Student Loan Questions to Ask Yourself Before Borrowing

Starting adulthood under the weight of student loan debt is something no one wants, but for many, borrowing for college has become unavoidable. Data from the Institute for College Access & Success shows that 62% of students who graduated in 2019 left school with substantial debt, averaging around $28,950.

If you need to rely on loans to fund your education, the smartest step is to choose the most cost-effective option. That requires doing your homework.

And to gather the right details that will help you select the best student loan, you must begin by asking yourself the right questions.

Student Loan Questions to Ask Yourself Before Borrowing

Before you start comparing lenders or evaluating loan offers, take a moment to reflect on a few important questions. These self-checks will give you clarity and help guide your entire decision-making process.

1. Should I Choose a Private or Federal Student Loan?

Federal loans are offered by the U.S. government, while private loans are issued by banks, credit unions, or state-based lenders.

When deciding between the two, the general rule is simple: maximize your federal loan options first before turning to private lenders. Federal student loans typically provide:

• Lower, more predictable interest rates
• The ability to consolidate
• Multiple repayment plan choices
• Additional protections such as deferment, forbearance, and possible loan forgiveness

You can learn more about federal student loans by visiting StudentAid.gov.

However, federal borrowing limits depend on your financial need and may not fully cover your college expenses. This is especially true for private institutions, where tuition averaged $35,087 for the 2020–2021 academic year, according to U.S. News & World Report.

In some cases, a private loan could be a better fit—particularly if you have a co-signer with excellent credit who can help you secure a lower interest rate than what federal loans offer.

If you want a deeper comparison, explore our guide on the differences between federal and private student loans. And if you’ve already used up your federal aid and still need additional financing, check out our list of top private student loan lenders.

2. Is Loan Forgiveness a Realistic Option?

The federal government provides student loan forgiveness programs for borrowers who meet certain criteria. The two most well-known programs are the Public Service Loan Forgiveness (PSLF) and the Teacher Loan Forgiveness Program.

• PSLF is designed for employees working in government or nonprofit organizations. It forgives the remaining balance on direct loans after you make 120 qualifying monthly payments.
• Teacher Loan Forgiveness offers up to $17,500 in forgiveness for direct and Federal Family Education Loans (FFEL) after teaching full-time for five consecutive years in a low-income elementary or secondary school.

If you’re planning a career in one of these fields, it’s important to understand all program requirements early so you can incorporate them into your student loan and financial planning strategy.

3. How Much Should I Borrow?

It can be tempting to accept the full loan amount offered, especially when it comes in the form of a large check. However, borrowing more than you actually need can lead to unnecessary debt.

Before deciding on a loan amount, carefully calculate your true expenses. This includes tuition, room and board, as well as other educational and living costs such as books, fees, supplies, meals, and transportation.

Because costs can vary widely between schools, most colleges provide their own net price calculators. You can also use the U.S. Department of Education’s Net Price Calculator Center to find a calculator for your specific university.

4. Can I Lower the Amount I Need to Borrow?

Before committing to a large student loan, explore ways to reduce how much you actually need to borrow.

Some effective strategies include:

• Living at home instead of on-campus to save on housing costs
• Working part-time while in school to cover expenses
• Applying for scholarships and grants to fund your education
• Starting at a community college for the first two years before transferring

These approaches may require some short-term sacrifices, but they can significantly reduce your debt burden and make repayment much more manageable in the future.

5. Will I Work While in School?

Working during college is a smart way to reduce your student loan debt, but it’s important to understand how your earnings may impact federal financial aid.

Need-based aid, including grants and subsidized loans, is influenced by your Expected Family Contribution (EFC). For dependent students, EFC considers both your income and your parents’ income. Earning above certain thresholds can reduce your eligibility for need-based aid.

For 2021, EFC income limits were $6,970 for dependents and $27,000 for independents (including spouse income). If your earnings fall below these limits, your aid is unaffected.

Income from federal work-study programs does not count toward your FAFSA or affect your EFC.

Finally, if work obligations force you to reduce your course load, make sure you stay at least half-time. Dropping below half-time can make you ineligible for federal loans and may trigger repayment on any current loans.

6. Will I Need My Parent’s Help?

If your FAFSA-based aid doesn’t cover all your college expenses, you may need additional support.

One option is a Parent PLUS Loan. As of June 30, 2021, these loans carried a fixed interest rate of 5.30%, with rates adjusting annually on July 1. Parent PLUS loans offer many of the same benefits as other federal loans, such as flexible repayment plans and the option to defer payments while you’re in school.

However, they also come with a 4.228% origination fee, which can add to the overall cost.

If your parents have strong credit, it’s worth comparing private loan options—some may offer lower interest rates without origination fees, potentially saving money over the life of the loan.

7. What Interest Rate Will I Qualify For?

Federal student loans have fixed interest rates that apply to all borrowers. Private lenders, however, determine your rate based on your—or your co-signer’s—creditworthiness.

When evaluating interest rates, consider the following:

• Fixed vs. Variable Rates: Variable rates can start lower than fixed rates but may increase over time, raising your loan costs. Fixed rates remain stable, providing predictable payments.
• Post-Graduation Rate Changes: Some private loans adjust interest rates after graduation. Review each lender’s terms carefully. If you find the rate unfavorable, you can negotiate or compare other lenders.

Applying for a private loan usually involves a hard credit inquiry, which can temporarily lower your credit score. To minimize the impact, use private loan comparison tools like Credible and complete applications within a 45-day window—all inquiries will then be treated as one.

Avoid opening new credit cards before applying for student loans, as additional hard inquiries can affect your credit score for up to a year and influence the interest rates you qualify for.

8. How Often Will I Need to Apply for New Loans?

You must submit the FAFSA each year to receive federal student loans.

