If you’re considering taking out a student loan, you’re far from alone. Studies show that more than half of all U.S. students take out a loan for college, with the average student loan debt hovering at about $37,500.
Fortunately, with plenty of different types of student loans available, it’s easy for both undergraduate and graduate borrowers to find the loan and terms that meet their needs. Of course, that’s only true as long as you’re willing to research!
If you’re not sure where to start when it comes to student loans, here’s what you should know about the two main types to choose from.
Federal Student Loans
The first options for student loans are those offered by the U.S. government. Federal student loans tend to offer a number of key benefits for undergraduate borrowers, like fixed interest rates and flexible repayment plans.
In many cases, you can also take advantage of various student loan forgiveness programs, depending on the terms and conditions of your loan.
There are different types of loans available for different students and needs:
- Direct subsidized loans: This option offers support for those who can provide proof of outstanding financial need, and the student won’t repay interest while attending school
- Direct unsubsidized loans: This option is for all undergraduate and graduate students, who will pay interest when they start to repay the loan
- Direct PLUS loans: These loans are for graduate and professional degree students, and they require borrowers to pay interest during repayment as well as additional fees
- Direct consolidation loans: For borrowers taking out multiple loans, this option can help consolidate them into a single loan with a better repayment plan
If you want to apply for a federal student loan, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA).
Private Student Loans
As the name suggests, private student loans are loans that come from a private lender. This can include banks, credit unions, or even the student’s university.
Students may opt for a private loan when they don’t qualify for a federal student loan. In addition, they may opt for one when the terms of a private loan are better for the student’s financial needs.
In general, private student loans may require more research. This is because they offer a range of interest rates, terms, and repayment plans. However, some students may find them a better option than federal student loans.
When you borrow from private lenders, there are a generally few types of loans to choose from:
- Degree-specific loans: These loans are for students who are interested in specific degree programs
- International student loans: These options allow international students to qualify
- Bad-credit loans: Students with no credit history or a poor credit history may benefit from these loans, which won’t require a credit check
- State-specific loans: Many states offer loan programs for students within the state
Many of these loans are essentially term loans, meaning that the student will repay the loan over a set term—often between one and ten years. These loans will have a different application process from lender to lender, though you will typically need to undergo a credit check.
Research the Different Types of Student Loans
Though it may take time and effort to sift through the different types of student loans available to you, the payoff can be well worth it. Securing a loan with the best possible terms and repayment plan can put you in a financially solid position for years to come. Be sure to consider both federal and private loans as you do your homework!
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