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Types of Student Loans (Federal and Private)

TLDR

What You Need To Know

  • There are two primary categories of student loans: federal and private. Each category is an umbrella term with many subtypes underneath it
  • The most common student loans are Stafford loans. They are available as direct subsidized loans and direct unsubsidized loans
  • Private loans resemble personal loans. Your eligibility and interest rates mostly depend on your credit score. But there are options for students with low or no credit scores

Contents

Your education is precious and will help prepare you for a career. And whether you’re an undergraduate student, a graduate student or you’re pursuing a certification or license, higher education isn’t always affordable. Enter student loans. Think of them as superheroes that swoop in and help you pay for your education. 

There are two primary categories of student loans: federal student loans (think: Team Captain America) and private student loans (think: Team Iron Man). Each team is made up of different loans that will help you pay for school.

Because there are different types of student loans out there, we went ahead and put together a guide for you. Read on to learn more about each type of student loan and which ones you may be eligible for.

Now, let’s assemble the avengers of the loan industry and get started. 

What Are the Different Types of Federal Student Loans? 

First up is Team Captain America, aka the federal student loan programs. There are four types of federal loans, and each has its own requirements. Which ones you qualify for will depend a lot on your financial situation and your academic year. 

These loans are provided by the federal government, and Congress sets their interest rates every year. 

To qualify for federal loans, you fill out the Free Application for Federal Student Aid (FAFSA®), and the U.S. Department of Education determines your eligibility for federal student aid. Some of these loans have additional forms to fill out as well. 

Federal student loans have two unique perks:

  • They’re fixed-rate student loans.
  • They don’t have to be repaid until after school.

Let’s explore the different types of federal student loans and see what’s right for you.

The most common student loans are Stafford loans. They are available as direct subsidized loans and direct unsubsidized loans. 

Direct subsidized loans

Direct subsidized loans are designed to help cover the cost of college for undergraduate students who’ve demonstrated financial need. 

The U.S. Department of Education pays the interest on the loan while the borrower is enrolled at least half-time, for 6 months after the borrower leaves school and during any periods of deferment.

  • Borrower type: Undergraduate students
  • 2022 – 2023 interest rate: 3.73%[1]
  • Maximum loan amount: Ranges from $3,500 – $5,500 a year, depending on your academic year, and whether you claimed dependent or independent when you filed your taxes.[2]
  • How to apply: FAFSA® 
  • Considerations: Payments and interest are currently deferred until August 31, 2022 under the CARES Act.[3]

Direct unsubsidized loans

Direct unsubsidized loans are designed for undergraduate and graduate students. Unlike subsidized loans, eligibility isn’t need-based and borrowers are responsible for interest over the life of their loan(s). 

  • Borrower type: Undergraduate and graduate students
  • 2022 – 2023 interest rate: 5.28%[1]
  • Maximum loan amount: Ranges from $5,500 – $12,500 a year, depending on your academic year, and whether you claimed dependent or independent when you filed your taxes.[2]
  • How to apply: FAFSA® 
  • Considerations: Payments and interest are currently deferred until August 31, 2022 under the CARES Act.[3]

PLUS loans

There are two types of PLUS loans: the Parent PLUS loan and the Graduate PLUS loan. Parent PLUS loans are for parents of dependent undergraduate students. Graduate PLUS loans are for graduate students. 

  • Borrower type: Parents of dependent undergraduate students and graduate students
  • 2022 – 2023 interest rate: 6.28%[1]
  • Maximum loan amount: The cost of attendance minus other financial aid.[4]
  • How to apply: Direct PLUS loan application 
  • Considerations: Payments and interest are currently deferred until August 31, 2022 under the CARES Act.[3]

Perkins loans (Discontinued)

The Perkins loan was discontinued in 2018. Perkins loans helped undergraduate and graduate students with exceptional financial needs and were particularly attractive because of their 9-month grace period before repayment and low interest rates. 

  • Borrower type: Undergraduate and graduate students
  • Interest rate: 5%[5]
  • Maximum loan amount: $5,550 per year for undergraduate students and $8,000 per year for graduate students.[5]
  • How to apply: N/A
  • Considerations: Discontinued

What Are the Different Types of Private Student Loans?  

If the federal student loan programs don’t adequately cover your expenses, you can always turn to a private lender. Enter Team Iron Man: the heroes of the private sector. 

There are eight types of private education loans.

Private loans resemble personal loans. Your eligibility and offered interest rates mostly depend on your credit score. But there are options for students with low or no credit scores. 

Unlike federal student loans, private loans are unsubsidized, rarely deferred or come with grace periods. To apply for private loans, you will need to work directly with the lender you choose to work with.

Let’s explore the requirements of the eight types of private loans. We’ll start with loans that are available to any student, then we’ll check out specialty loans.

Institutional loans

Many colleges and universities offer direct loans to their students. How much is offered and what is offered isn’t universal. Institutional loans vary by institution. Just be sure to read the fine print and make sure you understand the loan’s terms.

  • Borrower type: Students who attend the institution
  • Providers: The institution
  • Interest rate: Anywhere from 0% – 9%
  • Maximum loan amount: Varies by institution
  • Repayment: Often lacks repayment flexibility and generous grace periods

Credit union loans

Rather than getting a student loan from a big-name bank, consider credit unions or other community banks. Credit unions often have better loan terms for their members and, because they’re local, you can meet with a representative face-to-face to talk about a loan. 

