Your Guide to Understanding Every Type of Student Loan Available Today

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

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With so many types of student loans, how do you pick the right one?

Even when narrowing your focus to federal student loan options, there are a half-dozen different options with varying eligibility requirements, interest rates, and maximum borrowing amounts.

To help you find the best option, here’s an overview of the types of student loans available, both federal and private.

Federal student loans

Filling out the FAFSA, applying for grants and scholarships, and lining up work-study or part-time job opportunities are all important precursors to taking out a student loan. Unlike those steps, taking out a loan will require repaying what you borrow, plus interest.

It’s important to clarify what makes federal student loans unique to private options.

  • Interest rates are generally lower and always fixed.
  • Credit checks and cosigners are mostly unnecessary.
  • Flexible payment plans and loan forgiveness programs may be available.
  • Consolidating multiple federal loans can lower a monthly payment if the repayment plan is extended.

Three more important considerations about these government-funded loans:

  • Maximum borrowing amounts depend on grade level and dependency status, plus the cost of attendance.
  • Loan servicers are chosen by the federal government or school, which serves as the lender.
  • Paid interest might be more easily tax-deductible (though private loan interest can also be eligible).

The federal loan program is robust and offers many different types of student loans. Though specific eligibility requirements vary, you could qualify for one or more of the following types of federal student loans.

1. Federal Perkins Loans (no longer available)

Before it expired on Sept. 30, this school-based program was designed for undergraduate, graduate, and professional students who could demonstrate extreme financial need. In other words, students who come from low-income families or who are completely independent.

The advantage of taking out a Perkins Loan was that your school would pay the interest that accrued while you were enrolled. Not all schools offered Perkins Loans, and those that did might have had limited funds to spread around. This sometimes resulted in needy students not receiving the maximum amount or not getting any support at all.

Interest rate: 5%
Max borrowed: $5,500 for undergraduates, $8,000 for graduates
Loan fee: n/a

2. Direct subsidized federal loans

Also known as Stafford loans, direct subsidized and unsubsidized loans have one significant difference. With subsidized debt, the Department of Education will cover the interest that accrues on your loans while you’re enrolled at least half-time in school.

For example, one year of interest on a $5,500 loan would be $206.80 for a Class of 2016 college freshman. If you qualify for a subsidized loan, the government will foot that bill for you.

Eligible undergraduate students must demonstrate a financial need to benefit from this. The schools to which you’ve been accepted will then detail the amount you can borrow in your college award letter.

Interest rate: 3.76% for undergraduates, 5.31% for postgraduates (for loans disbursed July 1, 2016, to July 1, 2017)
Max borrowed: $5,500 to $12,500 for undergraduates, $20,500 for graduates.
Loan fee: 1.069% (for loans disbursed Oct. 1, 2016, and Oct. 1, 2017)
Terms: 10 to 25 years

3. Direct unsubsidized federal loans

Unlike subsidized federal loans, the unsubsidized version is also accessible to graduate and professional students, and awarding of the loan is not based on financial need or merit. In other words, almost everyone is eligible for this loan, as long as they’re enrolled at least half-time in school.

With unsubsidized loans, you’re on the hook for accruing interest while you’re enrolled, as well as during a grace period or while in deferment or forbearance. What’s more, the interest capitalizes when it goes unpaid, meaning that it will be added to the principal of the original loan amount.

Interest rate: 3.76% for undergraduates, 5.31% for postgraduates (for loans disbursed July 1, 2016, to July 1, 2017)
Max borrowed: $5,500 to $12,500 for undergraduates, $20,500 for graduates
Loan fee: 1.069% (for loans disbursed Oct. 1, 2016, and Oct. 1, 2017)
Terms: 10 to 25 years

4. Direct PLUS loans

PLUS loans, whether they’re for students or parents (see No. 5, below) are unique in that they require the applicant to undergo a credit check. The Direct PLUS loan, specifically, was built for graduate and professional students who have had more time to improve their credit score (unlike undergraduates entering college, who might have never held a credit card).

