Student Loans Types: Everything You Need To Know


This is a definitive guide to student loans types and all you need to know.

Borrowing money, commonly known as taking out a loan, is a means for many students to realize their college aspirations. Loans, however, must be returned with interest, unlike other forms of financial help.

If you’re a student in the United States, you might be perplexed by the several forms of student loans types accessible. How can you tell which one is the best fit for you? Why are there so many repayment options and how do they work?

Federal Student Loans and Private Student Loans are the two student loans types accessible. Private loans are often made by private banks, credit unions, state agencies, or other financial entities, whereas federal student loans are issued directly by the federal government.

Federal Student Loans

Federal student loans can assist fill in the gaps for education-related expenditures that scholarships, grants, and work-study don’t pay, as long as basic eligibility standards are satisfied. Federal student loans demand interest-bearing payments.

The Federal Direct Loan Program (FDLP), which is controlled by the Department of Education, funds all federal student loans made after June 2010. The federal government sets all of the terms, conditions, and interest rates.

The Federal Family Education Loan Program, or FFELP, was used to fund loans prior to June 2010. Loans were created by a corporation such as a bank, lender, or non-profit organization under this program, and many of them are still owned by those companies or the Department of Education.

Types of federal student loans

We recommend that you limit your borrowing to federal loans since the interest rate charged by the federal government is far lower than that charged by a commercial lender, and there are programs in place to help repaying your loans easier.

These student loans types are provided by the federal government, and Congress sets the interest rates each year. They come with handy features such as the opportunity to tie payments to your salary after you graduate or the potential to have debts cancelled if you work in the public sector.

Depending on need and eligibility, there are numerous distinct student loans types of federal student loans available right now:

  1. Direct Subsidized loan
  2. Direct Unsubsidized Loans
  3. Direct PLUS Loans
  4. Perkins loans
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Direct Subsidized loan

Subsidized loans are the gold standard in the student loans types market. You might wonder why. Because if you qualify for and take out a Subsidized Loan, the interest on your loans will be paid by taxpayers* for the whole time you’re in school.

You won’t have to start repaying your Subsidized Loans until six months after you graduate from college (or six months after you stop taking classes for any reason). Furthermore, if you opt to proceed to graduate school, the interest on your Subsidized Loans from your undergraduate education will be paid by taxpayers.

Subsidized Loans are only accessible to undergraduate students with financial need as determined by their FAFSA, and you can only qualify for a certain amount per year.

Direct Unsubsidized Loans

Undergraduate, graduate, and professional students are eligible for unsubsidized direct student loans types. The amount you can borrow is determined by your school depending on your cost of attendance and other financial help you receive.

You do not need to demonstrate financial need to qualify, unlike Direct Subsidized student loans types, but you are responsible for paying the interest on the loan while you are in school. While you are in school (or during grace periods, deferral, or forbearance periods), you may opt not to pay this interest; but, your interest will accrue (accumulate) and be “capitalized” (added to the principal amount of your loan).

Direct PLUS Loans

Graduate and professional students, as well as parents of dependent undergraduate students, are eligible for Direct PLUS student loans types. The distinction between these loans and any other federal loan is that direct PLUS loans can be used to cover educational expenditures that are not covered by other forms of financial aid, such as housing.

The student is responsible for paying the interest on the loan from the time it is received by the institution. Six months after you graduate, quit school, or drop below half-time enrollment, you’ll begin repaying your Direct PLUS student loan.

Perkins loans (Discontinued)

The Perkins Loan program was immensely popular among need-based college students, but Congress allowed it to expire on September 30, 2017, after extending its term by two years in 2015. Disbursements were made till June 30, 2018.

Because Perkins student loans types were subsidized (the government paid the interest while you were in school) and had a fixed interest rate of 5%, they were more appealing than Stafford Loans. A longer grace period (nine months) before payments began was another benefit of the Perkins loan, as were specific debt forgiveness options.

Perkins student loans types were designated for students who demonstrated extraordinary financial need due to its advantageous conditions. A college provided the loans, although not all institutions took part.

