What Are All the Student Loan Options? An In-Depth Look

Attending college can be a great move for students, leading to unforgettable experiences and higher earnings after graduating. However, college can be very expensive. Often, student loans are a must, even after exhausting all available scholarships, grants, and family funding.

Navigating all the student loan options can be challenging, given how many are available. First, you must decide between federal and private, and then you may still have several options to consider. We’ll break down the various student loans to make choosing the right option for you easier.

Different types of student loans

For a student loan, you can generally choose from two broad categories: federal and private. The two have important differences—including eligibility, interest rates, and forgiveness options.

The type of student loans you qualify for may depend on other factors, such as financial need. This is especially true for certain federal student loans, such as direct subsidized loans. Private student loans also have eligibility requirements, such as creditworthiness, that may affect your options.

When considering federal and private student loans, you aren’t required to choose one or the other. It’s possible to have a mix of both and—given tuition costs and limitations on federal borrowing—you may need both. Each type has pros and cons you’ll need to consider carefully.

Types of federal student loans

Federal student loans are often the best choice for students pursuing higher education. They may have lower interest rates than private student loans and can qualify for forgiveness. In addition, unlike many private student loans, they may not have credit score requirements.

Federal student loans include subsidized and unsubsidized loans, PLUS loans, and consolidation loans. Here’s how the various options compare.

Types of private student loans

Terms for private student loans can depend on the type of schooling and who borrows the money. For instance, there may be different options for an undergraduate or graduate and whether the parent or student is the borrower.

Loan terms may vary, depending on the lender and loan amount, but they are generally five to 20 years for private student loans. Interest typically accrues when the loan is disbursed, unlike with federal student loans, which may delay interest accrual until graduation.

However, some private student loans, such as undergraduate and graduate loans, may have deferment options. Loan limits may be up to the cost of attendance.

How to apply for different student loan types

The application process depends on whether you apply for federal or private student loans. Even within these two broad types, there can be slight differences.

Applying for federal student loans

The general process of applying for federal student loans is:

1. Complete the Free Application for Federal Student Aid (FAFSA): Visit the Federal Student Aid website and complete the application. Fill out the form with your personal information. Add your parent or legal guardian's information if you are a dependent.
2. Review your Student Aid Report (SAR): The SAR is an electronic or paper document summarizing the information you entered on the FAFSA. Correct any errors if necessary.
3. Review and accept your offer: If you are deemed eligible, each school will send you a letter detailing the types and amounts you have been offered. You can accept an entire offer or just part of it.

Once you formally accept an offer, ask your financial aid office how and when your aid will be paid out. Also, ask what it will cover and how much (if any) will come directly to you after paying tuition and fees.

Applying for private student loans

The process for private student loans can require more steps. Here’s how it generally works:

1. Research and compare lenders: Many banks, credit unions, and online lenders offer private student loans. Research different lenders and compare their rates and terms.
2. Check eligibility: Each lender will have different requirements for credit scores, income, and co-signers.
3. Fill out and submit an application: Apply on the lender’s website, providing your personal information, financial details, and how much money you’d like to borrow.
4. Credit check: The lender will perform a credit check to determine whether you are eligible and what your interest rate should be. Keep in mind that this will require a hard credit inquiry. If you have a co-signer , the same applies to them.
5. Review and accept the offer: If you are approved for a loan, check the rates, terms, and any applicable fees. If everything looks good, sign the loan agreement.

Once your loan is finalized, the money will be sent to your school to cover tuition and other fees. Remember, interest generally starts to accrue immediately on private student loans.

Applying for different types of private student loans

As mentioned, there are many types of private student loans. The application process may vary slightly for each type.

• Undergraduate: Generally the same as the steps mentioned in the previous section. Make sure you have a co-signer if the lender requires one.
• Graduate: The general steps should be similar. However, it’s possible that certain lenders don’t offer loans for graduate studies. Double check this is an option with your preferred lender.
• Parent student loans: The parent should apply for the student loan, providing their information instead of the student’s. The application process should otherwise be similar.
• Refinancing: Process of research and comparing lenders is similar to applying for a regular student loan. However, when refinancing, you typically look for a lower rate or shorter repayment term than you currently have.

Keep in mind that each lender may have its own requirements. This could alter the steps of the application process.

Which type of student loan is the best to choose?

There isn’t a single best type of student loan in every situation. Each type has certain benefits that make them appealing under the right circumstances.

Federal student loans

After exhausting all available scholarships and grants, federal student loans are usually the next choice. This is because they can have lower interest rates and fewer credit score requirements. Interest rates are also fixed, leading to predictable monthly payments.

In addition, federal student loans may qualify for forgiveness and deferment options that aren’t always available with private student loans. Generally, no co-signer is required, except in the case of PLUS loans for undergraduate students.

Despite their benefits, there are limits on how much you can borrow with federal student loans. If you can’t cover the entire cost of college with scholarships, grants, and federal student loans, you may need to borrow the rest using private student loans.

Private student loans

These loans typically have less favorable terms for borrowers than federal student loans, but do have some advantages. For instance, loan limits can be higher than they are for federal student loans, so you won’t have to worry about seeking out an additional lender. In addition, they can have lower interest rates than federal student loans in some cases, such as for borrowers with excellent credit.

One downside of private student loans is they may require a credit check. This means they may not be suitable for those with poor or limited credit, at least not without a co-signer. Private student loans may have higher rates than federal student loans, especially for those who don’t have excellent credit.

TIME Stamp: Federal and private students loans provide many options

Many student loan variants are available, including federal and private student loans. Within each of these broad categories, you may have several additional loan options. Generally, federal student loans are the best choice after pursuing scholarships and grants. This includes PLUS loans. If you need additional help after applying for federal student aid, private student loans can help you reach your goal.

Frequently asked questions (FAQs)

Is it hard to get a private student loan?

Getting a private student loan can be difficult, especially if you have poor or limited credit. Even if you are approved, the terms may not be the best if you don’t have excellent credit. To improve your chances, you can add a co-signer with strong credit. However, the co-signer will be responsible for the loans if you default.

Are subsidized or unsubsidized loans better?

Subsidized and unsubsidized are useful in certain ways, and one is not necessarily better. The rates are lower for subsidized loans. Unlike unsubsidized loans, subsidized loans don’t accrue interest while you are in school. However, subsidized loans have lower limits and are needs-based, so not everyone will qualify.

Why can't I use a personal loan for student loans?

A lender might allow you to use a personal loan to pay for student loans, but it usually isn’t a good idea. For instance, if you have federal student loans, there’s a good chance they have lower rates than a personal loan. They might also qualify for deferment, forbearance, or forgiveness, which wouldn’t be available with a personal loan.