Types Of Student Loans & How To Choose One

There are many types of student loans for many types of students (and parents).

Virtually all student loans fall into one of two buckets: federal or private. The right option will depend on factors like the program you’re attending or personal criteria like your credit.

Federal loans, lent by the Department of Education, are one-size-fits-all and accessible to most families. Private loans are offered by banks, credit unions, online companies and some state agencies — but only if you (or your cosigner) can qualify. With strong credit, you might get a lower interest rate on a private loan, but federal loans have far more flexibility in terms of repayment and forgiveness.

Student loan types: Federal and private

There are several different financing options to choose from within the federal and private student loan categories. For federal loans, keep an eye on the repayment terms and loan limit adjustments each year you’re in school. The rates are set annually by Congress and are the same regardless of your credit.

Private student loans offer a broader range of APRs and loan amounts with stricter qualifying requirements.

Types of federal student loans

Most students apply for federal student loans over private loans because they’re the easiest to get approved for and offer a wide range of protections that private student loans lack. Federal loans don’t have a minimum credit score requirement, so younger borrowers can access them without a cosigner. 

Rates are the same regardless of your credit history, but every federal loan requires an origination fee. You won’t find any refinance options with federal loans, although they can be consolidated for a slight increase in your rate.

Federal loans also offer flexible repayment options, including income-driven repayment, with built-in hardship protection that most private loan programs can’t match. Plus, they’re the most-trodden avenue for loan forgiveness programs.

The federal Direct Loan Program offers a few options for students and parents.

Direct subsidized loans

Direct subsidized loans are available to undergraduate students who have demonstrated financial need. After filling out the FAFSA, you’ll receive a financial aid offer letter from each of the schools you were accepted into. This letter outlines whether or not you’re eligible for subsidized loans, and for how much. Your offer will vary from school to school based on the cost of attendance and any institutional financial aid you receive.

As an undergraduate, only a portion of your federal loan allotment is earmarked for subsidized loans. For example, for first-year students, no more than $3,500 of the $5,500 in federal loans can be subsidized, and only if you qualify.

In terms of repayment, these loans do not accrue interest while you’re in school, during the six-month grace period or through any deferment period afterward. That’s the primary reason why subsidized loans, if offered, should be your first priority among federal loan types.

Direct unsubsidized loans

Direct unsubsidized loans are available to undergraduate, graduate and professional students. You don’t need to demonstrate financial need and can borrow significantly more than a subsidized loan, although it also requires that you fill out the FAFSA.

The key difference between subsidized and unsubsidized loans is that unsubsidized loans accrue interest immediately. This means that you’ll be charged interest on the balance you owe while you’re in school, after graduation and during periods of deferment and forbearance. Making in-school payments, even small ones, and keeping pace with monthly payments after leaving school is critical to avoid the effects of interest capitalization.

Direct PLUS loans

Direct PLUS Loans are available to two distinct types of borrowers:

1. Parent PLUS for the parents or guardians of dependent undergraduates.
2. Grad PLUS for graduate or professional students.

Direct PLUS Loans have higher interest rates and loan origination fees than Direct Subsidized and Unsubsidized Loans.

The 2025-2026 school year is the last year in which new federal loan borrowers can access both types of PLUS loans. Parents who want or need to borrow on behalf of their student will soon have to resort to private student loans. And graduate and professional students will be restricted to borrowing unsubsidized loans at new, higher limits or opt for private funding. 

Types of private student loans

Federal student loans offer only fixed rates, while private student loans can have fixed or variable interest rates. Qualified borrowers may receive rates well below those provided by federal loans, and you can potentially borrow more from a bank, credit union or other lender.

There are several types of private student loans, including undergraduate, graduate and parent loans. Because they are funded by a private entity, none of them feature the kind of repayment safety net afforded to federal loan borrowers. In fact, even banks that offer an economic hardship forbearance usually do so on a case-by-case basis — there are no set criteria where forbearance is guaranteed. Because of this, try to exhaust your federal financial aid options before considering privately-lent education debt.

Undergraduate loans

Undergraduate private student loans often come with a wide range of repayment terms and maximum loan amounts. Rather than setting a borrowing cap, some lenders offer loans as large as the full cost of attendance, minus any other financial aid you’ve received. Private lenders may also offer perks like discounts on your principal upon graduation or for academic performance.

However, unlike federal student loans, you’ll have to qualify for the loan based on a review of your credit and income. Private loans almost always require a cosigner since undergraduates have typically not had time to develop a credit history.

If private student loan rates drop after you’ve left school, many lenders offer refinance options that could save you money if you qualify.

Graduate loans

Private student loan lenders may offer specific loan options tailored to graduate, law, medical and business school students. These loans are less likely to require a cosigner than undergraduate loans, though a creditworthy co-applicant could net you a lower interest rate.

In many cases, private graduate student loans also come with benefits specific to a graduate school student’s needs. That may include long grace periods, in-school deferment periods and additional deferment while students complete a residency.

How to choose the right type of student loan

For most students and families, federal student loans are the right type of student loan to prioritize, given their competitive interest rates and best-in-class repayment options.

However, you might be in the minority who could benefit from a private loan, either because you’re a very strong applicant or because you’ve maxed out your federal aid allotment. In these cases, comparison-shopping among private lenders is critical to both getting the best loan possible and understanding what you’re borrowing.

As you seek out the best private lender and loan, consider these criteria:

• Repayment: Whether you want to make full or interest-only payments in school or defer all payments until after graduation, make sure your lender offers the option you want. Some also allow you to choose different term lengths so you can tailor your payment to your budget.
• Cosigner release: If you need a cosigner (either because the lender requires it or because of your credit rating), determine whether it offers cosigner release. A release lets you remove your cosigner from the loan after you’ve made a specific number of on-time payments. The minimum payment period could be as little as six months or as long as four years — if the lender offers a release option at all.
• Discounts: Many lenders offer a small APR discount if you sign up for automatic payments. Others may offer incentives for borrowers who have another financial product with them, submit referrals or graduate on time.
• Fees: Origination fees can add up, especially if you borrow tens of thousands of dollars over several years. If you qualify for private loans, avoid lenders that charge this fee.
• Hardship programs: Unlike federal student loans, not all private loans come with the option to pause or postpone payments if you have a financial setback. Test lenders’ customer support by asking about their programs’ availability and eligibility.
• Lender reviews: Experts and fellow borrowers’ experiences may alert you to any issues with the lender, like difficulties processing payments or slow service representative communication. You can see what other students think of different lenders by checking out their Better Business Bureau rating or reading in-depth reviews on our student loan review page.

Bottom line

Every student should complete the FAFSA, even if you don’t expect to qualify or think you’ll need to borrow. This can help you develop the rest of your game plan for borrowing money from other sources.

If private student loans are needed — perhaps because your federal aid amount isn’t enough to cover the full cost of attendance — compare several lenders by visiting their websites. You can also take a look at best student loan rates on a marketplace site like Bankrate before applying to get a student loan.