lenders include Sallie Mae, Discover, Student Loan Network, Citizens Bank and more. These lenders offer various repayment terms, incentives and consolidation services.

Private loans can also have fixed or variable interest rates. If you opt for a private loan with fixed interest rates, then those rates will remain consistent over the course of the loan. The same cannot be said for variable interest rates, which can change suddenly and shock students who may not be able to afford this unforeseen shift.

Be sure and compare all types of loans before you make a decision on federal or private loans. Also keep in mind that private loans tend to get a bad rap for having higher interest rates and fewer repayment options.

Private student loans

Popular private student lenders include Sallie Mae, Discover, Student Loan Network, Citizens Bank and more. These lenders offer various repayment terms, incentives and consolidation services.

Private loans can also have fixed or variable interest rates. If you opt for a private loan with fixed interest rates, then those rates will remain consistent over the course of the loan. The same cannot be said for variable interest rates, which can change suddenly and shock students who may not be able to afford this unforeseen shift.

Be sure and compare all types of loans before you make a decision on federal or private loans. Also keep in mind that private loans tend to get a bad rap for having higher interest rates and fewer repayment options.


Complete the FAFSA and financial aid applications

Now that we’ve gone over the various types of loans, let’s talk about how to get a student loan for college. The first step to securing financial aid is to complete the Free Application for Federal Student Aid (FAFSA).

Completing the FAFSA will put your up for consideration for federal student loans. Furthermore, students who complete the FAFSA are also considered for federal and state aid such as the Pell Grant, work-study, and even school-sponsored scholarships.

Students and their parents (if the student is a dependent) will need to create a Federal Student Aid ID in order to access and electronically sign the FAFSA. To complete the FAFSA, students must input their identification information and their parents’ (if dependents), including Social Security, driver’s license, and alien registration numbers (if not a U.S. citizen).

To complete the FAFSA, students must also have on-hand tax documents and financial information for themselves and their parents (if dependents), which includes bank statements, federal tax forms with W-2s, as well as records of investments, assets (excluding the family home) and untaxed income.

When it comes to providing tax and financial information, it’s important to remember that you must provide the information from two years prior to your school year. For example, if you are filling out the FAFSA for the 2018-2019 school year, you will need to report information from 2016. Students must also complete the FAFSA for each year they plan to enroll in school.

Complete the FAFSA and financial aid applications

Now that we’ve gone over the various types of loans, let’s talk about how to get a student loan for college. The first step to securing financial aid is to complete the Free Application for Federal Student Aid (FAFSA).

Completing the FAFSA will put your up for consideration for federal student loans. Furthermore, students who complete the FAFSA are also considered for federal and state aid such as the Pell Grant, work-study, and even school-sponsored scholarships.

Students and their parents (if the student is a dependent) will need to create a Federal Student Aid ID in order to access and electronically sign the FAFSA. To complete the FAFSA, students must input their identification information and their parents’ (if dependents), including Social Security, driver’s license, and alien registration numbers (if not a U.S. citizen).

To complete the FAFSA, students must also have on-hand tax documents and financial information for themselves and their parents (if dependents), which includes bank statements, federal tax forms with W-2s, as well as records of investments, assets (excluding the family home) and untaxed income.

When it comes to providing tax and financial information, it’s important to remember that you must provide the information from two years prior to your school year. For example, if you are filling out the FAFSA for the 2018-2019 school year, you will need to report information from 2016. Students must also complete the FAFSA for each year they plan to enroll in school.


Lowering expected family contributes header image

Popular misconceptions about financial aid

In order to experience the maximum benefits of financial aid, it’s important to dispel some of the common misconceptions surrounding it. Even if you know how to get a student loan and you’re familiar with all the types of loans, it never hurts to take a refresher course.

Here are just some of the popular misconceptions surrounding financial aid and student loans for college:

“My family makes too much money for me to apply for aid”

The fact of the matter is that nobody makes too much money to be excluded from submitting a FAFSA. Furthermore, as we’ve talked about, a FAFSA is good for more than just student loans for college. By filling one of these out, you’re eligible for scholarships, grants, and other types of financial aid awards.

“I only need to fill out the FAFSA form”

Filling out the FAFSA is important, but it may not be sufficient alone for certain institutions. In fact, there are some scholarships and grants that may require additional information and documentation. Always check the requirements of any specific grants or scholarships you are interested in as they may require more than a FAFSA.