To qualify for PLUS loans, a bad (or limited) credit history can be helped by an endorser who has strong marks on a credit report.

Direct PLUS loans also give their borrowers until six months after they finish or leave school to begin making payments.

Interest rate: 6.31% (for loans disbursed July 1, 2016, to July 1, 2017)
Max borrowed: The cost of attendance minus any other financial aid
Loan fee: 4.276% (for loans disbursed Oct. 1, 2016, and Oct. 1, 2017)
Terms: 10 to 25 years

5. Parent PLUS loans

This loan type is for biological, adoptive, and stepparents to support their dependent undergraduates. A key difference between Parent PLUS loans and other types of loans is that parents are expected to make payments while their children are in school, though they may request deferment during the loan application process.

The government does not offer a way for parents to transfer a PLUS loan to their children, but some private lenders do allow you to refinance a Parent PLUS Loan in a child’s name.

Interest rate: 6.31% (for loans disbursed July 1, 2016, to July 1, 2017)
Max borrowed: The cost of attendance minus any other financial aid
Loan fee: 4.276% (for loans disbursed Oct. 1, 2016, and Oct. 1, 2017)
Terms: 10 to 25 years

6. Direct Consolidation Loans

Consolidating any of the federal loan types above allows graduates (or dropouts) to pool multiple loans into a single loan with a single loan servicer. This means you can make a single monthly payment, too.

That payment would also likely be lower than your past loans, as the repayment period can be extended up to 20 years.

Although consolidation is convenient, it’s not right for everyone. It might give one borrower access to income-driven repayment options, but it might erase another’s progress toward Public Service Loan Forgiveness.

Before deciding to consolidate, it’s important to consider your own situation.

Interest rate: The weighted average of the interest rates on your existing loans
Loan fee: n/a
Terms: Up to 30 years

Private student loans

Even some private lenders will tell you to consider taking out federal loans before weighing their own products. This is because of the protections mentioned above that the government affords its borrowers.

Those same private lenders, however, will present their student loan options as customizable to your financial situation, while positioning the federal government’s as one-size-fits-all.

The private loan details that can be personalized:

  • Variable interest rates are offered, in addition to fixed rates.
  • While cosigners are almost always required, a strong credit history can lower your interest rate.
  • Repayment options, from deferment programs to in-school payments, can make your monthly bill more manageable.

When comparing private lenders to federal loan options, ensure that the little details important to you aren’t lost. For one borrower, this might be asking about prepayment penalties; for another, repayment protections like forbearance might be crucial.

1. In-school loans for students and parents

The beauty of in-school student loans in the private marketplace is that there are many to choose from. Whether you’re a college freshman, a scholar seeking a doctoral degree, or are the parent of one — there’s something for everyone. Sallie Mae, for example, offers 11 different education loans, from paying for the private kindergarten of your toddler to financing your study for the bar exam.

But with varying loan types come more choices. Take repayment as one example: College Ave, one of Sallie Mae’s competitors, offers undergraduates four options while they’re in school:

  • Defer payments entirely
  • $25 monthly payments
  • Interest-only payments
  • Full principal-and-interest payments

With this greater degree of decision-making, it’s important to put private lenders to the test as you’re shopping around. Don’t rely on them to provide every bit of information you need to make a good choice.

2. Refinanced loans for graduates

Whereas the federal government’s Direct Consolidation Loan allows borrowers to combine multiple federal loans into one, private lenders offer the option of refinancing federal and private loans into one new loan.

The key difference here is that consolidating federal loans doesn’t directly save you money; it might actually cost you more, as the repayment term could lengthen.

Refinancing, however, could award you a lower interest rate and help you save on the total cost of your debt. A solid credit score and steady income can help you qualify for the lowest interest rates.

