student loans
Choosing a loan that's right for you
Why Is it important?
If you’re considering student loans to help you pay for school, you’re not alone – many students need loans to cover their full cost of attendance. In 2010, 67% of bachelor's degree recipients used loans to pay for their education. But the more money you borrow now, the higher your monthly loan payments will be after you graduate.
If you have to take out student loans, comparing your options can help you find the student loan best suited for your needs.
Key Questions
If you have to take out student loans, you essentially have two choices: federal student loans and private loans.
For most borrowers, federal student loans are the best option. When you start to pay back your federal loans, the interest rate will be fixed, which will help you predict your payments after graduation. And in some cases, the federal government will pay the interest on your loans while you are in school – these loans are called subsidized loans.
Other student loans are generally private student loans. The most common private student loans are offered by banks. Their interest rates are often variable, which means your interest rates and payments could go up over time. Private loans can also be more expensive – rates have been as high as 16% over the past couple of years. And when it is time to repay, private loans don’t offer as many options to reduce or postpone payments.
For most people, federal student loans are a better deal than private student loans, so you’ll want to take advantage of federal options first.
If your grants and federal loans are not enough to cover the cost of your education, you should consider the following options:
First, make sure you need a private student loan. These loans generally are not as affordable as federal student loans and offer little repayment flexibility.
Here are some factors to consider:
I have to borrow money for school. What are my options?
If you have to take out student loans, you essentially have two choices: federal student loans and private loans.
For most borrowers, federal student loans are the best option. When you start to pay back your federal loans, the interest rate will be fixed, which will help you predict your payments after graduation. And in some cases, the federal government will pay the interest on your loans while you are in school – these loans are called subsidized loans.
Other student loans are generally private student loans. The most common private student loans are offered by banks. Their interest rates are often variable, which means your interest rates and payments could go up over time. Private loans can also be more expensive – rates have been as high as 16% over the past couple of years. And when it is time to repay, private loans don’t offer as many options to reduce or postpone payments.
For most people, federal student loans are a better deal than private student loans, so you’ll want to take advantage of federal options first.
What if my grants and federal loans don’t cover the cost of attendance?
If your grants and federal loans are not enough to cover the cost of your education, you should consider the following options:
What should I consider when shopping for a private loan?
First, make sure you need a private student loan. These loans generally are not as affordable as federal student loans and offer little repayment flexibility.
Here are some factors to consider:
Take action
- Fill out the FAFSA. Complete the form and submit it early.
- Explore all your federal loan options first.
- Shop around if your aid package doesn't cover the full cost of college.
action guide
what are the options?
Federal Loans | Private Loans | |
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6-month grace period for undergraduates Flexible monthly payments based on income or financial hardship, and possible debt forgiveness for teaching, military service, and other public service work |
6-month grace period for most loans Very limited flexibility for those with financial need or hardship |
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Rates are fixed The Subsidized Direct and Perkins Loans have no interest while you’re in school Interest rates range from 3.4% to 7.9%, depending on the loan program There is a 4% loan fee on PLUS loans and 1% fee for other Direct Loans. |
Rates are often variable – they can change over time You are charged interest while you are in school Interest rates range depending on your credit and other factors May charge various fees, like an origination fee. |
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Almost everyone is eligible for federal loans; those with financial need will qualify for lower rates | Lenders decide eligibility based on your credit and other factors, and you will likely need a co-signer |
limits
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Varies, depending on who you are and the type of loan, but cannot exceed your college costs Generally, undergraduates can max out at $5,500-12,000 per year, and graduate students at $8,000-20,500 per year More info at studentaid.ed.gov |
Varies, depending on your credit and other factors, but generally, you should not borrow more than your college costs |
Federal student loans almost always cost less and are easier to repay than private loans. You must complete the Free Application for Federal Student Aid (FAFSA) to be eligible for federal student loans.
