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March 16, 2023 | By Maryalene LaPonsie

Financially, it’s hard to argue with the value of a college education. After all, in 2020, young adults with a bachelor’s degree had median earnings that were than their peers who had only a high school diploma.

Still, college doesn’t come cheap, and many students find they are unable to cover costs with grants and scholarships alone. In that case, student loans can be a good option. Designed for those in college, these loans may have lower interest rates and more favorable terms than other loan products.

However, not all student loans are the same, and you should carefully consider how much you need to borrow. You also need to know how do student loans work.

If the process feels overwhelming, keep reading. In this guide to student loans, we’ll break down everything you need to know about how to apply for student loans, including how to select the right type of loan and the appropriate loan amount.

Depending on the cost of tuition and your other financial aid, you may not need a loan at all.

“It’s important to point out that many schools have payment plan options,” says Jacob Channel, senior economist with Student Loan Hero, a website that connects students and families to student loan resources and providers.

These schools may let you spread payments out over a semester or year and make it possible to pay as you go, particularly if you are working while in college. But don’t assume you can work full-time while going to school full-time.

“I think many people don’t realize that a lot of work in college happens outside the classroom,” Channel says. The hours you’ll need to complete course readings and assignments can dwarf the time you’ll spend sitting in a lab or lecture hall.

It would be ideal to focus solely on your classes, but if work is a necessity, try to limit yourself to part-time hours. “We advise that any work above 20 hours a week is going to compromise (your) academic performance,” says Joshua Lachs, CEO of Moneythink, a nonprofit that offers the free college affordability tool .

Before you begin looking for student loans, see if there is any way to reduce your tuition costs. For instance, public colleges and universities often have lower tuition rates than private institutions. And in-state tuition rates for public schools are typically lower than rates for non-residents.

However, there may be ways for nonresidents to save on out-of-state tuition. For instance, at the University of Nevada, Reno, out-of-state students can access reduced tuition rates through two programs:

• Western Undergraduate Exchange: Students in 16 Western states and territories are eligible to save approximately $13,000 annually on standard resident tuition rates at UNR thanks to the WUE Reduced Tuition Scholarship. This scholarship is available to graduating high school students who meet academic qualifications and are pursuing their first bachelor’s degree.
• Pack Exchange: Out-of-state students who aren’t eligible for a WUE Reduced Tuition Scholarship may be able to access reduced tuition rates through the Pack Exchange Program. This program is open to freshman and transfer students from 16 Western states and territories and sets tuition at 200% of UNR’s resident rates.

If it’s obvious that you won’t be able to pay for tuition costs from savings and employment alone, it’s time to consider taking out a student loan.

“There’s not a one size fits all answer to how much you should borrow,” Channel says.

Instead, consider how much you have in savings and how much you can reasonably expect to earn if you work while in college. Any gap can be made up with student loans.

If you find you need to borrow a large amount to cover your tuition bill, it may be time to look for additional scholarships or grants. Some students may defer enrollment until they have saved more money to minimize their loans.

“If a student is taking out $5,500 or less, we consider that affordable,” Lachs says. When evaluating financial aid letters, DecidED places schools into . A school that requires $5,500 - $11,000 in student loans for the year is considered somewhat affordable while more than that is deemed to be unaffordable. Students taking out that much in loans per year might struggle to pay them back. 

This is key to understanding student loans. You need to know who is offering the loan and what terms might come with it.

“Broadly speaking, there are two categories of student loans: public student loans and private student loans,” Channel says.

Within those categories, loans may be taken out by students or parents. Some loans may also only be available to full-time students while others are offered to anyone.

Federal loans can provide predictability since they come with fixed rates and don’t need to be repaid until after graduation. Private loans may not offer a grace period so students could begin payments while still in school.

However, you need to take at least six credits to be eligible for federal loans. What’s more, federal loans have that depend on your year in school and the loan type. As a result, they may not cover all your tuition and room and board expenses. In that case, you may need to turn to private loans.   

We’ve looked at the ins and outs of different loans, but you might still be wondering: How do student loans work? How to apply for student loans depends on the type of loan.

To get a federal student loan, you’ll need to complete the each year. Standing the Free Application for Federal Student Aid, this form is also used by the government, colleges and universities to award scholarships and grants. So you’ll want to complete the FAFSA even if you don’t intend to take out loans.

The FAFSA can be completed from October 1 to June 30 of the following year. You want to apply before your first year in college. For instance, if you will attend college in the fall of 2023, you should complete the FAFSA during the period starting with October 1, 2022.

Most people can complete the FAFSA in less than an hour, . You should be prepared to provide your Social Security Number or Alien Registration Number, if you’re not a U.S. citizen. The form will also ask for information about your income and assets. You can enter this data manually or have tax information pulled automatically from the IRS.

Information from the FAFSA will be sent to the colleges and universities you select, and these schools will send you a financial aid award letter. Depending on when you submit your FAFSA, it could take several months for the award letter to arrive.

If you receive a letter and have trouble deciphering it, you’re not alone. “The financial aid award letters have jargon-filled language and confusing acronyms,” Lachs says. If you need help understanding what financial aid and loans you’ve been awarded, you can use a service like DecidED or call your school’s financial aid office.

The government has a separate application for Parent PLUS loans. And private lenders will also have their own application process. Some banks offer private loans, or you can use a website like to find lenders for private student loans

No guide to student loans would be complete without a section on repayment.

It should go without saying, but “Whatever you take out, you’ll have to repay,” Channel says. It’s important to understand repayment terms in advance, particularly for private loans. “You may have to start paying loans sooner rather than later,” he adds.

Private loans may require payments to begin immediately while you are still in school, but most federal loans come with a six-month grace period. That means payments won’t begin until six months until after you graduate or drop below half-time enrollment status.

If you have Direct Unsubsidized Loans, you won’t have to make payments in college, but interest will accrue on your balance. It can be a good idea to at least pay those interest charges to avoid having your balance grow while you are in school.

As you consider your career options after graduation, keep in mind that certain jobs could help wipe out your debt.

“There are a number of people who could qualify for loan forgiveness,” Lachs says.

Currently, there are two main :

• Public Service Loan Forgiveness: Available to those with Direct Loans who work for the government or a not-for-profit organization and make 120 qualifying monthly payments.
• Teacher Loan Forgiveness: Up to $17,500 in Direct Loans or loans from the Federal Family Education Loan Program may be forgiven for teachers who work for five complete and consecutive academic years in a low-income school.

Note that loan forgiveness programs and repayment plans may change in the future. There has been a great deal of discussion about reforming the current system, and President Joe Biden that the government would forgive up to $20,000 in existing student loans for eligible borrowers.

However, to be eligible for any loan forgiveness program, you must have federal loans. Private loans will not qualify.

Student loans are necessary for many to attain a college education, which may lead to higher pay and better employment opportunities. That doesn’t mean, though, that you should accept any and all loan offers that come your way. Carefully review your financial needs, the type of loans available and how much they will cost in interest charges before borrowing money.

For more information about understanding student loans and paying for college, visit the Office of Financial Aid and Scholarships at the University of Nevada, Reno.

Maryalene LaPonsie has been writing professionally for nearly 25 years and has extensively covered topics including education, personal finance, retirement and investing. Her work has been featured on U.S. News & World Report, Forbes Advisor, Money Talks News, MSN and elsewhere on the web.