How to take out student loans for college | Earnest | Earnest
How to take out student loans
By Kat Tretina | Published on March 2, 2026
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College-educated workers enjoy a substantial earnings premium but higher education costs can add up. Few people can afford to pay for school full-time out of their savings, so you’ll likely have to turn to your school’s financial aid office and then other student loan options.
If you need to apply for financial aid, here’s how to take out federal and private student loans.
Federal student loans
Federal student loans are a popular option for many borrowers. The government issues the loans, and the US Department of Education is your lender.
Federal loans are a good option for the following reasons:
No minimum income requirement: With federal student loan programs, there isn’t a minimum income requirement. Students can qualify for loans even if they don’t have jobs or other sources of income.
Available to borrowers with a limited credit history: For most federal loans, you won’t undergo a credit check, and you don’t need a co-signer. You can qualify for a loan even if you have a low credit score or have no established credit history. The one exception is PLUS Loans, which do require a credit check.
Multiple repayment options: After you graduate, federal loans are eligible for several repayment options. For example, you could qualify for income-driven repayment plans, which can reduce your minimum monthly payment.
Loan forgiveness eligibility: Depending on your career choices after graduation, you may qualify for partial or full loan forgiveness through programs like Public Service Loan Forgiveness or Teacher Loan Forgiveness if you have federal student loans.
Fixed interest rates: Interest rates on federal loans are fixed, meaning the rates — and your monthly payments — stay the same throughout your repayment term.
Filing the FAFSA
Filling out the Free Application for Federal Student Aid (FAFSA) is vital for all students, even if you don’t think you’re eligible for financial aid. The federal government, states, and universities use the information you provide on the FAFSA to determine your eligibility for not only free money options like scholarships and grants but also federal work-study programs and federal student loans.
The FAFSA typically becomes available on October 1, and you have until June 30 to submit it. However, some states and schools have deadlines that may be earlier, so make sure you check applicable deadlines to ensure you submit your application on time.
You can file your FAFSA online, but you need to collect the following information beforehand:
- Your FSA ID
- Social Security number
- Driver’s license number, if you have one
- Your most recent tax return or your parents’ tax return if you’re a dependent student
- Bank statements, investment records, and records of untaxed income, if applicable
- A list of schools you’re interested in attending
Depending on your FAFSA information, grade level, and financial need, you may be eligible for three types of federal student loans.
Direct Subsidized loans
Direct Subsidized Loans are solely for undergraduate students with financial need. While you’re in school, during the first six months after you graduate, and during any period of deferment — where your loan payments are postponed — the US Department of Education pays the interest that accrues on your loan.
The following loan amount limits apply for Direct Subsidized Loans:
- First year: $3,500 per year
- Second year: $4,500 per year
- Third year and until graduation: $5,500 per year
Undergraduate students can borrow no more than $20,500 in total subsidized loans during their college careers. If it takes you more than four years to finish your degree, you’ll need to find other financing options.
Direct Unsubsidized loans
Unlike subsidized loans, Direct Unsubsidized Loans are available to both undergraduate and graduate students regardless of financial need. You’re responsible for paying all interest that accrues on the loan, even while you’re in school or during your grace period after graduation.
Some borrowers can qualify for a mix of both subsidized and unsubsidized loans. The following borrowing limits apply for unsubsidized loans:
| Dependent Students | Independent Students | |
|---|---|---|
| First Year Undergraduate | $5,500 | $9,500 |
| Second Year Undergraduate | $6,500 | $10,500 |
| Third Year Undergraduate and Beyond Until Graduation | $7,500 | $12,500 |
| Graduate or Professional Students | Not applicable, as all graduate and professional students are considered independent students | $20,500 |
The maximum amount you can borrow in combined subsidized and unsubsidized loans varies by school year, but maxes out at $5,500 for the first year of undergraduate studies. For graduate and professional students, the maximum is $20,500 total for unsubsidized loans only.
