Is everyone able to get student loans?

Eligibility is not guaranteed, but most borrowers can qualify for a student loan. Federal student loans have unique eligibility criteria, including citizenship or permanent residency. Borrowers must also be enrolled — or accepted for enrollment — as a student in a qualifying degree or certificate program and complete a FAFSA. There are some reasons why you may be denied eligibility for federal student loans, including incarceration or defaulting on an existing federal loan. Private student loans have eligibility requirements based on the lender. These may include age minimums and/or creditworthiness.

Are subsidized or unsubsidized loans better?

Subsidized loans will save you money in the long run, as the borrower is not charged interest while enrolled in school or during grace or deferment periods. However, not all borrowers will qualify to borrow subsidized loans — you must demonstrate financial need on the FAFSA to be eligible.

Can you use a personal loan instead of a student loan?

Personal loans often restrict people from using them to pay for educational purposes, but they could help with living expenses while in school. However, personal loans usually have drawbacks like shorter repayment times and higher interest rates than student loans. Personal loans also often have strict income and credit requirements to qualify.

What makes student loans different from other types of loans?

Student loans are designed specifically for educational uses. Payments usually start six months after graduation, when you leave school or drop down to less than half-time enrollment. Federal student loans have specific borrower protections, like deferment or forbearance, loan forgiveness or income-based repayment plans. Some private loans may have similar borrower protections like forbearance of deferment, but terms and fees for postponing payments vary by lender. Student loans also may have more lax credit and income requirements than other loan types because they were designed with younger college students who have not had the time to build credit in mind.

Types of student loans

Written by

Rebecca Betterton,

Edited by

Rhys Subitch

Published on July 23, 2024 | 7 min read

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Key takeaways

There are two main types of student loans: federal and private.
Federal student loans have unique repayment options and are the only avenue for loan forgiveness programs.
Private student loans may offer lower interest rates for borrowers with excellent credit.
It is important to compare options and read the fine print when considering private student loans.

The two main types of student loans are federal and private. Federal student loans do not require a minimum credit score and should be considered ahead of other funding routes. More than that, this option is the only avenue for loan forgiveness programs.

Private student loans, on the other hand, are best fit for borrowers who need more than what federal student loans offer or for those who don’t qualify for federal loans due to citizenship status.

Student loan types: federal and private

Within the federal and private student loan categories, there are different types that suit some borrowers over others. Consider the main factors of the most common student loan types.

	Direct Subsidized Loan	Direct Unsubsidized Loan	Direct PLUS Loan	Private student loan
Type	Federal	Federal	Federal	Private
Interest rate	6.53% (2024-25)	6.53% for undergraduates, 8.08% for graduates (2024-25)	9.08% (2024-25)	4% to 15%
Repayment term	Standard term is 10 years	Standard term is 10 years	Standard term is 10 years	5 to 25 years
Eligible borrowers	Undergraduates with financial need; borrowers must be a U.S. citizen or permanent resident and meet other eligibility criteria	Undergraduates and graduates; borrowers must be a U.S. citizen or permanent resident and meet other eligibility criteria	Graduates and parents; borrowers must be a U.S. citizen or permanent resident and meet other eligibility criteria	Undergraduates, graduates and parents; borrowers must have good credit and a steady income
Best for	Undergraduate borrowers from low-income families	Borrowers who don’t qualify for need-based aid	Graduate students who have maxed out unsubsidized loans; parents	Borrowers who have maxed out federal loans; borrowers with excellent credit

Each of the student loan types have limits on what you can borrow. For instance, the maximum you can borrow annually with a direct subsidized loan and a direct unsubsidized loan is from $5,500 up to $12,500. Graduate or professional students can borrow as much as $20,500 annually using a direct unsubsidized loan.

In addition, the Department of Education allows Direct PLUS loans to cover any remaining college costs that have not been covered by financial aid.

Types of federal student loans

While there are many ways to pay for college, federal student loans are one of the most popular options. These loans offer flexible payment options and often have low interest rates. The federal Direct Loan Program offers a few loan types.

How to get federal student loans

To access federal student loans, you must complete what’s known as the Free Application for Federal Student Aid (FAFSA) application. This application helps determine the amount of aid you’re eligible to receive. This amount can include federal student loans. To find out more, you can visit the Federal Student Aid website.

Direct subsidized loans

Direct subsidized loans are available to undergraduate students who have demonstrated financial need. These loans do not accrue interest while the borrower is in school, during the six-month grace period or any deferment period afterward.

Borrowers must fill out the FAFSA to apply for this type of loan option. After that, students will receive a financial aid offer letter.