Perkins LoansSubsidized with a fixed 5% interest rate, administered through your school, and awarded based on financial need If you are eligible, you should take this loan first |
Direct LoansEither subsidized or unsubsidized Everyone is eligible for the Unsubsidized Direct Loan, and Subsidized Direct Loans are awarded based on financial need |
Parent or Grad PLUS LoansAvailable to graduate students and parents Parents with PLUS loans are responsible for repaying those loans |
There are many different private loan options, with different interest rates and costs. Generally, private student loans have higher costs than federal student loans and require a co-signer.
Borrowing beyond your federal loans could mean high levels of debt. Make sure you have explored all other options including applying for additional scholarships, cutting costs, or getting a part-time job before taking out a private loan. If you are still deciding where to go to school, consider all your options, including finding a low-cost school.
However if you need a private student loan, you should know that there are some unexpected places to look for deals. It’s important to shop around and compare different loan offers.
State Agency LoansLoans offered by states to residents, or for students attending school in the state Ask your school's financial aid office for more information about "state sponsored alternative loans" |
Traditional Bank LoansThese loans come from commercial banks. You may be more familiar with their checking or savings accounts Talk to your parent or someone you trust about this option because you will likely need a co-signer |
School LoansSome schools have their own loan program for students, which tend to have fixed rates Ask your school’s financial aid office for more information |
Federal Loan Options
Federal student loans almost always cost less and are easier to repay than private loans. You must complete the Free Application for Federal Student Aid (FAFSA) to be eligible for federal student loans.
Perkins Loans
Subsidized with a fixed 5% interest rate, administered through your school, and awarded based on financial need
If you are eligible, you should take this loan first
Direct Loans
Either subsidized or unsubsidized
Everyone is eligible for the Unsubsidized Direct Loan, and Subsidized Direct Loans are awarded based on financial need
Parent or Grad PLUS Loans
Available to graduate students and parents
Parents with PLUS loans are responsible for repaying those loans
Private Loan Options
There are many different private loan options, with different interest rates and costs. Generally, private student loans have higher costs than federal student loans and require a co-signer.
Borrowing beyond your federal loans could mean high levels of debt. Make sure you have explored all other options including applying for additional scholarships, cutting costs, or getting a part-time job before taking out a private loan. If you are still deciding where to go to school, consider all your options, including finding a low-cost school.
However if you need a private student loan, you should know that there are some unexpected places to look for deals. It’s important to shop around and compare different loan offers.
State Agency Loans
Loans offered by states to residents, or for students attending school in the state
Ask your school's financial aid office for more information about "state sponsored alternative loans"
Traditional Bank Loans
These loans come from commercial banks. You may be more familiar with their checking or savings accounts
Talk to your parent or someone you trust about this option because you will likely need a co-signer
School Loans
Some schools have their own loan program for students, which tend to have fixed rates
Ask your school’s financial aid office for more information
Ask CFPB!
The government pays the interest on subsidized loans while you are in school. You pay the interest on unsubsidized loans. Subsidized loans are awarded to students based on financial need.
These are now called Federal Direct Loans.
Congress has the authority to change federal student loan rates, but once you agree to a federal student loan, your interest rate remains the same until you have paid it off.
Interest rates on private student loans are set by the lender that makes the loan and depend on the lender’s evaluation of your creditworthiness. Some private loans have variable interest rates, which mean your payment amount could change over time.
Don’t replace student loan debt with credit card debt – it can be a much more expensive way to finance your education. Credit cards do not provide the flexible repayment terms or borrower protections offered by federal student loans.
Contact the company that services your student loan immediately. You might be able to temporarily suspend your payments or work out a temporarily reduced payment. Ask your servicer if it has a program for “forbearance” or “deferment.” Learn more about your options to repay your student debt.
Take action
Fill out the FAFSA
Even if you are not sure you’ll be eligible for any federal aid, you still need the FAFSA – schools often award scholarships and other grant aid using FAFSA information.
If you are having trouble filling out the form, contact the Department of Education.
Explore all your federal loan options first
Shop around if your aid package doesn't cover the full cost of college