Summary:
Paying for college is a significant financial challenge, with average annual tuition and fees at public four-year colleges costing approximately $11,600. Many families rely on student loans, with half of bachelor’s degree recipients graduating with an average debt of $29,300. This guide outlines essential steps to secure and manage student loans, including understanding net price, filling out the FAFSA, prioritizing federal loans, and exploring private loans and repayment strategies.
What This Means for You:
- Understand the net price of your college to accurately gauge borrowing needs.
- Prioritize federal student loans for lower interest rates and flexible repayment options.
- Explore private loans carefully, ensuring you compare terms and avoid borrowing beyond your means.
- Plan repayment early to avoid delinquency or default, leveraging tools like income-driven repayment plans.
Original Post:
So you or someone you love is heading off to college. Congratulations! Now it’s time to figure out how to pay for it.
Higher education is valuable but pricey — for students attending public, four-year colleges in their state, the average tuition and fees costs about $11,600 a year, according to the College Board. That total grows when you add in the cost of a dorm (or apartment), meal plans and textbooks.
Even with diligent planning to pay for college, many families will need to look into borrowing after exhausting all the options for scholarships and grants.
Student loans are often referred to as “good debt,” or debt that has a high-value return on investment. They’re also common: Half of the bachelor’s degree recipients in 2022-2023 graduated with some student debt, the College Board reports, and the average borrower is on the hook for $29,300.
Here’s how to get a student loan that works for you — and, eventually, pay it back.
Table of contents:
Step 1: Figure out how much you’ll need
Start by doing some homework. But don’t just CTRL+F your desired college’s website for a dollar figure — that’ll likely give you the sticker price. What you actually need to know is the net price, which is how much you’ll pay after grants and scholarships are figured in.
That number will help you map out how much you need to borrow for all four years of college.
You can use a net price calculator to get an estimate. Search for the college you’re interested in on the Education Department’s website here to find specific prices. You can also look up average net prices by income using the federal government’s College Scorecard website.
Though these tools can give you a general idea of how much you can expect to pay for college, everyone’s situation is different. The accuracy of the estimate from the net price calculator will depend on whether the information you provide about your income and assets is detailed and accurate. People who are eligible for federal aid can get a better sense of costs when they fill out the Free Application for Federal Student Aid (FAFSA).
Fill out the FAFSA
To fill out the FAFSA, you’ll need your family’s financial documents, including bank statements and investment records. The FAFSA also requires a Federal Student Aid account (called an FSA ID). Go to fafsa.gov to get started.
The application generally opens in the fall ahead of the year you’ll be using the money, and it can be submitted until the end of the academic year.
Once you’ve turned in your FAFSA, you’ll receive a summary report that will display your Student Aid Index, which is a measure of your family’s finances. The summary will also indicate whether you qualify for need-based financial aid, like a federal Pell Grant.
After you’ve been accepted to a college, you’ll typically get a financial aid award letter that explains the combination of grants, scholarships and government loans you’ve been deemed eligible for. It’ll also give you instructions on how to accept, or confirm, your financial aid.
Step 2: Take out federal student loans first
There are two major types of student loans: federal and private. Federal student loans are made by the government and overseen by the U.S. Department of Education, whereas private student loans are made by banks or other financial institutions.
How to get a federal student loan
Experts generally recommend consumers stick with the federal loan program rather than going the private route because the government provides more opportunities for relief if borrowers end up struggling with repayment. Federal student loans may also have lower interest rates than private student loans, and they’re more accessible, too.
Types of federal student loans
Direct subsidized loans are for undergraduate students who demonstrate financial need. One notable quirk is that the federal government pays the interest on these loans while you’re enrolled in college and during a six-month grace period after you graduate.
Other types of federal student loans include direct unsubsidized loans and direct PLUS loans.
Unsubsidized loans are an option for undergraduates as well as graduate students and professional students. These loans don’t require financial need, but you’re on the hook for the interest as soon as you take out a loan. Direct parent PLUS loans can be used to pay costs for a child enrolled in an undergraduate program. (Graduate students also have access to PLUS loans, but that aspect of the lending program will end after July 1, 2026. Going forward, grad students will only be able to borrow direct unsubsidized loans.)
