Applying for a Loan

The  Nuts and Bolts of Applying for a Student Loan

Very few students can get through college without getting at least one loan. Student loans come primarily from three sources:

  • The Federal Government,
  • State Government, and
  • Private lenders, including banks and student loan lending companies.

Applying For a Federal Student Loan

To apply for a federal student loan, you must file a Free Application For Student Assistance, or FAFSA. It can be completed online  or downloaded, printed and mailed in ( Once you file a FAFSA, you are considered for every form of federal financial aid without making any other applications. At that point:

  • The federal government determines how much your household will able to provide towards your education. This figure is know as your Expected family Contribution, or EFC. This amount is based on your household income, assets, savings, and other variables.
  • The government will send you a Student Aid Report (SAR), summarizing the information you gave on the FAFSA and informing you of the EFC.
  • The government informs your college, which sends you an award letter letting you know the amount of your award. Remember, you also need to apply for financial aid with your college – they include your federal awards in their calculations of how best to assist you.
  • If your award includes a Stafford Loan and you want to accept it, sign and return the enclosed promissory note.

Do Not Overlook FAFSA!

FAFSA is not fun to fill out. It is a detailed report of your household’s finances. Even so, it is essential that you file a FAFSA form, even if you think you will not qualify for any aid, because if you do qualify, that is free or very inexpensive money for your education. In fact, regardless of financial need, you will probably qualify for a Stafford Loan. You do not have to accept it, but it is available. Federal student loans carry much lower interest rates than private student loans, they don’t have large fees, and their repayment terms are much more flexible than those of private lenders. You do not want to be in the position of missing the FAFSA deadline and then realizing that you do in fact need a loan. At that point, private lenders will be your only resort.

Credit- Based Federal Student Loans

The heart of the federal loan program, the Stafford and Perkins Loans, are not credit based. But if you are applying for a Parent PLUS or Graduate PLUS loan, you will have to agree to a credit check.

State-Funded Student Loans

Most states have an array of loans and funding options for state residents. The place to look is your state higher education agency. Their website will contain links to the specific webpages and sites with the information you are looking for. A listing of the agencies, their websites and contact information, can be found at

Private Student Loans

It is quick and easy to apply for a student loan from a bank or private lending institution. In most cases it can be done on the phone or online. Because it seems easier than going through FAFSA, some student turn to these loans first. This is a mistake. Private loans are more expensive and their terms are stricter than those for federal loans. Remember, banks like to make student loans because they cannot be discharged in bankruptcy! Private student loans are forever.

Wait until you have gotten all available funding from the federal and state government and your college, as well as any other grants and scholarships you find to apply for. Once you know what all these awards add up to, you can make a reasonable decision to look into a private loan. If you do decide to get a private loan, talk with the financial aid office at your college to get their pointers and suggestions. This is their business, and they hear the good, the bad, and the ugly of student loans.