Student loan options

Understand the different ways you can borrow money to help pay for college

After you've explored free money for college (scholarships and grants), you may want to look into federal student loans, which are provided by the government, and then private student loans, which are provided by banks and other financial institutions, to help you pay for college.

Don't forget, with both federal and private student loans, you'll have to pay back the money you borrow plus interest.

Paying for college tip

With our private student loans, you can apply only once for the money you need for the entire school year.

See our private student loans

Understand federal vs private student loans

After you’ve explored free money, federal student loans and private student loans can help you pay for college.

Compare federal and private student loans

Learn about your other borrowing options

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Learn about ways to save on college costs before you get to college and while you’re in school.

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Types of student loan borrowing options

If you need money for college expenses, you need to know what your borrowing options are. The two most common ways to borrow are federal student loans and private student loans.

Learn about other borrowing options for college

Types of federal student loans

There are three types of federal student loans. They’re all provided by the government through the Federal Direct Loan Program.

  • Direct Subsidized Loans are based on financial need.
  • Direct Unsubsidized Loans are not based on financial need. They’re not credit-based, so you don’t need a cosigner. Your school will determine how much you can borrow, based on the cost of attendance and how much other financial aid you’re receiving.
  • Direct PLUS Loans are credit-based, unsubsidized federal loans for parents and graduate/professional students. Direct PLUS Loans for parents are also known as Parent PLUS Loans.

It’s important to consider federal student loans before you take out a private student loan, because there are differences in interest rates, repayment options, and other features.

Learn more about federal student loans

Types of private student loans

When you’ve explored scholarships, grants, and federal loans, and still need money for college, you can consider a private student loan.

  • They’re issued by a bank or other financial institution.
  • Private student loans are taken out by the student; they’re often cosigned by a parent or another creditworthy individual.
  • Parent loans are another way to get money for college. A parent or other creditworthy individual takes out the loan to help their student pay for college.

Learn more about private student loans

Madison is using 4 steps to ease the burden of college expenses

How to apply for a federal or private student loan

There are different application processes to follow, depending on which type of student loan you’re looking for.

The application process for a federal student loan

You apply for a federal student loan by filling out and submitting the Free Application for Federal Student Aid (FAFSA®). You MUST submit the FAFSA to be eligible for a federal student loan.

To submit the FAFSA for federal student loans (and for all types of federal financial aid), there are a few things to keep in mind:

  • Remember that there’s no cost for submitting it. (If you’re asked to pay, you’re not at the right website.)
  • Complete the FAFSA every year you need money for college.
  • Get it in as soon after October 1 as possible. The earlier, the better, since some grant money is awarded on a first-come, first-served basis.

You’ll find out about how much you’re eligible for in federal student loans when you receive your financial aid offer.

How to apply for a private student loan

Since private student loans are offered by banks and financial institutions (as opposed to the federal government), you apply directly to the lender.

Follow these instructions to apply for a private student loan:

  1. Go to the lender’s website.
  2. Check the interest rate of the loan, along with the flexibility of repayment options and other benefits.
  3. Apply directly on the website. You’ll be asked to choose the type of repayment option and interest rate type you want.
  4. You may want to consider adding a cosigner which may improve your chances of getting the loan.
  5. The lender will check your credit (and your cosigner’s, if you have one), and will communicate the decision to you.

It doesn’t take long to fill out a private loan application online. If you apply for a loan with us, it only takes 10 minutes to apply and get a credit decision.

How to accept your federal or private student loan

You accept your federal student loans by signing and returning your financial aid offer. You may be asked to take part in entrance counseling at your school to make sure that you understand your loan obligations. Plus, you’ll sign a Master Promissory Note (MPN) to agree to the loan’s terms.

You accept your private student loans after you’ve been approved. Here’s our process:

  1. You’ll choose the type of interest rate and repayment option for your loan.
  2. You or your cosigner will accept the terms of your loan and sign it electronically.
  3. Your school will be asked to certify your eligibility, including verifying your enrollment and the loan amount you’ve requested.

Both federal and private student loans are legal agreements. When you agree to a loan and sign or e-sign for it, you’re committed to paying it back, along with interest.

Repaying federal and private student loans

  • Federal student loans: Following a six-month grace period, you generally begin to make principal and interest payments.
  • Private student loans: You’ll generally have a six-month grace period. If you elected to make in-school fixed or interest payments with our Smart Option Student Loan, you’ll continue to make those payments during your grace period. After that, you’ll begin to make principal and interest payments.

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How to borrow responsibly for college

When you’re borrowing money for college, it’s important to borrow responsibly. We recommend these three steps:

  1. Start with your college savings and “free” money that you won’t have to pay back—scholarships, grants, and work-study.
  2. Use federal student loans.
  3. Consider a responsible private student loan.

Other tips for borrowing responsibly: Consider what your salary will be after you leave school, remember that you’ll have to pay back your loans with interest, and don’t borrow more than you’ll need for school costs.

Frequently asked questions about student loan options

When comparing federal student loans vs private loans, the key difference is that federal loans are provided by the government and private loans are provided by banks, credit unions, and other financial institutions. Each has its own student loan eligibility criteria, application process, and terms and conditions.