Federal loans carry fixed interest rates, which means the rate will remain the same throughout the repayment term. For undergraduate borrowers in the 2025-2025 school year, the interest rates for direct subsidized and unsubsidized loans is 6.39%. For graduate borrowers, it’s 7.94%.
For direct subsidized and unsubsidized loans — also sometimes called Stafford loans — there are borrowing limits based on your year in school and your status as an independent or dependent student under FAFSA. You can see a detailed breakdown here, but speaking broadly, limits for undergraduates range from $5,500 to $12,500 in federal loans a year.
It’s worth noting that there is a one-time loan fee of 1.057% for direct subsidized and unsubsidized loans.
Direct PLUS loans involve a basic credit check, but denials are uncommon. PLUS loans carry higher interest rates — currently 8.94% — and a higher origination fee of 4.2%. For now, the biggest PLUS loan you can get is the total cost of attendance minus your other financial aid, but stricter limits take effect in next year.
Repayment options for federal student loans
It’s smart to explore your repayment options and likely monthly payment amounts before you borrow to make sure you’ll be able to handle the loans once you leave school. There are several repayment options for federal loans; the government even has a loan simulator tool that helps you find your best repayment strategy based on your employment situation, location, salary, projected income growth, tax filing status and more. You can choose whether you’d prefer to pay your loan off fast, prioritize a smaller monthly payment and so on.
Step 3: Consider private student loans and other options
For some students, federal loans will not be enough to cover the costs of their education. After you’ve exhausted your federal loan options, you may still have gaps to fill.
How to get a private student loan
Issued by banks and credit unions, private loans have fewer protections than federal loans. They’re contingent on your credit score, and they don’t necessarily have borrowing limits — which can be dangerous for a student who borrows more than they can ultimately afford.
As such, tread carefully. Many experts recommend students avoid private student loans altogether, but if you are going to take them out, make sure to shop around and scrutinize each lender’s terms, fees and perks before committing. Note that while students can take out federal student loans regardless of their parent’s income or credit history, with private student loans, the vast majority of undergraduate students are going to need a creditworthy cosigner to get approved for a private loan.
Other options for funding higher education
Student loans aren’t mandatory. Families sometimes tap a home equity loan or home equity line of credit (HELOC) to pay for college. Interest rates may be more favorable, but because your house is your collateral, this strategy can be risky. You’re basically transferring the burden from one loan to another.
Another way to manage college costs is to check with the financial aid office to see whether your school offers a tuition payment plan. These can allow families to make payments over a period of time as opposed to all at once up front. Be sure to ask about any fees that may be associated with those plans (and compare them to borrowing costs) before you go that route.
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Extra Information:
Federal Student Aid – Official government site for student aid applications and resources.
College Scorecard – Compare college costs and outcomes to make informed decisions.
CFPB Student Loans – Consumer Financial Protection Bureau’s guide to student loans.
People Also Ask About:
- What is the difference between subsidized and unsubsidized loans? – Subsidized loans cover interest while you’re in school, while unsubsidized loans accrue interest immediately.
- Can I get student loans without a cosigner? – Yes, federal loans don’t require a cosigner, but private loans often do.
- What happens if I can’t repay my student loans? – Options include income-driven repayment plans, deferment, or forbearance.
- How do I calculate my monthly student loan payment? – Use the Department of Education’s loan simulator tool for estimates.
- Are private student loans a good option? – They can be useful but lack protections compared to federal loans.
Expert Opinion:
“Prioritizing federal student loans over private options is critical due to their lower interest rates and flexible repayment plans. Families should also explore scholarships and grants exhaustively before turning to loans.” – Financial Aid Advisor
Key Terms:
- Net price calculator
- Federal Student Aid (FAFSA)
- Subsidized vs. unsubsidized loans
- Income-driven repayment plans
- Private student loans
- Student loan refinancing
- Loan delinquency vs. default
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