  • Borrower type: Enrolled students 
  • Providers: Any credit union or community bank
  • Interest rate: Varies by credit score and lender (typically more favorable than other private student loan options)
  • Maximum loan amount: Varies by lender
  • Repayment: Credit unions and community banks often have flexible repayment plans and generous grace periods.

For non-U.S. citizens: International student loans

Some private lenders will lend to international students. But most will require a U.S. citizen to co-sign the loan. 

  • Borrower type: International students
  • Providers: Some private lenders 
  • Interest rate: Varies by co-signer’s credit score and lender
  • Maximum loan amount: Varies by lender
  • Considerations: Most lenders will require a U.S. citizen to co-sign the loan.

State student loans

Some states offer financial assistance to help reduce education costs. State loans operate more like personal loans than federal loans. They often come with low interest rates, and some are forgivable if a graduate enters a qualifying field of work.  

  • Borrower type: Students who are state residents
  • Providers: The state
  • Interest rate: Varies by state
  • Maximum loan amount: Varies by state
  • Repayment: Varies by state but often includes flexible repayment plans and generous grace periods.

Student loans for bad credit or no credit

Some private lenders offer student loans to students with low or no credit. These loans typically have higher interest rates, and eligibility is based on future earning potential.

  • Borrower type: Students with low or no credit
  • Providers: Some online lenders offer loans without checking your credit score.
  • Interest rate: Typically higher than other student loan options
  • Maximum loan amount: Varies by lender
  • Considerations: Because these loans typically come with higher interest rates, it’s best to refinance your loan(s) as soon as you can, like after you have built a better credit score. 

For the law students: Bar exam loans

A bar exam loan is a specialty loan that helps law students cover their living expenses while they’re studying for the bar. This loan type is a little different from traditional student loans. The money gives law students time to study rather than cover traditional academic expenses. 

  • Borrower type: Law students studying for the bar exam
  • Providers: Some online lenders provide bar exam loans. 
  • Interest rate: Varies by credit score and lender
  • Maximum loan amount: Varies by credit score and lender

For the tech whizzes: Boot camp loans

Coding boot camp can be an incredible educational experience, but it’s not covered by traditional student loans. If you need financial assistance, consider a boot camp loan. These loans pay the camp’s costs as well as your living expenses. 

  • Borrower type: Students attending coding boot camp
  • Providers: Some online lenders provide boot camp loans. 
  • Interest rate: Varies by credit score and lender
  • Maximum loan amount: Varies by coding program and lender
  • Repayment: Boot camp loans often have generous grace periods and multiple repayment plans.

For health profession students: Medical school loans

Many private lenders offer loans designed specifically with medical school in mind. These loans come with extended grace periods or deferment during residency. 

  • Borrower type: Medical students 
  • Providers: Some private lenders 
  • Interest rate: Varies by credit score and lender
  • Maximum loan amount: Varies by lender
  • Repayment: There are typically flexible repayment plans and generous grace periods or repayment deferral for residency.

Which Loan Heroes are Your Type?

There are lots of options when it comes to paying for your education. And the best part? There’s no need to pick between Team Captain America (aka federal student loans) and Team Iron Man (aka private student loans). You can use more than one loan type to finance higher education. It all depends on what you qualify for. 

Which student loan does not have to be paid back?

All loans have to be paid back unless they qualify for a loan forgiveness program. Meanwhile, grants and scholarships are other types of financial aid that do not have to be repaid.

Can I get a student loan and Pell grant?

Absolutely. Grants and loans are two different programs and don’t cancel each other out. Go ahead and apply for both!

How does an income share agreement differ from a student loan?

Income share agreements (ISAs) are distributed by some institutions, coding bootcamps and a small handful of private lenders. This is when the school pays for a portion of your education, and you pay them a fixed percentage of your income after graduation for a set number of years. 

  1. Federal Student Aid. “Understand how interest is calculated and what fees are associated with your federal student loan.” Retrieved February 2022 from https://studentaid.gov/understand-aid/types/loans/interest-rates

  2. Federal Student Aid. “Subsidized and Unsubsidized Loans.” Retrieved February 2022 from https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized

  3. U.S. Department of Education. “Biden-Harris Administration Extends Student Loan Pause Through August 31.” Retrieved April 2022 from https://www.ed.gov/news/press-releases/biden-harris-administration-extends-student-loan-pause-through-august-31

  4. Federal Student Aid. “PLUS Loans.” Retrieved February 2022 from https://studentaid.gov/understand-aid/types/loans/plus

  5. Benefits.gov. “What is Financial Aid Programs?” Retrieved February 2022 from https://www.benefits.gov/benefit/418

ICYMI

In Case You Missed It

  1. To qualify for federal loans, you fill out the FAFSA®, and the U.S. Department of Education determines your eligibility for federal student aid

  2. Some private lenders offer student loans to students with low or no credit. These loans typically have higher interest rates, and eligibility is based on future earning potential

  3. Unlike federal student loans, private loans are unsubsidized, rarely deferred or come with grace periods

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