Direct unsubsidized loans

Direct unsubsidized loans are available to undergraduate, graduate and professional students. Borrowers do not need to demonstrate financial need, but these loans accrue interest immediately. This means that you’ll be accruing interest during school, after you graduate and during periods of deferment and forbearance.

This finance option also requires that you fill out the FAFSA. The main difference is that borrowers are expected to pay interest.

Direct PLUS loans

Direct PLUS Loans are available to graduate or professional students or parents of dependent undergraduate students to help pay for education expenses. Direct PLUS Loans (also known as graduate PLUS loans and parent PLUS loans) carry higher interest rates and higher loan origination fees than Direct Subsidized and Unsubsidized Loans.

Unlike other federal student loans, parent PLUS loans are taken out by parents directly. While students can make payments themselves, their parents will still be legally and financially responsible for repaying the full balance of parent PLUS loans. The loan will show up on only the parent’s credit report, not the student’s.

Types of private student loans

Unlike federal student loans, which offer only fixed rates, private student loans can have fixed or variable interest rates. Qualified borrowers can secure low interest rates and benefit from various repayment terms, incentives and consolidation options.

Undergraduate loans

Private student loans geared toward undergraduates often come with various repayment terms and may even give borrowers a discount on their principal once they graduate school. However, unlike federal student loans, private lenders almost always require a co-signer since undergraduates have typically not had time to develop a credit history.

Undergraduate private student loans usually have higher interest rates than graduate student loans. However, these loan options also usually have lower loan amount limits.

Graduate loans

Private student loan lenders may offer specific loan options tailored to graduate, law, medical and business school students. Private loans for graduate or professional students are less likely to require a co-signer than undergraduate loans. They often have higher loan limits, longer repayment terms, and lower interest rates.

In many cases, private graduate student loans also come with features specific to graduate school’s needs — for instance, some lenders offer long grace periods, in-school deferment periods and additional deferment while students complete a residency.

Parent loans

Parents can take out loans to help pay for their children’s education. Like regular student loans, parent loans come in federal and private options.

A common federal option is the parent PLUS loan. Qualifying applicants can borrow the full cost of their dependent’s attendance minus other financial assistance. There are credit and enrollment requirements for this option, but parents might also consider looking into a private student loan to see if they qualify for a better interest rate.

Which type of student loan should you choose?

There are no hard-and-fast rules for deciding which loan option is best for you. The best option comes down to your finances, preferences and risk tolerance. However, as a general rule, federal student loans should be the first place you look.

Federal student loans

Federal student loans are suitable for every kind of qualifying borrower. They offer unique repayment options and longer deferment periods than private lenders, and they’re the only avenue for loan forgiveness programs.

They also don’t have a minimum credit score, so undergraduates can access loan funds without needing a co-signer. In general, borrowers should max out their federal student loans before taking out private loans.

Private student loans

Private student loans are best for borrowers who don’t qualify for federal student loans because of citizenship status or borrowers who need to borrow far more than what federal student loans provide. Private student loans may also be a good option for borrowers with excellent credit since some lenders offer lower starting rates than the federal government.

The bottom line

A good first step when considering student loans to help finance your college education is to complete the FAFSA and find out what federal aid you may qualify for. This can help you develop the rest of your game plan for borrowing money from other sources.

If private student loans are the route to cover the remaining costs, carefully compare student loan rates to find the most competitive option before applying for a student loan.

Frequently asked questions

Eligibility is not guaranteed, but most borrowers can qualify for a student loan. Federal student loans have unique eligibility criteria, including citizenship or permanent residency. Borrowers must also be enrolled — or accepted for enrollment — as a student in a qualifying degree or certificate program and complete a FAFSA.

There are some reasons why you may be denied eligibility for federal student loans, including incarceration or defaulting on an existing federal loan. Private student loans have eligibility requirements based on the lender. These may include age minimums and/or creditworthiness.
Subsidized loans will save you money in the long run, as the borrower is not charged interest while enrolled in school or during grace or deferment periods. However, not all borrowers will qualify to borrow subsidized loans — you must demonstrate financial need on the FAFSA to be eligible.
Personal loans often restrict people from using them to pay for educational purposes, but they could help with living expenses while in school. However, personal loans usually have drawbacks like shorter repayment times and higher interest rates than student loans. Personal loans also often have strict income and credit requirements to qualify.
Student loans are designed specifically for educational uses. Payments usually start six months after graduation, when you leave school or drop down to less than half-time enrollment. Federal student loans have specific borrower protections, like deferment or forbearance, loan forgiveness or income-based repayment plans.

Some private loans may have similar borrower protections like forbearance of deferment, but terms and fees for postponing payments vary by lender. Student loans also may have more lax credit and income requirements than other loan types because they were designed with younger college students who have not had the time to build credit in mind.