“As long as I turn in my forms by the deadline, I should be fine”

When turning in forms and applications for loans, grants, scholarships, and other forms of financial aid, never wait until the deadline. While this might not affect your chances of getting a loan, many other forms of financial aid do operate on a first-come, first-served basis.

“My grades aren’t good enough to qualify for a scholarship”

Sure, for an academic scholarship, anything less than top-tier grades might prohibit you from qualifying. But there are thousands of different scholarships, grants, and awards you can consider. And, don’t forget about student loans for college. When it comes to those, your grades are less of a factor.

“If I didn’t get anything last year, I won’t get anything this year”

There’s always the possibility that you might not get anything from applying for a scholarship, grant, or award. That doesn’t mean you should never try. In fact, not applying is the only way to 100% guarantee you won’t receive any funding.

“If I transfer to another school, my financial aid package remains the same”

Different institutions have their own unique processes that could impact your financial aid package. Never assume that your package will remain unchanged when you transfer to another school.

Another factor to consider is that certain loans and grants are determined based on the cost of the institution. That means that these aid packages are determined on a case-by-case basis. Moving from an institution with a higher cost to a lower cost institution might diminish the aid package.

“I’m going to get as much in loans as I possibly can because I’ll have a well-paying job after college”

Don’t opt for more money (or debt) than you need. Just because you are going through college does not mean you will land a high-paying job fresh out of school

Lowering expected family contributes header image

Popular misconceptions about financial aid

In order to experience the maximum benefits of financial aid, it’s important to dispel some of the common misconceptions surrounding it. Even if you know how to get a student loan and you’re familiar with all the types of loans, it never hurts to take a refresher course.

Here are just some of the popular misconceptions surrounding financial aid and student loans for college:

“My family makes too much money for me to apply for aid”

The fact of the matter is that nobody makes too much money to be excluded from submitting a FAFSA. Furthermore, as we’ve talked about, a FAFSA is good for more than just student loans for college. By filling one of these out, you’re eligible for scholarships, grants, and other types of financial aid awards.

“I only need to fill out the FAFSA form”

Filling out the FAFSA is important, but it may not be sufficient alone for certain institutions. In fact, there are some scholarships and grants that may require additional information and documentation. Always check the requirements of any specific grants or scholarships you are interested in as they may require more than a FAFSA.

“As long as I turn in my forms by the deadline, I should be fine”

When turning in forms and applications for loans, grants, scholarships, and other forms of financial aid, never wait until the deadline. While this might not affect your chances of getting a loan, many other forms of financial aid do operate on a first-come, first-served basis.

“My grades aren’t good enough to qualify for a scholarship”

Sure, for an academic scholarship, anything less than top-tier grades might prohibit you from qualifying. But there are thousands of different scholarships, grants, and awards you can consider. And, don’t forget about student loans for college. When it comes to those, your grades are less of a factor.

“If I didn’t get anything last year, I won’t get anything this year”

There’s always the possibility that you might not get anything from applying for a scholarship, grant, or award. That doesn’t mean you should never try. In fact, not applying is the only way to 100% guarantee you won’t receive any funding.

“If I transfer to another school, my financial aid package remains the same”

Different institutions have their own unique processes that could impact your financial aid package. Never assume that your package will remain unchanged when you transfer to another school.

Another factor to consider is that certain loans and grants are determined based on the cost of the institution. That means that these aid packages are determined on a case-by-case basis. Moving from an institution with a higher cost to a lower cost institution might diminish the aid package.

“I’m going to get as much in loans as I possibly can because I’ll have a well-paying job after college”

Don’t opt for more money (or debt) than you need. Just because you are going through college does not mean you will land a high-paying job fresh out of school


Lowering expected family contributes header image

When it comes to determining how much, if any, federal financial aid a student will receive, the government looks at your Expected Family Contribution (EFC), the year in school, current enrollment status and the cost of attending the college or university. While some of that is out of your control, the Expected Family Contribution can be controlled to some degree.

To come up with EFC, the government looks at a family’s taxed and untaxed income, assets and benefits like unemployment or Social Security. The family size and number of family members who will attend college during the year also affect the amount a student receives. A lower EFC score means a student is eligible for more federal financial aid, and vice versa, the higher the score, the less they’ll be eligible for.

For families that want to maximize the amount they receive, there are ways to lower the Expected Family Contribution without running afoul of the law. From tax loss harvesting to smartly lowering income, here’s a look at some strategies that can get help get more financial aid.

