College Loans: Types of Federal & Private Loans for College

The cost of college

According to Sallie Mae’s “How America Pays for College 2019”, families spent, on average, $26,225 on college last year. Covering those costs came with a unique formula for each family – many used funds from a combination of savings and income, scholarships and grants, student loans, or even gifts from family and friends.

The cost of college is definitely a hot button issue, but the value is evident. The Federal Reserve released new research this year that shows the rate of return on investments made for college is high enough to make the decision to go “a wise one for most students.” According to “How America Pays for College,” more than 8 in 10 families believe having a college degree will help their student get a higher paying job, and 7 in 10 students and parents say the price of college is either a bargain, worth every penny, or appropriately priced.

Regardless of your take on the cost of college, if you’re headed there, you’ll need to know how to pay for it. More than half of American families borrow, and of those, 6 in 10 say it was always a part of their plan.

If you’re planning to borrow for college, knowing which options are available to you is a good place to start.

Tip: Not sure how you’ll pay? Check out this free College Planning Calculator for assistance.

What types of college loans are available?

There are a variety of college loans available, though some loans for college may be a better fit for you than others. We’ll discuss federal vs. private loans, loans catered toward students vs. parents, and loans that are tailored to your professional degree.

• Stafford loan
• Plus loans
• Private loans
• Parent loans
• Graduate school loans
• Medical school loans
• Dental school loans
• MBA loans
• Law school loans
• State loans

Federal loans for college

Federal student loans come directly from the U.S. Department of Education. These loans are the majority of student loans made today - the federal government makes or holds roughly 93% of student loan debt as of 2019. With federal loans, there are specific benefits and protections allotted to a student, including a variety of repayment plans.

Thinking about a federal loan? You’ll need to become familiar with a variety of repayment terms, but you’ll have a set interest rate, and in some cases, increased accessibility over your other borrowing options. For federal loans, students do not need to complete a credit check, so as long as you meet the basic requirements of eligibility (more on that below), you’re good to go! Just fill out the Free Application for Student Aid, or the FAFSA (applications open up on October 1 each year, and you do need to fill it out every year), and you’ll be on your way to securing aid for college. (This isn’t the same for parents, so be mindful of other requirements for parent-centric loans.)

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What costs can federal student loans cover? Fortunately, since we know college costs go beyond classes, student loans can cover more than just tuition. They are intended to cover the cost of attendance (COA), which is determined by each college, and includes tuition, fees, room and board, books, supplies, and other related expenses like the technology needed to complete your program.

There are a variety of federal loans available to you based on your situation:

• If you’re an undergraduate student, you can qualify for the Direct Subsidized or Unsubsidized loan, also called the Stafford Loan. The Direct Subsidized Loan requires you demonstrate financial need, while the Unsubsidized Loan does not. If you’re a graduate student, the Unsubsidized Loan is your only option for Stafford Loans.
• Are you a parent of an undergraduate student? You may qualify for Parent Plus loan. This loan does require a credit check. If a parent doesn’t meet credit requirements, the parent can still borrow this type of loan if they submit a successful appeal, or apply with a creditworthy cosigner.

You may have also heard about Perkins Loans, low-interest federal loans for students with exceptional financial need. As of June 30, 2018, under federal law, these loans are no longer originated or disbursed, meaning new Perkins loans are no longer available.

Private loans for college

In addition to federal student loans, there are also private student loans. These loans, originated and disbursed by banks and credit unions, will typically offer flexibility in terms or how much you can borrow and your interest rates. That said, requirements are more stringent when it comes to these loans, because private lenders require you prove to be a creditworthy applicant. This means you (and usually your cosigner, if you’re a young adult with little credit history) will have to complete a credit check before you can borrow in order to prove your willingness and ability to repay.

There are private student loans for undergraduates, graduate students, students pursuing certificates, dental, medical, and health professions students, and even loans for grad students who are studying for the bar exam or relocating for medical or dental residencies. In addition to the loans taken out by students, some private student loans can be taken out by parents, too.

Private student loans, like federal, can be used for tuition, room and board, books and supplies, technology, etc.

Loans for graduate or professional school

According to a recent study on how graduate students pay for college, more than 75% of graduate students borrow federal and/or private loans to help pay for school expenses. Graduate students or those pursuing medical, dental, or law school will have even more options for borrowing.

Federal loans include direct unsubsidized loans. Eligible students can borrow up to $20,500 per year. You apply for these loans by filling out the FAFSA.

There are also private student loans which can be tailored to meet the unique needs of graduate and professional students. A medical school student, for example, may have different needs than a student pursuing her MBA. Grad students can borrow Direct PLUS loans, which can cover the complete cost of attendance, minus any other financial aid.

College loan eligibility

Eligibility for student loans depends on what type of loan you’re seeking. Looking for a federal loan? The college loan requirements are as follows:

• Be a U.S. citizen, national, or eligible non-citizen
• Be enrolled at least half-time in an eligible degree or certificate-granting program
• Have received a high school diploma or equivalent (like the GED)
• Not in default on any existing federal student loans
• Meet general eligibility requirements for federal student aid

If you’re a parent looking to secure a federal Parent PLUS loan, you have the additional credit requirement, so students and parents can’t be in default on an outstanding federal student loan.

Like mentioned before, if you’re looking for a private student loan, you have to meet the lender’s specific credit requirements. Most of the time, undergrads will be required to have a creditworthy cosigner in order to back the loan.

Key Takeaways

• If you’re planning on borrowing for college, you have a lot of options when it comes to student loans. Federal, private, student, parent, and loans tailored for your degree – be sure to shop around and choose the loan that suits you best.
• Not sure if you’re eligible? Federal loans have fewer requirements when it comes to qualifying for a loan. If you are a creditworthy borrower, though, private student loans may have more attractive interest rates.
• Comparing loans can be more complicated than it sounds. Be sure to have your offered interest rate, loan term, repayment options, and possible fees lined up before you choose which is right for you.