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If you’re thinking of taking on a student loan to help you pay for college, it’s important to understand exactly what you’d be signing up for. You may be eligible for several different types of student loans, and each come with their own benefits and drawbacks.
Here’s what you need to know about the different types of student loans:
- Federal student loans
- Private student loans
- Private student loans can be used to fill in the gaps of federal loans
- Compare your student loan rates to make the right choice for you
Federal student loans
A federal student loan is a type of loan that’s backed by the U.S. government. Federal student loans don’t require a credit check but do require you to complete the Free Application for Federal Student Aid (FAFSA). After you submit the FAFSA, your school’s financial aid office will send you a financial aid award letter, which might include various student loan options. This offer letter is usually the starting point if you want to apply for student loans.
Additionally, the Biden-Harris administration announced a program to forgive up to $10,000 or $20,000 of federal student debt. That program has been blocked by the courts, but the U.S. Department of Education is currently seeking to overturn those court orders.
Direct Subsidized Loans
Undergraduate students with financial need are eligible for Direct Subsidized Loans. With this type of loan, the government covers the interest while you’re in school and during deferment periods. The current interest rate on subsidized loans is 4.99%, with a loan fee of 1.057%, which is deducted from the loan amount you receive. You can borrow up to $23,000 in subsidized loans if you’re a dependent student or $65,500 as an independent student.
Direct Unsubsidized Loans
Both undergraduate and graduate students can qualify for Direct Unsubsidized Loans. With unsubsidized loans, interest accrues while you’re in school. That’s the big difference when it comes to subsidized vs. unsubsidized loans. For undergrads, the interest rate on unsubsidized loans is 4.99%. For graduate and professional students, it’s 6.54%.
Dependent students can borrow up to $31,000 between both subsidized and unsubsidized loans. Independent undergraduate students are limited to $57,000 between both types of loans, while independent graduate students can borrow up to $138,500 in total.
Parents and graduate students can take out PLUS Loans. Unlike subsidized and unsubsidized loans, PLUS loans require a credit check.
Two types of PLUS Loans exist:
- Grad PLUS Loans are available to grad students.
- Parent PLUS Loans are available to parents of undergraduates.
With PLUS Loans, you can borrow up to the cost of attendance for your school (but this isn’t always a good idea when it comes to paying them back). PLUS Loans carry the highest interest rates of any federal student loan — 7.54% for the 2022-2023 academic year. There’s also a 4.228% up-front fee that’s taken out of your loan.
Private student loans
What can you do if your scholarships and federal student loans aren’t enough to cover the total cost of your education? This is where private student loans may be able to help. These loans are available to both undergraduate and graduate students, and many lenders will allow students to borrow up to the cost of attendance.
Unlike federal loans, private loans require a credit check. This means students with poor credit or no credit history may need a cosigner to qualify. In addition, your interest rate is set by the lender and may be higher than federal loan rates, if you or your cosigner don’t have excellent credit. However, it’s also possible for eligible borrowers to qualify for private loans with lower interest rates than those on federal student loans.
Private loans are not subsidized, so you can expect to accrue interest while you’re in school. Some private lenders allow students to defer payments until graduation, but many will require payments while you’re still in school.
Finally, private student loans are not eligible for any federal forgiveness program, including the Biden-Harris Debt Relief program. Expect to pay back every penny (plus interest) of any private student loans you borrow.
Learn More: Student Loans for Bad Credit
Undergraduate student loans
Undergraduate students have a number of options available to them for private student loans. You can borrow money for school from a traditional bank or credit union, or from an online lender. The amount of money you’re eligible to borrow can vary from lender to lender, but it may also depend on your credit score. Your interest rate will also depend on your credit score.
If you don’t have an established credit history or have less-than-stellar credit, applying for an undergraduate private student loan with a cosigner can help you qualify for a loan amount and rate that will work for your situation. Your cosigner is equally responsible for repaying your loan in case you default, so it’s important to choose a cosigner you have a trusting relationship with.
Some schools offer private loans, and this can be a good option for students at such schools. That’s because your school is motivated to make sure you can attend. Check with your school’s student loan office to learn more about these private loans.
International student loans
If you live outside of the U.S., you might still be able to get international student loans for your studies at a U.S. college or university. You’ll need to show legal U.S. status to qualify and will likely need a cosigner from the U.S., depending on the lender.
Keep in mind that if you don’t have a credit history in the United States, you might have to pay higher interest rates — or you might struggle to get approved in the first place.
Graduate student loans
Federal student loans don’t always cover the total cost of school. If you need cash between terms or need to borrow more than your financial aid package offers, private student loans could be a good fit. And if you have excellent credit, you might qualify for lower interest rates with graduate student loans than you would with federal student loans (particularly PLUS Loans).
MBA student loans
An MBA can be an investment in your long-term career success — but depending on your school, it can also be quite expensive. Like other private student loans, limits vary for MBA student loans based on your cost of attendance and credit history.
Medical student loans
Medical school can come with a six-figure price tag. If you have a positive credit history, medical student loans could help. You might also consider medical residency loans to cover the costs of your continuing medical education.
Law school loans
Law school is another expensive degree for many students. Law school student loans can help you pay for tuition, fees, textbooks, and other costs. And once you finish your degree, bar exam loans could bridge the financial gap until you land a paying job.
The companies in the table below are Credible’s approved partner lenders. Whether you’re the borrower or cosigner, Credible makes it easy to compare rates from multiple private student loan providers without affecting your credit score.
|Lender||Fixed Rates From (APR)||Variable Rates From (APR)|
|4.509 - 14.83%9||5.37%9 - 15.709|
your credit score. 100% free!
Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available | 10Ascent Disclosures | 1Citizens Disclosures | 2,3College Ave Disclosures | 7EDvestinU Disclosures | 8INvestEd Disclosures | 9Sallie Mae Disclosures
Private student loans can be used to fill in the gaps of federal loans
Federal student loan applications have rigid application deadlines, but you can apply for private student loans at any point in the school year. Private loans could be a good way to cover any education-related costs left over after you’ve exhausted your federal student loan, scholarship, and college savings options. There are also Student loans for living expenses are also available.
If you’re considering PLUS loans, keep in mind that some private student loans might lower have interest rates. Once you factor in origination fees, the annual percentage rate for PLUS Loans can be higher than private student loans.
No matter what type of student loan you choose, take care not to borrow more than you need. You’ll have to pay your student loans back eventually, and smaller loan amounts are much easier to handle.
Compare your student loan rates to make the right choice for you
Paying for your education may mean using a mix of federal and private loans to pay for college, as well as scholarships and grants. It generally makes sense to exhaust your federal loans and scholarship and grant options.
If you need a private student loan, make sure you consider as many lenders as possible. You may think of Sallie Mae as the place to go for private student loans, but a large number of private student loan lenders exist – so there’s no reason to only compare one or two.
Credible makes comparing lenders a breeze — you can compare multiple lenders to find the right loan for you, all without affecting your credit score.
Emily Guy Birken contributed to the reporting for this article.