Understanding the Different Types of Student Loans

Tuition and fees for full-time undergraduate programs ranged from $11,950 to $45,000 in the 2025-26 academic year, according to College Board data. 

With schools charging such high prices, paying out-of-pocket is a challenge for many students and families.

Student loans can help, but you need to understand the different types of student loans before you borrow.

Current private student rates

What are the two main types of student loans?

Both federal and private student loans can help you pay for college, but they have different benefits and drawbacks. 

Federal student loans are fixed-rate loans offered by the Department of Education. They typically don’t have minimum credit requirements. Private student loans have fixed or variable rates and are available through banks, credit unions, and online lenders. Lenders establish credit requirements for approval, and some borrowers need a cosigner to qualify. 

“Borrowers usually tap federal loans first to foot the bill for the cost of attendance as they often come with more consumer protections, different repayment plan options, and potential pathways to forgiveness like PSLF,” says Becca Craig, certified student loan professional and certified financial planner at Focus Partners Wealth. 

“Private loans typically have fewer protections and less flexibility if a borrower runs into trouble,” she adds.

Types of federal student loans

There are different types of federal student loans, including: 

• Direct Subsidized Loans: The federal government subsidizes these loans by paying interest while you’re in school at least half-time, during your grace period, and while in deferment. Eligibility is limited to undergraduate students with demonstrated financial need, and the maximum annual loan amount is $5,500.
• Direct Unsubsidized Loans: Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students with no requirement to show financial need. Borrowers are responsible for interest from day one, and loan limits range from $5,500 up to $20,500. 
• Direct PLUS Loans: Grad PLUS loans are available to graduate and professional students, while parent PLUS loans are available to parents of dependent undergraduates. Grad PLUS loans allow borrowing up to the cost of attendance, but the One Big Beautiful Bill Act (OBBBA) is phasing out the program starting July 1, 2026. There will also be new loan limits for unsubsidized loans for grad students and for parent PLUS loans. 
• Direct Consolidation Loans: Direct Consolidation Loans allow borrowers with existing federal debt to pay it off using a new federal consolidation loan. These loans can combine multiple federal student loans into one to streamline repayment and can open up the door to new repayment options. 

Federal student loans offer strong borrower protections and benefits, including income-driven repayment options, deferment, forbearance, and the potential for student loan forgiveness. But accessibility is changing, which will likely impact how borrowers pay for college. 

“With the One Big Beautiful Bill Act tightening federal loan availability, private loans are going to become a much more common piece of how families cover the full cost of education going forward,” says Craig. 

Types of private student loans

Private student loans come from banks, credit unions, and online lenders. Unlike federal student loans, they’re not standardized, so loan options vary by lender. Some common types include:

• Undergraduate student loans: These are private loans designed for borrowers pursuing an undergraduate degree. 
• Graduate student loans: These loans are for students pursuing a graduate degree. Demand for private graduate student loans is expected to increase when the federal grad PLUS program is phased out.
• Parent student loans: Parents can use private parent student loans to help their children pay for college. With new caps on federal parent PLUS loans, more parents rely on private loans to cover funding gaps. 
• Degree or career-specific student loans: Some private lenders offer degree or career-specific student loans, such as medical school loans or MBA loans. 

Eligibility requirements, interest rates, and repayment terms vary based on the type of private loans and the lender.

How do you choose the right type of student loan?

If you’re comparing federal vs. private student loans, here’s how to choose the right type of student loan. 

1. Determine your needs: Find out how much you must borrow to cover the full cost of attendance. 
2. Prioritize free money: Take advantage of scholarships and grants first before borrowing. 
3. Submit the FAFSA: The Free Application for Federal Student Aid (FAFSA) allows you to provide financial information so you can qualify for grants, work-study, and federal student loans. Complete it online with the Department of Education by the annual deadline. 
4. Max out federal student loans: Federal student loans offer borrower benefits like income-driven repayment and the potential for student loan forgiveness. Most don't require a credit check, have fixed rates, and provide deferment and forbearance options. As a result, it's a good idea to max out these loans first. 
5. Review gaps in funding: Federal student loan limits may prevent you from borrowing the full amount you need. Private student loans can cover shortfalls. 
6. Research lenders: Comparing multiple private lenders will help you find the best loan terms. First, consider eligibility requirements like minimum credit score and income. If you're eligible (with or without a cosigner), review interest rates, fees, repayment terms, and borrower benefits. 
7. Choose fixed or variable: Borrowers can choose between fixed or variable-rate private student loans. Fixed rates offer stability while variable rates result in your monthly payments changing over time. 
8. Apply for private loans: Submit an application for private student loans and consider adding a cosigner to get the best rates.

How can you reduce the amount you need to borrow?

While student loans can help pay for college, they come with thousands of dollars in interest costs, so you should limit borrowing. Here are some tips to help. 

• Apply for scholarships: Scholarships may be available based on your academics, achievements, artistry, or athleticism. 
• Avoid overborrowing: “You don’t have to accept the full amount offered. The primary driver that affects the monthly payments and total interest usually isn’t the interest rate or loan terms, but the actual amount that’s borrowed, known as the loan principal,” says Jordan Banning, founder and certified financial planner at Crafted Financial Planning. “Generally, the less you take in student loans, the bigger the impact on your long-term financial success.”
• Consider community college: You may want to start school at a two-year college to borrow less. “It can be very cost-effective to complete general courses at community college and then transfer to a university,” Banning adds.
• Work part-time: Consider a part-time job to earn income to pay everyday expenses. 
• Live at home: If it’s a possibility for you, you can save a substantial amount by living with family. 
• Make interest-only payments: You can lower total borrowing costs on private and unsubsidized federal loans by making interest-only payments while in school instead of deferring repayment. 

How can you prepare to repay student loans?

It's important you understand your repayment options before borrowing.

“The decision to take out a student loan is only the beginning, and a borrower's repayment strategy matters just as much,” says Craig. 

“The type of loan, federal or private, and the repayment options available, whether through income-driven plans or a traditional fixed schedule, can shape everything from monthly cash flow to career flexibility to long-term peace of mind for years, if not decades, after graduation.”

To prepare for repayment, borrowers can: 

• Create an FSA account: Start by creating a Federal Student Aid (FSA) account, where you can manage repayment plans and find your federal loan information. 
• Confirm loan details: Confirm your loan balances and rates using your FSA account or online accounts with private lenders. You can also see your loans listed on your credit report at AnnualCreditReport.com. 
• Try Loan Simulator: Use Loan Simulator to determine potential monthly payments under each federal repayment plan. 
• Check contact info: Confirm your loan servicers have your current contact info, including your phone number, email address, and mailing address. 
• Sign up for auto-pay: Signing up for auto-pay can help you pay on time and may make you eligible to lower your interest rate by 0.25 percentage points.