Private loans often cover only a semester or a single academic year, which means you may need to apply repeatedly. This can result in multiple separate loans to manage after graduation, although refinancing or consolidation can simplify repayment.

Some private lenders, like Discover and Citizens Bank, offer multiyear student loans, allowing you to finance your entire education with a single application. This reduces paperwork, minimizes the number of bills, and limits the impact on your credit score.

9. What Fees Will I Be Charged?

Before committing to a loan, it’s important to understand any fees involved, especially the origination fee.

For federal loans, origination fees are 1.057% for direct subsidized and unsubsidized loans, and 4.228% for direct PLUS loans. This fee is calculated based on the total loan amount and is deducted before the funds are disbursed.

For example, a $13,000 direct PLUS loan would have a $550 origination fee deducted, leaving $12,450 available for use. It’s essential to account for this fee when planning how much financial aid to accept.

Most private loans do not include origination fees, though some may, so always confirm fees with the lender upfront.

10. What Is the Loan Term?

Federal student loans typically have a standard 10-year repayment term, though you can request alternative repayment plans once you start making payments. These plans often extend the loan term, lowering monthly payments but potentially increasing the total cost of the loan.

Private loan terms vary by lender, ranging from 5 to 25 years, which can have a significant impact on overall costs. Shorter terms mean higher monthly payments but less interest paid over the life of the loan, while longer terms reduce monthly payments but increase total interest.

11. What Will My Monthly Payment Be?

While interest rates and loan amounts are important, it’s crucial to know whether you can comfortably manage your monthly payments.

Ask your lender for a clear breakdown. For instance, if you borrow $15,000 over 10 years at a 7% fixed interest rate, request an exact monthly payment amount.

If you’re comparing loans online, use a student loan calculator—tools from Student Loan Hero or Sallie Mae can help you estimate your monthly payments and plan your budget accordingly.

12. How Can I Lower My Monthly Student Loan Payments?

One way to reduce your monthly payment is by extending your loan term, though this often increases the total cost of the loan.

To lower both your monthly payment and overall cost, ask your lender about interest rate discounts. Common options include:

• Automatic Payment Discounts: Federal direct loans offer 0.25% off for autopay enrollment, while many private lenders match or exceed this. For example, PNC reduces undergraduate loan rates by 0.50% with autopay.
• Loyalty Discounts: Some lenders, like Citizens Bank, provide 0.25% off if you or your co-signer have an existing account, including student checking accounts.
• On-Time Payment Discounts: Certain lenders offer additional savings after consistently making on-time payments for a few years.

Remember, you often need to request these discounts proactively—otherwise, you could miss out on potential savings.

13. How Will I Receive My Student Loan Funds?

If this is your first time taking out a student loan, the disbursement process may seem confusing.

Procedures can vary by school, so check with both your lender and your financial aid office to understand how and when you’ll receive your funds.

Typically, the loan servicer sends the money directly to your school, which applies it toward tuition, room, and board. Any remaining funds are then returned to you for other approved educational or living expenses.

14. How Do I Apply for a Student Loan?

For federal loans, you need to complete the FAFSA each year between October 1 and June 30—the earlier you submit, the better your chances of receiving aid.

Private loans don’t have strict deadlines, but processing can take several weeks. It’s wise to start comparing options a few months in advance and submit applications at least a month before you need the funds.

Most private loan applications can be completed online. If any questions arise during the process, clarify them with your lender before submitting to avoid delays or errors.

15. Are There Limits on How Much I Can Borrow?

Federal student loans have both annual and total borrowing limits, which depend on your loan type, dependency status, and year in school.

Private loan limits differ by lender and are usually much higher than federal caps. If you plan to rely on a private loan, ensure the lender can provide enough funds to meet your full educational expenses.

16. What Happens if I Miss a Student Loan Payment?

Federal and private lenders handle missed payments differently.

For federal loans, missing a payment makes your loan delinquent and may trigger a late fee. After 90 days, your missed payments are reported to credit bureaus, potentially harming your credit score. If the loan remains unpaid for 270 days (about nine months), it can go into default, which carries serious financial consequences.

Private lenders are often less forgiving. Policies vary, but missed payments can result in higher late fees and earlier reporting to credit bureaus.

To avoid surprises, always ask your lender about the specific consequences of missed payments and strategies to prevent them.

17. What If I Can’t Afford My Payments?

Financial hardships, such as job loss or unexpected medical expenses, can make it difficult to keep up with student loan payments.

Federal loans offer several options:

• Income-Driven Repayment Plans: Adjusts your monthly payment based on income, often by extending the loan term.
• Forbearance: Temporarily postpones payments for qualifying hardships, though interest continues to accrue.
• Deferment: Allows you to pause payments and interest accrual for certain eligible hardships.

Private lenders may offer similar options, but they are usually more limited and may include shorter forbearance or deferment periods.

If you struggle to pay, contact your lender early. Open communication can help you find a solution before missing payments and damaging your credit.

18. How Long Is the Grace Period After Graduation?

A grace period is the time after graduation or leaving school during which you are not required to make loan payments. It gives you a chance to secure a job and get financially settled before repayments begin.

For federal loans, the grace period is typically six months, though it varies by loan type. Private loan grace periods differ by lender, making this an important factor when choosing a lender.

Some private lenders offer grace periods similar to federal loans, while others begin charging payments immediately. If payments start right away, you’ll need to plan for affordability while still in school.

Keep in mind that even during a grace period, interest often continues to accrue, adding to the total loan balance.

About the author — Rashika Editor & Blogger, GlobalFinMate

Editor & Finance Blogger at GlobalFinMate, creating simple and accurate guides on budgeting and personal finance.