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A student loan is a type of financial aid available to U.S. citizens, permanent residents or eligible noncitizens that is designed to help pay for education expenses. This includes books, tuition, fees, and room and board.

The federal government or private lenders can issue student loans, which typically have to be paid back with interest over a certain period of time.

There are two main types of student loans: federal student loans and private student loans.

Some students might explore private student loans to cover the cost of their education. Banks and credit unions primarily offer private student loans. These loans typically have higher interest rates than federal student loans, and repayment terms may be less flexible.

When borrowers take out a student loan, they’re borrowing money to pay for their education. The loan amount is based on factors such as financial need, cost of attendance, half-time or full-time enrollment, the degree being pursued and more. The total cost of the loan is typically paid back through monthly payments over a period of years, with interest. Here is a brief overview of how student loans work:

To apply for a federal student loan, you need to fill out the  (FAFSA®). This form determines your eligibility for federal student loans, grants and work-study programs.

Private lenders may have their own application process, which typically involves a check of your credit history and may require a co-signer.

For federal student loans, a borrower’s interest rate depends on the loan type, when it was disbursed and the borrower type (undergraduate, graduate or professional).

For example, the interest rate for an undergraduate Direct Subsidized Loan is 4.99% and for a professional Direct PLUS loan is 7.54%. These rates are for loans issued between July 1, 2022, and June 30, 2023.

Private lenders may offer fixed or variable interest rates, which can change over time. Private loans are credit-based, which means that a borrower’s credit score, income and financial need can play a role in the available interest rates. 

Loan forgiveness is a program where federal student loan borrowers can have some or all of their student loan debt forgiven. Private student loans usually don’t have loan forgiveness options.

Federal student loans offer various student loan debt forgiveness programs, such as Public Service Loan Forgiveness, Teacher Loan Forgiveness and Perkins Loan Cancellation for Teachers, which require meeting specific criteria like working in a particular profession or making a certain number of payments.

Before you apply for student loans, you should explore other types of financial aid that don’t need to be repaid, including grants and scholarships. If you still need financial assistance after exploring these options, then you might decide to apply for a student loan.

Here are the steps to take:

The first step in applying for any type of financial aid, including federal student loans, is to . You can also use the  to calculate which types of federal aid you may be eligible for.

After receiving your financial aid award letter, you’ll see the types of loans you’re eligible for. Make sure to compare the interest rates, fees and repayment terms of each loan before making a decision. You can also use loan calculators to estimate your monthly payments and total repayment amount.

After deciding on a loan, you’ll need to complete the loan application. This will include providing personal and financial information, as well as information about your school and program of study. You may also need to provide documentation such as tax returns or proof of enrollment.

After your loan application is approved, you’ll sign a promissory note. This legal document outlines the terms and conditions of your loan, including the interest rate, repayment schedule and any fees or penalties. You may also need to complete entrance counseling, which will introduce you to many of the terms in the promissory note. Make sure to read this document carefully and ask any questions before signing.

Finally, your loan funds will be disbursed to your school. For most student loans, you receive at least two disbursements throughout the year. Keep track of how much you’re borrowing and how much you’ll need to repay so that you can make informed decisions about your finances.