In general, federal student loans provide additional flexibility:

  • Borrowers don't need a credit check to be considered (except for the Federal PLUS Loans for parents and graduate students).
  • Some federal student loans offer income-driven repayment plans, where the rate of repayment is based on the borrower's salary after college.
  • Federal student loans allow the borrower to change their repayment plan even after they've taken out the loan.

Private student loans can help you pay for college after you've explored scholarships, grants, and federal student loans.

  • Private student loans usually offer the choice of a fixed or variable interest rate. Fixed rates stay the same, giving you predictable monthly payments. Variable rates may go up or down due to an increase or decrease to the loan's index.
  • Private student loans offer different repayment plans—including options that allow you to make interest-only or fixed payments while you're in school. These in-school payments could lower your total student loan cost.
  • Some private student loans allow you to track your credit health for free with quarterly FICO® Credit Scores.

Private student loans can be taken out by a student (often with a cosigner), parent, or creditworthy individual (e.g. guardian or other relative).

Money borrowed through federal student loans will ultimately need to be paid back with interest—unless you’re borrowing Direct Subsidized Federal Loans, which have benefits like the government paying interest on the loan while you’re in school. These loans are need-based and aren’t available to everyone.

Federal student loan interest rates are reviewed and determined based on 10-year Treasury notes, plus a fixed rate of interest. They’re reset on July 1 of every year. Rates are set by federal law, not the Department of Education.

For federal student loans first disbursed on or after July 1, 2024 and before July 1, 2025, the interest rates are as follows:

Direct subsidized and unsubsidized undergraduate loans: fixed rate of 6.53%

Direct unsubsidized graduate or professional loans: fixed rate of 8.08%

Direct PLUS loans for parents, graduates, and professional students: 9.08%

Federal student loans only offer fixed interest rates, which means your rate never varies and you’ll have a predictable monthly payment. 

Most private student loans offer a choice of fixed or variable rates.

  • A fixed interest rate stays the same for the life of your loan—the rate you get when you receive the loan is the same one you’ll have when you pay it off.
  • A variable rate is calculated based on an index (set by the banking industry) and a margin (set by the lender). The index typically mirrors federal interest rate movements. When the index goes up or down, a variable rate will likely do the same.

Federal student loan benefits:

  • You have flexibility.
    Though any student loan—federal or private—is a legal agreement and must be paid back with interest, federal student loans generally offer more flexible options than private student loans. For example, with federal student loans, the borrower can change their repayment options even after the loan has been disbursed (sent to your school).
  • You can make payments based on your income.
    Some federal student loans allow for income-driven (or income-based) repayment plans for qualifying borrowers, which cap payments based on the borrower’s income and family size.
  • You don’t need a strong credit history to get federal student loans.
    Unlike with private student loans, federal student loans don’t require the borrower to have a strong credit history. This can be especially helpful for recent high school graduates who plan on attending college but haven’t had enough time to build up credit of their own.
  • You don’t need a cosigner.
    With most federal student loans, other than Direct PLUS Loans, the borrower’s credit is not considered, so it’s not necessary to apply with a cosigner.

Both federal subsidized and unsubsidized student loans have the same interest rates, and interest accrues (grows) on both from the moment your school gets the money. The difference is who pays the interest while you’re in school—you or the government.

Subsidized loans: Federal subsidized loans are based on financial need (as determined by the FAFSA®). In effect, the government will pay the interest for you while you’re in school (if you’re enrolled at least half-time), during your grace period, and if you need a loan deferment. When you leave school, the government stops paying your loans’ interest. You’ll repay the original amount that you borrowed and the interest that starts to accrue (grow) from that moment. Subsidized loans are only available to undergraduates, and there’s usually a lower loan limit than with an unsubsidized one.

Unsubsidized loans: With an unsubsidized loan, you're responsible for the interest from the moment the amount you borrow is disbursed (sent) to your school. Unlike a subsidized loan, the federal government will not help with interest that accrues. Unsubsidized loans are available to both undergrads and graduate students. When you start paying back your unsubsidized loans, your repayment will include the original amount you borrowed and the interest that has accrued.

While international students can’t receive U.S. federal student aid like federal loans or work-study, you might be eligible for private student loans. Most private student loan lenders require that you apply with a cosigner who is a U.S. citizen or permanent resident.

You might also be eligible for financial aid allocated for international students, as well as scholarships and grants.

The most common federal student loans are Direct Subsidized Loans and Direct Unsubsidized Loans.

  • Direct Subsidized Loans are for students with demonstrated financial need, as determined by federal regulations. There is no interest charged while an undergraduate student is in school at least half-time, during deferment (a period when loan payments are temporarily postponed), or during grace (the period, usually six months after you graduate or leave school, before you begin to make principal and interest payments).
  • Direct Unsubsidized Loans are student loans that aren’t based on financial need. Your school determines the amount you can borrow based on the cost of attendance and other financial aid you receive. Interest is charged during all periods and may be capitalized (when unpaid interest is added to a student loan’s principal amount) at certain times during the loan period, which may increase your total federal loan cost.

footnote FAFSA® is a registered service mark of U.S. Department of Education, Federal Student Aid.