Student Loans 101: Everything You Need to Know About Student Loans

When it comes to investing in your future, it pays to do your homework. Before taking out private student loans, you should explore all your financial aid alternatives before you apply, including grants, scholarships, and federal student loans. 

To make it easier for you, we’ve outlined the three primary types of student financial aid, the ins and outs of private student loans, and your potential financial obligations after graduation.

The Three Main Types of Student Financial Aid

The financial aid you’re usually awarded in college is a combination of scholarships, grants, federal loans, and/or private loans. Depending on your situation, you may choose to use a mix of these financial options to help you get the money you need to cover your school-related expenses.

With the increasing cost of college, it’s important to know all your financial options to pay for college to keep you on track to graduate. Exploring different types of financial aid can help you secure opportunities now that can benefit you in the long run, and we’ll dive into each one in the following sections.

1. Scholarships, Fellowships, and Grants

There are a variety of scholarship opportunities for both undergraduate and graduate students. Your school may have a policy when it comes to accepting private scholarships, so be sure to check with your school before entering any scholarship giveaways though. Other scholarship opportunities may be school-based, so if you don’t end up attending the college, you may have a gap in your budget. 

The money you earn from winning scholarships doesn’t need to be paid back and can be used to pay for housing, books, or other bills you may have that may not be covered in your financial aid package.

There are many types of scholarship awards, and not all require the same qualifications. Common scholarship opportunities may be based on:

• Meeting financial need
• Receiving academic merit
• Participating in school and community activities
• Showcasing leadership activities
• Having a certain ethnicity or heritage
• Having military or veteran status
• A combination of any of the above 

Scholarships are most frequently awarded by schools, private companies, community groups, and charitable organizations. The requirements to participate may vary by the scholarship giveaways, so check out our scholarship tips that can help you explore the different scholarship opportunities unique to you. 

You may be surprised that even some private student loan companies offer scholarships, including Ascent. This year, Ascent is giving away over $80,000 in scholarships with multiple chances to win each month. Check out our no-essay scholarships.

Grants don’t need to be repaid and are need-based, most commonly issued by the state or federal government. The most common grant for undergraduates is the Pell Grant, which the federal government awards depending on your financial situation. To apply for this grant, you will need to fill out the Free Application for Federal Student Aid (FAFSA®) form. Additional grant opportunities can be found on The College Grants Database.

2. Federal Student Loans

If you learned about the student loan basics in high school, then chances are you’re familiar with federal loans. Federal student loans are loans you borrow directly from the Department of Education at a fixed interest rate. Schools use the Free Application for Federal Student Aid (FAFSA®) to determine your eligibility for federal student loans and other federal, state, and school aid like grants and scholarships.

Complete the FAFSA Online

The FAFSA opens on October 1 every year and you must re-submit an application every year you’re in school to claim your benefits. Check the website to ensure you submit your applications before the deadline on June 30. 

Applying for the FAFSA is the first place you should turn to for help to cover the costs of your college education. These loans are divided into subsidized and unsubsidized options, which carry different terms based on financial need.

Note: Not everyone is eligible for federal financial student aid. Among other requirements, students must be U.S. citizens or eligible residents. DACA recipients are not eligible for federal loans, though DACA recipients and international students who find themselves in need of financial assistance may be eligible for private student loans with Ascent. 

Both subsidized and unsubsidized loans are sometimes called “Stafford loans.” Some students may qualify for one or both, depending on their financial situation. Let’s break each one down:

• Direct Subsidized Loans 
  • Undergraduate school, community colleges, or trade schools 
  • Based on financial need 
  • Amount offered determined by your school
  • The Department of Education pays the interest while you study at least half-time, for six months after you leave school, and during any periods of deferment

• Direct Unsubsidized Loans
  • Not based on financial need
  • Interest accrues while in school with no grace period. For most federal student loans, you have a six-month grace period before you have to begin making payments. This grace period gives you time to get financially settled and to select your repayment plan.

For more tips on how to complete the FAFSA, visit our blog below.

FAFSA 101

3. Private Student Loans

Private school loans can be used to fill the gap between the cost of your education and the amount you receive from completing the FAFSA. You should also exhaust your scholarship, grant, and federal options before applying for private student loans.

Unlike federal student loans, you typically need to meet lender-specific criteria and undergo a credit check when applying for a private student loan. These circumstances may vary depending on the private student loan company you choose to work with. 

However, private student loan companies may offer more flexible repayment options compared to federal loans. Another big difference is that private loans often provide the option of variable interest rates, which means your rates may increase or decrease based on market changes. This can impact the total amount of the loan you’re responsible for repaying but may be beneficial if federal loan interest rates increase over the course of your loan. 

Variable rates aren’t offered for federal loans, which means if federal student loan interest rates go down, you’re stuck with your initial loan rate.

Now that we’ve covered the basics of financial aid, let’s dive into understanding how a private student loan works and why it can be an important factor in making college work for you.

What to Look for in a Private Student Loan

Once you’ve applied for and accepted any scholarships, grants, and federal loans, your next step should be to compare this total award amount, or the breakdown of the types and amounts of aid being offered, with your expected college expenses.

If you haven’t secured enough money to cover the cost of tuition, room, and board, books, and other expenses, and you’re left to pay out of pocket, a private student loan may help you cover this gap. 

Keep in mind, not all loans are created equal, and research is essential. It’s important to choose the loan provider that you’re eligible to apply for with loan options that can meet your needs. 

