Once you’ve factored grants, scholarships, and savings into your college payment plan, there may still be a gap between what you’re able to afford and your actual college costs. This is when it makes sense to consider student loans.

With a range of federal and private student loan options available, picking the right one might feel intimidating. But it doesn’t have to. If you familiarize yourself with key terms, make some calculations about your future and heed the advice of experts, you’ll be well on your way to finding the student loan—or combination of student loans—that suits your needs.

How Do I Qualify?

For federal student loans, which are offered by the federal government, your eligibility will be determined by the information in your Free Application for Federal Student Aid (FAFSA®). The total amount you’re able to borrow will be set by your school. All federal student loans have fixed interest rates, the option to defer payment until after graduation and access to income-driven repayment plans—but they also have some important differences.

  • Direct Subsidized Loans are available to undergraduate students who demonstrate financial need. These loans do not require a credit check. The federal government pays your interest while you’re enrolled in school, during your grace period, and during periods of deferment.
  • Direct Unsubsidized Loans are available to undergraduate and graduate students. These loans are not based on need and do not require a credit check. You are responsible for all interest payments.
  • Direct PLUS Loans are available to graduate students and parents of undergraduate students. These loans include a credit check and the borrower is responsible for all interest payments.

For private student loans, which are offered by private financial institutions like banks and credit unions, your eligibility will depend on your lender. A credit check will be run, and a creditworthy cosigner may be required to qualify for the loan or for more favorable terms. A cosigner can be a parent or other adult you know well who agrees to take responsibility for the loan—meaning that if you don’t make your payments on time, your cosigner is obligated to cover your debts.

Which Loans Should I Borrow?

Because Direct Subsidized Loans have the most favorable terms, Travis Hornsby of Student Loan Planner recommends starting there. “Take the maximum amount out of that program before moving on,” he says.

If you need to cover more costs than what’s available to you through Direct Subsidized Loans, a good rule of thumb is to borrow the other federal student loans offered through your financial aid award letter before considering private student loans.

How Much Can I Borrow? 

The amount you can borrow for Direct Subsidized and Unsubsidized  loans depends on your year in college and whether anyone counts you as a dependent on their taxes.

Those annual limits increase by around $1,000 per academic year, but you can check the exact numbers and aggregate loan limits on this helpful chart from the Department of Education.

For Direct PLUS loans, the maximum amount a graduate student or parent can borrow is the school’s cost of attendance minus any other financial aid received. There are no aggregate limits for PLUS loans.

Most private student loans let you borrow up to the cost of attendance minus other financial aid, but aggregate loan limits will vary by lender.

What Will This Cost?

Jordan Sowhangar, Certified Financial Planner (CFP®) and wealth adviser at Girard, says there’s one question every borrower needs to ask before taking out a loan: “Can I afford to repay this loan?” Factors to consider include interest rates, fees, monthly payments, and total loan costs.

Interest Rates

For most student loans, interest is calculated daily, as a percentage of your unpaid balance and begins accruing at the first disbursement. The interest rates for federal student loans are fixed, which means the rate won’t change during the life of the loan.

During deferment, grace, or forbearance periods when you aren’t making payments on your loan, the unpaid interest that accrues will be added to your principal balance (i.e., capitalized) when the loan enters repayment. However, with Direct Subsidized Loans, the federal government covers your interest during grace and deferment periods.

For private student loans, interest rates vary by lender and are based on the borrower’s creditworthiness. Private student loans can have either fixed rates—like federal student loans—or variable rates. A variable interest rate will change throughout the life of the loan, which means your monthly payments can increase or decrease.


Be sure you understand the fees associated with your loans, such as origination, application, and late payment fees. Only federal student loans have origination fees, which are calculated as a percentage of your loan amount. Those fees are deducted from your loan disbursement, so you’ll actually receive less than you borrow. Hornsby explains that an origination fee is relevant for knowing your loan’s true cost.

Monthly Payments

You’ll pay back any loan on a monthly basis, and the size of your payment will depend not only on the loan amount but also on the length of your repayment period. The longer it takes you to repay your loans, the more interest you will pay.

Federal student loans come with a standard 10-year repayment period, but there are a variety of options available that can extend the period up to 25 years. Federal borrowers can also qualify for income-driven repayment plans, which base your monthly payments on your income. For private student loans, repayment periods tend to range from 5 to 20 years and generally do not have the flexibility that federal loan repayment plans do.

“Paying off your student loans early will save you money on interest,” Sowhangar says. “The longer your repayment period, the larger that ‘total interest paid over the life of the loan’ figure will look.”

Before you take out a loan, you can use an online calculator to estimate your monthly payments and see what’s within your means.

According to Jan Miller of Miller Student Loan Consulting, no matter what type of loan you choose, “make sure you are able to estimate the cost of repayment and determine the income you’ll need to stay in good standing while still able to afford a decent quality of living.”

Evaluating your student loan options can feel like a lot to process, but just remember: The more work you do now to understand student loans, the better prepared you will be to select a loan that best suits your needs.

FAFSA® is a registered trademark of the US Department of Education and is not affiliated with Discover® Student Loans.

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