How to Qualify for Federal and Private Student Loans

If you’re starting (or returning to) college soon, you may be planning to use student loans to help cover your costs. But do you know if you qualify?

Before you can answer that, you need to know which kind of loans you’ll be using. There’s a difference between federal and private student loans, and federal loan requirements differ from private loan requirements.

Federal Student Loan Requirements

If you need student loans to cover your educational costs, it’s best to start with federal student loans. Federal loans offer a lot of advantages over private loans, including:

• Lower, fixed interest rates

• Flexible repayment plans

• Possible loan forgiveness through programs like PSLF and Teacher Loan Forgiveness

• Deferred interest while in school

• A six-month grace period after graduation before repayment begins

Most people who apply for federal student loans will be approved. Unlike other loans, approval is not based on your credit score and the program is designed to be inclusive. The basic eligibility criteria for federal student loans is that you:

• Complete the FAFSA. The office of Federal Student Aid evaluates eligibility for student loans using the Free Application for Federal Student Aid (FAFSA). The application gathers financial data about your family to determine how much and what kind of aid you qualify for. You must complete the FAFSA annually by the application deadline to be evaluated for financial aid.

• Demonstrate financial need, meaning that your expected family contribution (EFC, or what your family can pay toward school) is less than the cost of school. Most people’s EFC will be lower and they easily meet this qualification.

• Be a U.S. citizen or eligible noncitizen. This includes U.S. nationals, refugees, people granted asylum, and many other permanent residents. Your eligibility is based on your status, not on the citizenship or immigration status of your parents. 

• Have a valid Social Security number, with a few exceptions.

• Be enrolled or accepted into an eligible degree or certificate program. Usually, schools must be accredited for their students to qualify for federal funds. Some schools also choose not to receive federal aid, so enrolling in their programs would not qualify you for federal student loans.

• Demonstrate eligibility to attend college or career school, which usually means
  • Having a high school diploma or GED certificate
  • Completing a high school education in an approved homeschool setting

• Maintain satisfactory academic progress. Each school sets its own standard for satisfactory academic progress, but it usually involves maintaining a certain GPA and passing courses required for graduation. You may also have to meet standards within your major or field of study.

In addition to these basic eligibility requirements, you may need to meet additional requirements for specific types of federal loans. For instance, direct unsubsidized loans are only available to graduate and professional students or parents taking out loans on behalf of their dependent, undergraduate children.

Private Student Loan Requirements

Private student loans are issued by private lenders. Those lenders could be traditional credit unions or banks, online financial institutions, or companies that specialize in student lending. In some ways, private student loans are more similar to personal loans than federal student loans. Unlike with federal student loans, private lenders will focus on your credit score, income, and existing debt.

Private lenders set their own eligibility requirements for the loans they issue. That means you’ll need to check with individual lenders to be sure you meet all of their eligibility criteria. Common eligibility requirements include:

• Reaching the age of majority in the state where you’re taking out the loan (usually 18 years old).

• Being a U.S. citizen, legal resident, or qualifying non-citizen. Non-citizens and international students should check with their lender to see if they qualify.

• Having a high school diploma or GED, or a completed high school education in an approved homeschool setting. 

• Having a high enough credit score. Private lenders will do a credit check to examine your income, debt-to-income ratio, and payment history as part of their approval process.
  • Most lenders expect a FICO score of 670 or higher, although you may be able to get a loan with a lower credit score if you also have a cosigner. 
  • Some lenders make loans to students with low credit scores or no credit history, but they may charge higher interest or limit the amount you can borrow.

• Being accepted to or enrolled in an eligible school. Most lenders require schools be accredited, but some have additional requirements like you must attend a four-year school instead of a two-year college or trade school. You may also have to be enrolled for a minimum number of credit hours. Check with your lender for their individual requirements. 

• Using your loan funds for approved expenses. Some lenders only allow your loan to be applied to direct costs like tuition, fees, and textbooks. Others may be more lenient and cover things like laptops and rent. Ask your lender what expenses your loan can cover. And remember that everything you spend will have to be repaid with interest in the future.

What Disqualifies You From Getting a Student Loan?

It is possible to not qualify for student loans. This can be a barrier for students who want to attend college but can’t afford to pay the costs out of pocket. In many cases, understanding why you don’t qualify can help you find ways to become eligible or point you toward alternatives.

Federal Loans

Federal student loans are usually easy to qualify for, but there are reasons you could be denied. Those reasons include:

• Not submitting the FAFSA on time

• Not meeting basic eligibility requirements

• Not making satisfactory academic progress

• Being enrolled in an ineligible program or school

• Losing your eligible noncitizen status

• Defaulting on an existing federal student loan

• Being convicted of federal student loan fraud

• Being incarcerated

Private Loans

Private student loans are harder to qualify for than federal student loans. Every private lender decides what standards you must meet to be approved, so check with your specific lender about qualifying. However, common reasons students are disqualified from private student loans include:

• Being too young to legally sign for a loan

• Not being a U.S. citizen or eligible noncitizen 

• Not having a high school diploma or equivalent

• Not be accepted to or enrolled in a qualifying school

• Having a low credit score

• Having little or no credit history 

• Carrying too much existing debt

• Not earning enough

• Having a poor debt-to-income ratio (too much debt and too little income)

Additionally, you may lose access to your federal student loan funds if your lender finds you’re using the money for anything other than approved school expenses. Check with your lender about what expenses your private student loans cover. 

The Takeaway

Understanding how student loans work is an important way to set yourself up for success and save money in the long run. Part of that includes knowing how federal student loan requirements differ from private student loan requirements. Once that’s behind you, you can focus on the exciting new learning experiences ahead.