Direct PLUS loans
There are two types of PLUS Loans:
- Grad PLUS loans: Grad PLUS loans are for graduate and professional students.
- Parent PLUS loans: Parent PLUS loans can be used by parents to pay for their dependent child’s undergraduate education.
While other federal loans have caps on how much you can borrow, PLUS Loans allow you to borrow up to the total cost of attendance minus any other financial aid.
Unlike other federal student loans, PLUS Loan applicants have to undergo a credit check. If you have an adverse credit history, you won’t qualify for a loan unless you have an endorser — someone who has good credit and agrees to repay the loan if you do not. For the purposes of PLUS Loans, an adverse credit history is defined as having one of the following on your credit report:
One or more debts with an outstanding balance greater than $2,085 that are 90 or more days delinquent or have been placed in collections; or
During the past five years, you have been subject to a:
- Default determination
- Discharge of debt in bankruptcy
- Foreclosure
- Repossession
- Tax lien
- Wage garnishment
- Write-off of federal student aid debt
Private student loans
You may not qualify for enough federal student loans to cover the full cost of your college education, and there are federal loan limits. If that’s the case, private student loans¹ can be a useful financing alternative and help you complete your degree.
If you have a strong credit history — or have access to a co-signer with excellent credit— you could qualify for a loan with a lower interest rate with a private lender than you could get with a federal student loan. Adding a cosigner to your application could increase your chances of qualifying for a loan and potentially securing a lower interest rate, helping you save money on your student loan payments.
Private loans can offer other benefits as well:
Longer grace periods: With federal loans, you have six months after graduation before you start making payments. With a private student loan lender like Earnest, you can get a nine-month grace period², giving you more time to find a job and get settled before you begin repaying your loans. (* Nine-month grace period is not available for borrowers who choose Earnest’s Principal and Interest Repayment plan while in school.)
Variable or fixed interest rates: While federal loans only have fixed interest rates, you can choose between fixed-rate and variable-rate loans with private student loans. Variable-rate loans tend to have lower interest rates at first than fixed-rate loans but can fluctuate over time. Opting for a variable-rate loan can make sense if you want to pay off your loan quickly and take advantage of the lower starting rate.
No disbursement fees: Federal loans have disbursement fees that are deducted before the loan is disbursed. Private loans from Earnest don’t have origination or disbursement fees.
Higher borrowing limits: Unlike Direct Subsidized and Unsubsidized Loans, private loans usually don’t have borrower caps. You can borrow up to 100% of the school’s certified cost of attendance.
Other financial aid to explore before you borrow
Before taking out any student loans, either federal or private, it’s a good idea to explore other financial aid opportunities that don’t charge interest.
Scholarships and grants
Scholarships and grants are forms of gift aid, meaning they don’t have to be repaid.
Scholarships are usually based on merit and can be awarded based on your academic, athletic, or artistic performance. Grants are typically awarded based on financial need. They can be awarded by schools, organizations, and private companies.
You can search for scholarships and grants with tools like FastWeb and Peterson’s.
Work-study programs
Another option to consider is participating in a federal work-study program. Both undergraduate and graduate students are eligible. Instead of a financial aid offer, you work a part-time job related to your field, serving the community. You use the money you earn from your job to offset your education costs.
Jobs can be on-campus or off, and you’ll be paid at least minimum wage. However, you may be paid more depending on your field.
If your financial aid award letter doesn’t include federal work-study, contact the school financial aid office to see if there is any availability.
For more information on financing your education, check out these tips for paying for college.
Explore your student loan options
Understanding your student loan options is crucial for making informed decisions about financing your education. At Earnest, we offer a variety of loan products tailored to meet your needs. Whether you’re just starting your college journey or pursuing graduate studies, explore our student loan options to find the best fit for your financial situation.
About the Author
Kat Tretina
Kat Tretina is a freelance writer based in Orlando. Focused on personal finance issues, she’s dedicated to helping people pay down debt and boost their income.