Limit increasing income before applying for aid

Need-based aid is heavily weighted toward a family’s income but not certain types of assets, so anything you can do to reduce your income through asset management is going to get your student more aid. That doesn’t mean you need to blow your life’s savings to qualify for more aid. There are smart ways to lower the amount of family income reported on the Free Application for Federal Student Aid (FAFSA).

One of the ways to keep a lid on your income is to pair stock gains in the market with losses. Known as tax loss harvesting, investors will often sell a winning and losing stock at the same time to reduce the amount they pay in capital gains taxes. That not only saves them money that would otherwise go to the Internal Revenue Service, but it also results in lower taxable income.

Max out tax-advantaged savings accounts

Families can also legitimately lower their reported income by maxing out tax-advantaged retirement savings plans like 401(k)s and IRAs. The more money you put in, the less income you show come tax time. People can also increase contributions to Health Savings Accounts or other tax-smart investments or savings plans that legitimately reduce taxable income.

Keep the 529 out of grandparents’ names

A 529 plan is a savings plan that is designed to encourage saving for future college costs. However, it can impact how much financial aid you might be eligible for.

If the grandparents own a 529 plan, the distribution of the money counts as untaxed income to the student and will thus reduce the aid eligibility by as much as half of the distribution amount. One way around this is to change the account owner to the parent or wait until the senior year in college to take the distribution.

Pay down high-interest rate debt

Say you have $10,000 in credit card debt and a nice nest egg of $50,000 in savings. You could use what you have in savings to outright pay off that debt. By doing this, you reduce your income and pay off some debt. Just don’t try this if paying down the debt would eliminate your nest egg altogether.

However you fund your college education, be it student loans for college or financial aid grants, always weight the pros and cons. Do your homework and research the various types of loans as well as any further materials on how to get a student loan. Now that you’ve finished our guide, it’s time to get out there and find the funding you need to take your education to the next step!

Lowering expected family contributes header image

When it comes to determining how much, if any, federal financial aid a student will receive, the government looks at your Expected Family Contribution (EFC), the year in school, current enrollment status and the cost of attending the college or university. While some of that is out of your control, the Expected Family Contribution can be controlled to some degree.

To come up with EFC, the government looks at a family’s taxed and untaxed income, assets and benefits like unemployment or Social Security. The family size and number of family members who will attend college during the year also affect the amount a student receives. A lower EFC score means a student is eligible for more federal financial aid, and vice versa, the higher the score, the less they’ll be eligible for.

For families that want to maximize the amount they receive, there are ways to lower the Expected Family Contribution without running afoul of the law. From tax loss harvesting to smartly lowering income, here’s a look at some strategies that can get help get more financial aid.

Limit increasing income before applying for aid

Need-based aid is heavily weighted toward a family’s income but not certain types of assets, so anything you can do to reduce your income through asset management is going to get your student more aid. That doesn’t mean you need to blow your life’s savings to qualify for more aid. There are smart ways to lower the amount of family income reported on the Free Application for Federal Student Aid (FAFSA).

One of the ways to keep a lid on your income is to pair stock gains in the market with losses. Known as tax loss harvesting, investors will often sell a winning and losing stock at the same time to reduce the amount they pay in capital gains taxes. That not only saves them money that would otherwise go to the Internal Revenue Service, but it also results in lower taxable income.

Max out tax-advantaged savings accounts

Families can also legitimately lower their reported income by maxing out tax-advantaged retirement savings plans like 401(k)s and IRAs. The more money you put in, the less income you show come tax time. People can also increase contributions to Health Savings Accounts or other tax-smart investments or savings plans that legitimately reduce taxable income.

Keep the 529 out of grandparents’ names

A 529 plan is a savings plan that is designed to encourage saving for future college costs. However, it can impact how much financial aid you might be eligible for.

If the grandparents own a 529 plan, the distribution of the money counts as untaxed income to the student and will thus reduce the aid eligibility by as much as half of the distribution amount. One way around this is to change the account owner to the parent or wait until the senior year in college to take the distribution.

Pay down high-interest rate debt

Say you have $10,000 in credit card debt and a nice nest egg of $50,000 in savings. You could use what you have in savings to outright pay off that debt. By doing this, you reduce your income and pay off some debt. Just don’t try this if paying down the debt would eliminate your nest egg altogether.

However you fund your college education, be it student loans for college or financial aid grants, always weight the pros and cons. Do your homework and research the various types of loans as well as any further materials on how to get a student loan. Now that you’ve finished our guide, it’s time to get out there and find the funding you need to take your education to the next step!