Student Loans: What Type to Choose and How to Get One?

Student loans are usually considered one of the best investments in your future. A student loan is the amount of money you borrow from government or private lenders to finance your education. You will have to turn back the money with interest within the period set by your loan payment plan, typically from 10 to 30 years.

Taking out a student loan is a responsible decision. First, you should choose the right lender or loan provider. You also should make sure you understand all the terms and conditions and that they suit you. As student loans can come from both the federal government and private lenders, such as banks or other traditional financial institutions, it’s important to see the difference between these products to make an informed lending decision. The major distinction is that federal student loans that come from the federal government usually have more benefits than loans from private lenders. Let’s learn more about the differences between federal and private student loans.

What are private student loans?

Private student loans are cash advances from banks or other traditional financial institutions that work almost like personal loans. You can get the amount you need to cover your college education cost if you meet all the eligibility criteria. Each lender may set its own requirements, so it may be harder to get a private student loan compared to a loan from the federal government. Private lenders always perform hard credit checks, so you should have a good or excellent credit score to get it.

What are the types of federal student loans?

The William D. Ford Federal Direct Loan Program allows you to borrow money from the U.S. Department of Education. There are four types of Direct Loans available through this program:

  • Subsidized Loans. The eligibility of these loans is based on the students’ financial needs. Subsidized loans are available for undergraduate students whose families don’t have enough money to cover the costs of higher education or school career. These loans commonly have better terms to help students in need;
  • Unsubsidized Loans. These loans offer some additional financing to eligible undergraduate, graduate, and professional students without demonstrating their financial needs;
  • PLUS Loans. PLUS loans are cash advances for dependent graduate or professional students and their parents. They can help you pay for education expenses not covered by other financial aid. This loan type requires a credit check, so if you have a bad credit history, you must meet some additional requirements to get it;
  • Consolidation Loans. These loans were created to combine all of your eligible federal student loans into one loan at better terms. It also makes it easier to manage your debt.

How much can I borrow from the federal government?

The amount you can borrow may vary, depending on what type of student you are:

  • Undergraduate students may borrow from $5,500 to $12,500 each year in Direct Subsidized Loans and Direct Unsubsidized Loans. The exact amount depends on your year in school and dependency status;
  • Graduate or professional students can take out up to $20,500 per year in Direct Unsubsidized Loans. They can also get Direct PLUS Loans for the remainder of their college costs not covered by other financial aid.
  • Parents of dependent undergraduate students can apply for Direct PLUS Loans and receive the amount they need for the remainder of their children’s higher education costs not covered by other financial aid they get.

What student loan to choose: federal loans vs. private loans

Federal student loans generally have more benefits compared to private student loans. Most federal student loans don’t require a credit check or a cosigner. They also offer lower interest rates that are typically fixed. Federal student loans are also better in terms of the repayment period. Thus, you don’t have to make your monthly payments until you leave college or drop below half-time. Also, if you prove you have a financial need, the government may pay your loan interest while you’re in school and six months after you leave it. Federal student loans are also more flexible and have various options for people who face difficulties with making their payments.

To apply for a federal student loan, you should fill out a free FAFSA form. Once submitted, your college or career school will send you a financial aid offer based on your FAFSA form results.