Types of student loans

Types of student loan borrowing options

If you need money for college expenses, you need to know what your borrowing options are. The two most common ways to borrow are federal student loans and private student loans.

Learn about other borrowing options for college

Types of federal student loans

There are three types of federal student loans. They’re all provided by the government through the Federal Direct Loan Program.

• Direct Subsidized Loans are based on financial need.
• Direct Unsubsidized Loans are not based on financial need. They’re not credit-based, so you don’t need a cosigner. Your school will determine how much you can borrow, based on the cost of attendance and how much other financial aid you’re receiving.
• Direct PLUS Loans are credit-based, unsubsidized federal loans for parents and graduate/professional students. Direct PLUS Loans for parents are also known as Parent PLUS Loans.

It’s important to consider federal student loans before you take out a private student loan, because there are differences in interest rates, repayment options, and other features.

Learn more about federal student loans

Types of private student loans

When you’ve explored scholarships, grants, and federal loans, and still need money for college, you can consider a private student loan.

• They’re issued by a bank or other financial institution.
• Private student loans are taken out by the student; they’re often cosigned by a parent or another creditworthy individual.
• Parent loans are another way to get money for college. A parent or other creditworthy individual takes out the loan to help their student pay for college.

Learn more about private student loans

How to apply for a federal or private student loan

There are different application processes to follow, depending on which type of student loan you’re looking for.

The application process for a federal student loan

You apply for a federal student loan by filling out and submitting the Free Application for Federal Student Aid (FAFSA^®). You MUST submit the FAFSA to be eligible for a federal student loan.

To submit the FAFSA for federal student loans (and for all types of federal financial aid), there are a few things to keep in mind:

• Remember that there’s no cost for submitting it. (If you’re asked to pay, you’re not at the right website.)
• Complete the FAFSA every year you need money for college.
• Get it in as soon after October 1 as possible. The earlier, the better, since some grant money is awarded on a first-come, first-served basis.

You’ll find out about how much you’re eligible for in federal student loans when you receive your financial aid offer.

How to apply for a private student loan

Since private student loans are offered by banks and financial institutions (as opposed to the federal government), you apply directly to the lender.

Follow these instructions to apply for a private student loan:

1. Go to the lender’s website.
2. Check the interest rate of the loan, along with the flexibility of repayment options and other benefits.
3. Apply directly on the website. You’ll be asked to choose the type of repayment option and interest rate type you want.
4. You may want to consider adding a cosigner which may improve your chances of getting the loan.
5. The lender will check your credit (and your cosigner’s, if you have one), and will communicate the decision to you.

It doesn’t take long to fill out a private loan application online. If you apply for a loan with us, it only takes about 15 minutes to apply and get a credit decision.

How to accept your federal or private student loan

You accept your federal student loans by signing and returning your financial aid offer. You may be asked to take part in entrance counseling at your school to make sure that you understand your loan obligations. Plus, you’ll sign a Master Promissory Note (MPN) to agree to the loan’s terms.

You accept your private student loans after you’ve been approved. Here’s our process:

1. You’ll choose the type of interest rate and repayment option for your loan.
2. You or your cosigner will accept the terms of your loan and sign it electronically.
3. Your school will be asked to certify your eligibility, including verifying your enrollment and the loan amount you’ve requested.

Both federal and private student loans are legal agreements. When you agree to a loan and sign or e-sign for it, you’re committed to paying it back, along with interest.

Repaying federal and private student loans

• Federal student loans: Following a six-month grace period, you generally begin to make principal and interest payments.
• Private student loans: You’ll generally have a six-month grace period. If you elected to make in-school fixed or interest payments with our Smart Option Student Loan, you’ll continue to make those payments during your grace period. After that, you’ll begin to make principal and interest payments.

How to borrow responsibly for college

When you’re borrowing money for college, it’s important to borrow responsibly. We recommend these three steps:

1. Start with your college savings and “free” money that you won’t have to pay back—scholarships, grants, and work-study.
2. Use federal student loans.
3. Consider a responsible private student loan.

Other tips for borrowing responsibly: Consider what your salary will be after you leave school, remember that you’ll have to pay back your loans with interest, and don’t borrow more than you’ll need for school costs.