Private lenders aren’t shy about promoting their average customer’s savings by refinancing. Although that number is important, consider whether you’re the type of borrower who is likely to match that success. It’s especially important to proceed with caution if you’re refinancing federal loans and would lose their associated protections and forgiveness programs.

Here’s what to consider before you refinance any of your student loans.

The right student loan for you

Part of why private loan companies have enjoyed success in lending to students, graduates, and parents alike is that they’re able to offer customized loans to creditworthy borrowers. Federal loans, on the other hand, were established to help cash-poor or credit-risky borrowers afford the rising costs of college.

Review all of these student loan types before deciding what’s best for you — and only you.

Want more help comparing your options? Check out some more key differences between federal and private student loans.

Need a student loan?

Here are our top student loan lenders of 2019!
LenderVariable APREligibility 
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

2 Important Disclosures for Earnest.

Earnest Disclosures

  1. Rates include 0.25% Auto Pay Discount
  2. Explanation of Rates “With Autopay” (APD)
    Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan.

    Available Terms
    For Cosigned loans – 5, 7, 10, 12, 15 years. 
    Primary Only – 10, 12, 15 years

    In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).


3 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.

(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 7/1/2019. Variable interest rates may increase after consummation.


4 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.50% as of July 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please click https://www.discover.com/student-loans/interest-rates.html
    for more information about interest rates

5 Important Disclosures for CommonBond.

CommonBond Disclosures

A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.

Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.

Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
If you are unable to pay your government loan, the government can refer your loan to a collection agency or sue you for the unpaid amount. In addition, the government has special powers to collect the loan, such as taking your tax refund and applying it to your loan balance.

A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If you refinance your government loan, your new lender will use the proceeds of your new loan to pay off your government loan. Private student loan lenders do not have to honor any of the benefits that apply to government loans. Because your government loan will be gone after refinancing, you will lose any benefits that apply to that loan. If you are an active-duty service member, your new loan will not be eligible for service member benefits. Most importantly, once you refinance your government loan, you will not able to reinstate your government loan if you become dissatisfied with the terms of your private student loan.

If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you are a borrower with a secure job, emergency savings, strong credit and are unlikely to need any of the options available to distressed borrowers of government loans, a refinance of your government loans into a private student loan may be attractive to you. You should consider the costs and benefits of refinancing carefully before you refinance.

If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.

Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.


6 Important Disclosures for PNC.

PNC Disclosures

  1. Annual Percentage Rates (APRs): APRs from 4.52% to 11.11% are for the fully deferred repayment option, include the 0.50% interest rate discount for automatic payment and encompass the full range of APRs for the three repayment term options (5, 10 and 15 year). APRs within this range may vary based on the repayment term chosen. See break down of APR ranges by repayment terms below.
  2. Fixed Annual Percentage Rates (APRs): APRs range from 4.52% to 9.58% for a 5-year term. APRs range from 5.05% to 10.26% for a 10-year term. APRs range from 5.55% to 10.84% for a 15-year term. Fixed rates are based on the creditworthiness of the borrower and co-signer, if any. Loan Payment Example: The monthly payment per $10,000 borrowed at a fixed rate range of 5.05% APR to 10.26% APR for 10 years means you would make 120 payments which may range from $131.94 to $207.24. For the fixed rate loan, the monthly payment will remain fixed for the term of the loan. Payments may vary for other repayment term options.

    Variable Annual Percentage Rates (APRs): APRs range from 4.90% to 9.92% for a 5-year term. APRs range from 5.38% to 10.57% for a 10-year term. APRs range from 5.85% to 11.11% for a 15-year term. Variable rates are based on the London Interbank Offered Rate (LIBOR) index plus a margin depending on the creditworthiness of the borrower and co-signer, if any. The LIBOR index, adjusted quarterly, is equal to the average of the one-month LIBOR rates as published in the “Money Rates” section of the Wall Street Journal on the first business day of each of the three (3) calendar months immediately preceding each quarterly adjustment date. The LIBOR index is currently 2.47%. If the index increases or decreases, your rate will increase or decrease accordingly. Loan Payment Example: The monthly payment per $10,000 borrowed at a variable rate range of 5.38% APR to 10.57% APR for 10 years means you would make 120 payments which may range from $135.93 to $212.65. For the variable rate loan, the monthly payment may increase or decrease if the interest rate increases or decreases. Payments may vary for other repayment term options.

