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College students and their parents have two general student loan options: federal and private loans. Within those categories, however, you may have access to different types of loans designed for specific needs. Here's what you need to know about each one.
The Main Types of Student Loans
Depending on your situation and needs, there are a few different federal and private loan programs from which you can choose. Here's a quick summary of the different options that are available:
| Direct Subsidized Loans | Direct Unsubsidized Loans | Direct PLUS Loans | Private Student Loans | |
|---|---|---|---|---|
| Interest rates (2024-2025 school year) | 6.53% fixed | 6.53% fixed for undergraduates; 8.08% fixed for graduate students | 9.08% fixed | Varies by lender and creditworthiness; fixed or variable |
| Repayment terms | 10 to 30 years | 10 to 30 years | 10 to 30 years | 10 to 25 years |
| Eligible borrowers | Undergraduate students | Undergraduate, graduate and professional students | Graduate and professional students and parents | Undergraduate, graduate and professional students and parents |
| Credit check required? | No | No | Yes | Yes |
| Relief options | Subsidized interest; income-driven repayment plans, forgiveness plans, forbearance and deferment | Income-driven repayment plans, forgiveness plans, forbearance and deferment | Income-driven repayment plans, forgiveness plans, forbearance and deferment | Forbearance and deferment (varies by lender) |
| Best for | Undergraduate students with financial need | Eligible college students without financial need | Eligible graduate and professional college students and their parents | Students and parents who don't qualify for federal loans or need more than federal loans offer |
Types of Federal Student Loans
There are three federal student loan programs, each designed for a certain set of borrowers. In most cases, college students and their parents are better off with federal student loans because they generally don't require a credit check, and interest rates are standardized for all borrowers. They also offer more relief options for struggling borrowers.
Here's how the different options break down.
Subsidized Direct Loans
Subsidized federal loans are reserved for undergraduate students with demonstrated financial need. With these loans, the federal government pays accruing interest while you're enrolled in school; during the six-month grace period after you graduate, leave school or fall below half-time enrollment; and during future periods of deferment.
There are, however, annual borrowing limits based on which year of school you're in:
- First year: $3,500
- Second year: $4,500
- Third year and beyond: $5,500
In total, you can only qualify for up to $23,000 in subsidized loans.
Unsubsidized Direct Loans
Undergraduate, graduate and professional students can apply for unsubsidized federal loans. While there's no interest benefit like the one offered on subsidized loans, you'll have access to higher loan limits.
Just keep in mind unsubsidized loan limits include any subsidized loans you may qualify for as an undergraduate student:
| Unsubsidized Student Loan Borrowing Limits | ||
|---|---|---|
| Year | Dependent Students | Independent Students |
| First-year undergraduate | $5,500 | $9,500 |
| Second-year undergraduate | $6,500 | $10,500 |
| Third-year undergraduate and beyond | $7,500 | $12,500 |
| Graduate and professional student | Not applicable (graduate students are considered independent) | $20,500 |
| Unsubsidized aggregate limit | $31,000 | $57,500 for undergraduate students; $138,500 for graduate and professional students |
Direct PLUS Loans
You can apply for direct PLUS loans if you're a graduate or professional student or a parent of an undergraduate student looking to help put your child through college.
PLUS loans don't have a set borrowing limit. Instead, you can borrow up to the total cost of attendance at your school minus any other financial aid you or your child has received.
That said, the PLUS loan program is the only federal loan program that requires a credit check. There's no minimum credit score requirement, but you'll need to show that you don't have an adverse credit history—check the Federal Student Aid website to learn more about what may disqualify you.
Also, if you're a parent, your repayment plan begins immediately unless you request a deferment until six months after your child leaves school, graduates or falls below half-time status.
Types of Private Student Loans
Private student loans are offered by a variety of private lenders. Unlike federal student loans, private loans come with a range of interest rates and terms, which can vary depending on your creditworthiness.
Additionally, some lenders may offer different loan options designed for different programs and needs. Because private student loan terms are contingent on your credit and financial situation and offer fewer relief options, students and parents who qualify for federal student loans should apply for those first.
However, if you've exceeded your allotment of federal student loans or you're ineligible for federal loan programs, private loans can help you meet your needs.
Undergraduate Private Loans
You can apply for undergraduate student loans on your own, but you'll likely need a creditworthy cosigner if your credit history isn't well-established. While some lenders offer private loans with no cosigner requirement, the interest rates are generally high.
Interest rates, repayment options, loan limits and repayment terms can vary depending on the lender you choose, along with your and your cosigner's credentials.
Graduate Private Loans
You can apply for a graduate private loan if you're in a graduate degree program. As with undergraduate private loans, you may get approved on your own or with a creditworthy cosigner.
Graduate loans typically offer higher loan limits than undergraduate loans, but other loan terms can vary depending on your credit and financial situation.
Parent Loans
If you're a parent who wants to help your child, seek out private lenders that offer parent loans. Unlike parent PLUS loans, which give you the option to defer your payments until your child leaves school, not all private lenders offer in-school deferment—though some may allow reduced payments.
As with other private loans, your interest rate and other loan terms will depend on the lender and your creditworthiness.
Specialized Private Student Loans
Some lenders offer loan programs designed for more specific circumstances—primarily graduate and professional programs—that offer terms more tailored to your needs. Some options include:
- MBA loans
- Law school loans
- Bar study loans
- Medical school loans
- Dental school loans
- Medical or dental residency loans
- Health professions loans
- Career training loans
How to Choose the Right Type of Student Loan
As you consider your options, here are some factors that can help you determine which type of student loan is the right one for you:
- Financial need: If you come from a low-income family or you're an independent undergraduate student, subsidized federal loans can help you save thousands of dollars on interest.
- Credit situation: If you have less-than-stellar credit or haven't had the chance to establish your credit history, your best bet is to apply for federal student loans. Most federal borrowers don't need to undergo a credit check, and your interest rate isn't dependent on your credit score. If you don't qualify for federal loans, you can still consider private loans, but only if you have a creditworthy cosigner.
- Educational expenses: If you're an undergraduate student and need more than you can qualify for with federal loans, you may need to also apply for private loans to bridge the gap. If you're a graduate or professional student or a parent, however, you can use PLUS loans to qualify for higher borrowing limits.
- Repayment plan: If your credit and financial situation are in great shape, you may not need access to federal loan relief options and could potentially get better terms on a private loan. However, if your future financial situation is uncertain or you anticipate needing help or qualifying for forgiveness, it's wise to choose federal loans.
Learn more >> Qualifying for Student Loans: What You Need to Know
Frequently Asked Questions
In most cases, federal student loans are a better choice because they have fewer (or nonexistent) credit requirements, standardized fixed interest rates and a host of relief options for struggling borrowers.
However, if federal loans don't meet all of your needs, you may consider private loans as an alternative or supplement to your federal loans.
You can technically use personal loans for just about anything—though some lenders specifically prohibit educational expenses.
But even if college costs aren't excluded, it's not advisable for a few reasons. For starters, personal loans typically charge higher interest rates than student loans, and they also have shorter repayment terms—many lenders max out at five or seven years. Additionally, personal loans don't offer the same relief options as student loans.
Learn more >> Should I Use a Personal Loan to Pay for My Education?
Managing your student loans responsibly can help improve your credit over time. However, if you miss a payment on one or more student loans, it can damage your credit.
The Bottom Line
Student loans may not be the most fun part of college, but they are often necessary for making your education plan work. That said, it's important to minimize how much you borrow to avoid putting your future self in a difficult financial position. Consider other ways to pay for college and look for opportunities to make money to help cover your general living expenses, so you can reduce your need for loans.