The most basic student loan question you have to decide is whether the private student loan company offers the type of loans you need, such as an undergraduate loan or graduate school loan, and if your school is eligible. Loan amounts, interest rates, and eligibility requirements should also be considered to help you make the best choice possible. 

Once these student loan basics are covered, you need to understand your unique financial circumstances:

Will this loan cover all of my remaining expenses?

If your financial aid package from your school doesn’t cover all your costs—especially if you need help paying for food, housing, and other bills—ensure the private student loan amount is enough to handle these expenses, and that the lender allows you to use the money for those purposes.

Is this student loan customizable to suit my needs?

Everyone’s situation is different, so there’s no one-size-fits-all approach. Working with the right loan provider can help you craft a repayment plan that works for you.

What are the interest rates? Are they affordable?

Your loan provider can help you determine whether a fixed or variable APR is right for you.

Are there any bonuses?

Some providers offer incentives for students. It’s a good idea to take advantage of these bonuses if you can find them. Look for incentives like cashback graduation rewards, automatic payment discounts, or even referral bonuses.

Applying for a Private Student Loan

Once you’ve learned everything you need to know about student loans, it’s time to complete an application with the private student loan of your choice and check to see if you pre-qualify for your desired loan amount. 

Pre-qualifying doesn’t involve a hard credit check, meaning you can check your interest rates without impacting your credit score. You can check your rates with Ascent in just a few minutes with no application fees.

Many private student loans require a cosigner, while others offer cosigned loan and non-cosigned student loan options. A cosigner shares equal responsibility for your loan and is financially obligated to repay the loan if you default on payment or contract terms. It is common for students to use a parent or relative to cosign their loans, but cosigners don’t need to be related. Your cosigner can also be a mentor, teacher, or athletic coach you trust.

Some student loans, like Ascent’s Cosigned Credit-Based Loan, may offer benefits to those who have a cosigner, including lower interest rates or better repayment terms. In some cases, you may also have the opportunity to release your cosigner after making a certain number of consecutive timely payments, which may offer more financial independence down the road.

What happens when you’re approved for a private student loan?

What happens after your loan is approved varies by lender. Some student lenders pay borrowers directly, allowing them to use their money to pay for whatever they may need. However, most student lenders work directly with your school to fund particular education-related necessities.

Ascent’s college loans cover up to 100% of your eligible education-related expenses, such as tuition and fees, room and board, textbooks, and other approved, relevant costs.

When do I have to make student loan payments?

When student loan payment begins and how long you can expect to pay them off varies by lender. 

For repayment, you can usually find any combination of:

• Being allowed to make payments during school—or not
• Interest accruing during school, which you can pay—or not
• Having a grace period after graduation—or not

Ascent offers a variety of repayment options, all of which depend on your unique terms. 

Ascent’s repayment options include: 

• Interest-Only Repayment: Make interest payments on your loan while you study at least half time.
• $25 Minimum Payment: Pay at least $25 per month while enrolled at least half time. See terms. 
• Deferred Repayment: Postpone all payments until you graduate. Note: Interest will accrue while you are in school.

For many lenders, the amount you start to pay back is a monthly minimum amount; however, some lenders have penalties for paying your loan off early. Ascent is not one of those lenders, so there is no penalty for paying off our loans early.

We highly recommend making a budget to help you plan to pay your loans off faster.

What to Know About Student Loans: FAQs

What are student loans? 

Student loans are money borrowed to pay for your college education. They can be federally or privately funded and must be repaid-with interest.

How do student loans work?

You can apply for student loans through the federal government or private lenders. The lender will offer you an interest rate and loan terms, which you can accept or reject once your application is approved. If you accept the terms, the money is given to you or your school to pay educational expenses and, if allowed, personal ones. Loans must be paid back with interest; when the interest starts accruing and when you may begin repayments varies by lender. You may be allowed to pay off your loans early, or you may be penalized for doing so; either way, you are expected to pay off the entirety of your loan and interest, except for extenuating circumstances that should be outlined in your specific loan information. 

What are the different types of student loans?

The two overarching types of student loans are federal and private. Federal loans are divided into subsidized and unsubsidized, which may have further subtypes available to you. Private loans may come in a variety of types, including cosigned, non-cosigned, graduate, and undergraduate.

How do unsubsidized student loans work?

Unsubsidized student loans are designed for those who don’t meet financial need requirements but still qualify for federal loans. Interest accrues during school, and repayment begins upon leaving school.

How do subsidized student loans work?

Subsidized student loans are federal loans for students with recognized financial needs. Interest doesn’t accrue during school, and there is a grace period after graduation.

Student Loans 101: A Quick Summary

Education is a big investment, and many students need help paying for it. The price of tuition alone may seem like a barrier between where you’re at now and where you want to be. 

Tuition isn’t the only expense you might face—the cost of textbooks, housing, transportation, food, and supplies all add up. Remember to submit your FAFSA application and check to see if you’re eligible for some form of financial aid to help pay for college.

You can (and should) look for scholarships and grants before seeking out loans, though federal loans are often an excellent option for students. However, if you still have a gap between what you have and what you need to pay, private student loans could help you get the additional money you need to pay for college.

Now that you know the basics of student loans, check out our blogs, videos, and other financial planning resources, or apply for a student loan with Ascent in just 4 simple steps.