    APRs and loan payment examples are for the fully deferred repayment option for the Undergraduate & Graduate loan programs and include the 0.50% interest rate discount for automatic payments. The lowest APR is available to well qualified applicants. Your actual APR will be based on your credit qualifications, selection of fixed or variable rate option, loan program, repayment term, repayment option and whether you elect the automatic payment feature. Loan payment examples assume 30 days to first payment after the deferment period (45 months in school and 6 month grace period). Payments vary for other rates, repayment terms and repayment options.

    In addition to Undergraduate and Graduate loans, PNC offers loans for Health & Medical Professions, Health Professions Residency and Bar Study. Rates may vary by loan program and are subject to change at any time. Visit pnconcampus.com for current rates, additional loan payment examples and more details about the Solution loan products.

  3. Automatic Payment Discount: During repayment, an interest rate discount of 0.50% is available for automatic payments. Borrower must be making scheduled payments that include both principal and interest. Interest only payments do not qualify for the 0.50% interest rate discount. Automatic payment can be established through the loan servicer American Education Services (AES). Advertised rates include the 0.50% automatic payment interest rate discount. The rate discount will be applied at the time automatic payment is established. If automatic payment is not established, the available rates will be 0.50% higher than the advertised rates. If automatic payment is established and discontinued at any time during repayment, the borrower will no longer receive an automatic payment discount and the rate will increase by 0.50%. Discount may also be suspended during periods of forbearance or deferment. Payments may be made from a checking or savings account. A federal regulation limits the number of transfers that may be made from a savings or money market account. Please contact your financial institution for more information on transfer limitations on savings accounts.
  4. Repayment Options: Immediate, interest only payments while in school and full deferment of principal and interest options available. Interest will continue to accrue during periods of deferment. You will receive quarterly interest statements during this deferment period. Paying the interest as it accrues each quarter will save you money over the repayment term of the loan because any accrued interest that you do not pay will be added to the principal balance at the end of the deferment.
  5. Co-Signer Release: A request to release a co-signer requires that, as of the date of the request, you have made at least forty-eight (48) consecutive timely payments of principal and interest with no periods of forbearance or deferment within the forty-eight (48) month timeframe. “Timely payment” means each payment is made no later than the 15th day after the scheduled due date of the payment. “Consecutive payment” means the minimum monthly payment must be made for the most recent forty-eight (48) months straight without any interruption. To qualify for a co-signer release, the borrower must submit a request, meet the consecutive, timely payment requirements, provide proof of income and pass a credit check.
  6. Tax Deductibility: Interest may be tax deductible. Consult a tax advisor.

Please note: PNC reserves the right to modify or discontinue the terms of these program at any time without notice. You are encouraged to explore all scholarship, grant and federal borrowing options before applying for a private loan. Private loans are subject to credit approval.

PNC is a registered service mark of The PNC Financial Services Group, Inc.
© 2019 The PNC Financial Services Group, Inc. All rights reserved. PNC Bank, National Association.

3.98% – 11.35%*,1Undergraduate and Graduate

Visit SallieMae

3.99% – 11.44%2Undergraduate and Graduate

Visit Earnest

3.96%
11.98%
3
Undergraduate, Graduate, and Parents

Visit College Ave

4.72%
11.87%
4
Undergraduate and Graduate

Visit Discover

3.66% – 9.64%5Undergraduate and Graduate

Visit CommonBond

4.90% – 11.11%6Undergraduate and Graduate

Visit PNC

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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