Taking out student loans for college starts with filing the Free Application for Federal Student Aid, known as the FAFSA. Federal loans offer lower interest rates and stronger borrower protections than private loans, so you should exhaust federal options first and turn to private lenders only if there’s a gap between your financial aid package and your actual costs. Here’s how the entire process works, from application to disbursement.
Start With the FAFSA
The FAFSA is a single form that determines your eligibility for federal student loans, grants, and work-study. You submit it online at studentaid.gov, and it’s free. Before you can fill it out, you’ll need to create a Federal Student Aid (FSA) ID, which serves as your electronic signature. You can use the FSA ID right away to sign and submit your first FAFSA form, but it takes up to three days for the Social Security Administration to verify your information for other uses.
If you’re a dependent student, your parent or guardian will also need to create their own FSA ID and contribute financial information to your application. The FAFSA pulls tax data directly from the IRS, which simplifies income reporting considerably.
Timing matters. For the 2025-26 school year, the federal deadline is June 30, 2026, and for 2026-27, the deadline is June 30, 2027. But those are absolute final deadlines. Many states and individual colleges set much earlier deadlines for their own aid programs, sometimes as early as February or March. File as soon as the form opens to maximize your chances of receiving grants and other aid that doesn’t need to be repaid.
Review Your Financial Aid Offer
A few weeks after you submit the FAFSA, each college you listed will send you a financial aid offer (sometimes called an award letter). This letter breaks down the types of aid you qualify for: grants, scholarships, work-study, and loans. Pay close attention to how much of the package is gift aid you won’t repay versus loans you will.
Federal student loans come in two main types for undergraduates. Direct Subsidized Loans are available to students who demonstrate financial need. The government covers the interest on these loans while you’re enrolled at least half-time, during your six-month grace period after leaving school, and during certain deferment periods. Direct Unsubsidized Loans are available regardless of financial need, but interest starts accruing as soon as the loan is disbursed. Both loan types carry a fixed interest rate of 6.39% for undergraduate borrowers on loans first disbursed between July 1, 2025, and July 1, 2026.
Your school determines which loan types you’re eligible for and how much you can borrow each year. You don’t have to accept the full amount offered. Borrowing only what you truly need is one of the most effective ways to keep your debt manageable after graduation.
Federal Loan Limits
There are caps on how much you can borrow in federal student loans each academic year (annual limits) and over the course of your entire education (aggregate limits). These limits vary based on your year in school and whether you’re classified as a dependent or independent student. Independent students and dependent students whose parents are denied a PLUS loan can borrow more in unsubsidized loans.
As a general rule, dependent freshmen can borrow up to $5,500 per year, with the cap rising for sophomores and then again for juniors and seniors. Independent undergraduates have higher annual limits. The aggregate lifetime cap for dependent undergraduates is $31,000, while independent undergraduates can borrow up to $57,500 total across their undergraduate years. If you repay some of your loans and bring your outstanding balance below the aggregate limit, you regain eligibility to borrow again up to that cap.
Accept Your Loans and Complete Entrance Counseling
Once you’ve decided how much to borrow, you’ll accept the loan through your school’s financial aid portal. First-time federal borrowers must also complete two additional steps before funds are released.
First, you’ll go through entrance counseling at studentaid.gov. This is an online session that takes about 20 to 30 minutes and walks you through your rights, responsibilities, and repayment options. It’s a federal requirement, not optional.
Second, you’ll sign a Master Promissory Note (MPN), which is the legal agreement to repay your loans. A single MPN covers all the Direct Loans you receive over up to 10 years at the same school, so you typically only sign it once. Read it carefully. It spells out your interest rate, repayment terms, and what happens if you default.
Understand the Fees
Federal student loans come with a small origination fee that’s deducted from each disbursement before the money reaches your school. For Direct Subsidized and Unsubsidized Loans disbursed between October 2020 and October 2026, the fee is 1.057%. On a $5,000 loan, that means roughly $53 is taken off the top, so your school receives about $4,947. You still owe the full $5,000.
Direct PLUS Loans, which parents can take out on behalf of dependent undergraduates, carry a significantly higher origination fee of 4.228% and a fixed interest rate of 8.94% for loans disbursed in the 2025-26 year. PLUS loans also require a credit check, unlike standard undergraduate loans.
How Loan Funds Reach You
Both federal and private student loans are sent directly to your school, not to you. The school applies the funds to tuition, fees, and room and board first. Loans are typically disbursed in at least two installments, one at the start of each semester, and usually arrive one to two weeks before classes begin.
If your loan amount exceeds what you owe the school, you’ll receive the leftover funds as a refund. Schools issue these refunds by check, direct deposit, or campus card. You can use the refund for other education-related expenses like textbooks, a laptop, or living costs. Keep in mind that this is still borrowed money, and you’ll pay interest on every dollar.
One important exception: first-time federal borrowers may experience a 30-day delay before their first disbursement. This is a fraud-prevention measure built into federal lending rules. Plan ahead so you aren’t caught short on books or supplies during the first few weeks of your freshman year.
When to Consider Private Loans
If federal loans and other financial aid don’t fully cover your costs, private student loans from banks, credit unions, and online lenders can fill the gap. But the terms are very different from federal loans. Private loans typically have variable or fixed interest rates set by the lender based on your creditworthiness, and they lack the income-driven repayment plans and forgiveness options that come with federal loans.
Most private lenders look for a credit score of at least 670, annual income around $35,000 or more, and a debt-to-income ratio (your total monthly debt payments divided by your gross monthly income) under 36% to 43%. Most college students don’t meet those thresholds on their own, which is why lenders commonly require a cosigner. A cosigner is someone, usually a parent or family member, who agrees to repay the loan if you can’t. A creditworthy cosigner can also help you qualify for a lower interest rate.
When shopping for private loans, compare offers from at least three lenders. Look at the interest rate, whether it’s fixed or variable, any fees, repayment terms, and whether the lender offers cosigner release (the ability to remove your cosigner from the loan after a period of on-time payments). Private loans generally arrive a few weeks after approval, though timelines vary by lender.
Borrowing Only What You Need
Just because you’re approved for a certain loan amount doesn’t mean you should take it all. Every dollar you borrow today costs more than a dollar to repay later. At 6.39% interest on a 10-year repayment plan, a $27,000 balance (roughly the average for a four-year degree) would cost you about $9,000 to $10,000 in interest alone over the life of the loan.
Before borrowing, subtract any grants, scholarships, savings, and income from a part-time job. Use your school’s net price calculator, available on every college’s website, to estimate your actual out-of-pocket costs. If your projected debt at graduation would exceed your expected first-year salary, that’s a signal to look for ways to reduce costs, whether through a less expensive school, community college transfer credits, or additional scholarship applications.