Comparing student loan options

You’ve got student loan options

Before thinking about student loans, there are a few things you should have checked off your list:

• Submitted the FAFSA^® (Free Application for Federal Student Aid)
• Received your financial aid offers
• Added up any grants, scholarships, work-study, and savings you have

If you need more money for school, a student loan could help. There are two types of student loans—federal and private. Find out the details about each one.

Federal student loans

Federal student loans are offered by the government, and you automatically apply for them when you submit the FAFSA^®. If you’re eligible for them, you’ll receive them in your financial aid offer. You don’t have to accept them if you don’t want to, or you can accept just a portion of the loan if you choose—borrow whatever you need to pay for your college costs. There are a few types of federal student loans available—here are the specifics.

Direct Subsidized Loans

Direct Subsidized Loans are for undergraduate students with financial need determined by the information from your FAFSA^®. With these loans, interest isn’t charged while you’re in school. Interest begins to accrue (grow) after you graduate or leave school and finish your six-month grace period.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are for undergraduate or graduate students—financial need isn’t required. Your school will figure out how much they can offer you based on the cost of attendance (COA) and how much other financial aid is included in your offer. Interest will accrue while you’re in school, but you can still choose to pay during school or wait until you’ve graduated or left and finished your grace period.

Direct PLUS Loans

Direct PLUS Loans are credit-based federal student loans for parents or graduate/professional students. The parent loan is commonly known as the Parent PLUS Loan. There are different requirements for parents and students to get these loans:

Parents need to:

• Be the biological or adoptive parent of a dependent undergraduate student enrolled at least half-time
• Be a U.S. citizen or eligible non-citizen
• Meet minimal credit standards

Students need to:

• Be a U.S. citizen or eligible non-citizen
• Avoid having previous student loan defaults (unless they’ve been resolved or consolidated)
• Meet general eligibility requirements for financial aid

Direct Consolidation Loans

Direct Consolidation Loans let you combine your federal student loans into one loan with a fixed interest rate. The interest rate will be the weighted average of your previous loans’ interest rates rounded up to the nearest one-eighth of a percent.^{footnote 1}

Private student loans

Private student loans are borrowed from banks, credit unions, and other financial institutions. These should be considered after federal student loans. You can shop around and look for a lender that has interest rates and repayment options you’re interested in. These loans are taken out by the student, but they require a credit check. If you don’t have a credit history or have credit that could use some work, having a cosigner may help you get approved and may even lower your interest rate.

Federal vs private student loans

Federal and private student loans have some key differences that may determine which one you’re interested in taking out to pay for school.

Federal student loans:

• Don’t require a credit check (except for the Direct PLUS Loan)
• Don’t require a cosigner
• Offer income-drive repayment plans based on the borrower’s salary after college
• Allow borrowers to change their repayment plan

Private student loans:

• Offer fixed or variable interest rates
• Allow borrowers to make interest-only or fixed payments
• Require a credit check
• Offer benefits when taken out with a cosigner

Pick the best student loan for you

Both federal and private student loans are great options to help you pay for school after you’ve considered grants, scholarships, work-study from the FAFSA^®, and savings. Understanding the differences between the two and doing more research on the loans you’re interested in borrowing will help you make the right decision for your school journey.