Private Student Loans

Private student loans fill the gap between the cost of your education and the amount of government aid you get. Private student loans are issued by banks, credit unions, and other forms of lenders, and they do not need completion of the FASFA (the borrower will have to fill out a self-certification form).

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The lender, not the federal government, determines interest rates, loan limits, terms, and conditions. Your credit history, whether or not you have a co-borrower, and the credit history of your co-borrower, as well as your choice of school or course of study, all influence your ability to qualify for a loan, the amount borrowed, and the terms and circumstances connected with it.

Types of private student loans

If you’ve exhausted your options for scholarships, grants, and federal loans and still need money for education, a private student loan may be an option. Private loans are given to students by banks and other financial entities.

When applying for private loans, the lender will want to see proof of your ability to repay the loan, which is generally in the form of a solid credit score. A co-signer can assist you in qualifying; nevertheless, that individual will be accountable for the loan if you are unable to repay it.

Private student loans come in a variety of shapes and sizes:

  1. Income share agreements
  2. International student loans
  3. Credit union loans
  4. Bar exam loans
  5. Medical school loans

Income share agreements (ISA)

An income-sharing agreement, or ISA, allows you to borrow money for education and return it based on your future earnings. ISAs are not student loans types, and they should not be used in place of federal undergraduate loans.

If you expect to pursue a high-paying job, consider an ISA instead of high-interest loans like federal PLUS loans or private student loans. You’ll almost certainly obtain the best payback terms.

International student loans

Students who are not citizens of the United States are normally ineligible for federal student loans (unless they are eligible non-citizen). Several private lenders provide loans to international students, although they frequently demand a co-signer who is a U.S. citizen.

Credit union loans

Private loans are also available from credit unions and community banks. If you already have a relationship with one of these organizations, you may be able to get better terms and discounts on your loan than you would get from larger financial institutions.

Bar exam loans

While law students or graduates prepare for the bar exam, these loans cover expenditures that standard student loans won’t pay, such as prep programs, living expenses, and exam application fees. The length of the loan varies from one to twenty years.

In addition, bar loans have higher interest rates than private or federal student loans.

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Medical school loans

For medical students with strong credit, private student loans may have cheaper interest rates than government loans. However, if you work for a nonprofit hospital after graduation, you won’t be eligible for federal Public Service Loan Forgiveness.

How to apply for a student loan

To apply for a federal student loan, you must first complete the Free Application for Federal Student Aid (FAFSA), which determines if you are eligible for federal grants, work-study, or loans. Your institution will give you a financial assistance offer based on the findings of your FAFSA, which will include federal student loans.

Your lender will choose how you apply for a private student loan. Most private loans, on the other hand, will need you to provide some personal information. After that, the lender will do some basic credit checks to determine whether you qualify. (Learn how to improve your credit score by clicking here.) The lender will then let you know if you’re qualified and, if so, will send the cash to you.

The application process for a federal student loan

Fill complete and submit the Free Application for Federal Student Aid (FAFSA®) to apply for federal student loans types. To be eligible for a federal student loan, you must complete the FAFSA. There are a few things to consider when completing the FAFSA for federal student loans types:

  • It’s worth noting that submitting it is completely free. (If you’re being asked to pay, you’ve arrived at the wrong site.)
  • Each year you need money for college, fill out the FAFSA.
  • It should be submitted as soon as possible after October 1. Because some grants are awarded on a first-come, first-served basis, the earlier you apply, the better.
  • When you receive your financial aid package, you’ll learn how much you’re eligible for in federal student loans.

How to apply for a private student loan

You apply directly to the lender since private student loans types are supplied by banks and financial entities rather by the federal government.

To apply for private student loans types, follow these steps:

  • Go to the lender’s website and fill out the application.
  • Examine the loan’s interest rate, as well as the loan’s repayment flexibility and other benefits.
  • Directly apply on the website. You’ll be prompted to select your preferred repayment arrangement and interest rate.
  • You should think about hiring a cosigner if you want to boost your chances of securing the loan.
  • The lender will run your credit (and that of your cosigner, if you have one) and inform you of their choice.
  • Filling out an online private loan application does not take long.

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