A loan is money you borrow and must pay back with interest. If you decide to take out a loan, make sure you understand who is making the loan and the terms and conditions of the loan. Student loans can come from the federal government or from private sources such as a bank or financial institution. Loans made by the federal government, called federal student loans, usually offer borrowers lower interest rates and have more flexible repayment options than loans from banks or other private sources.
Federal Student Loans vs. Private Student Loans:
- Federal Student Loans are funded by the federal government
- Loan awards are first distributed to your school and any remainder will be distributed to you (or your parents)
- Private student loans are made by banks, credit unions, state agencies, and schools
- Private loans are generally more expensive than Federal Student Loans
- You must complete the FAFSA in order to qualify for Federal Student Loans
|Federal Student Loans||Private Student Loans|
|Do not have to start repaying until you graduate or leave school||May require repayments while still in school|
|Fixed interest rate||May have variable interest rates|
|Offers forbearance and deferment options if you are having trouble paying||Does not offer forbearance or deferment if you are having trouble paying|
|Offers income-based repayment||Do not usually offer income based repayment|
|May be eligible for a loan forgiveness program||Do not usually offer loan forgiveness programs|
Types of Federal Student Loans:
- Direct Subsidized Loans
- If you receive a subsidized loan the U.S. Department of Education will pay the interest on your loan while you are in school at least half-time.
- Interest rate is fixed at 3.4%.
- Available to undergraduate students with financial need.
- Direct Unsubsidized Loans
- If you receive an unsubsidized loan you will be responsible for paying any interest that is charged while you are in school.
- Interest rate is fixed at 6.8%.
- Available to undergraduate and graduate students.
- No requirement to demonstrate financial need.
- Direct PLUS Loans (for parents)
- Loan for parents of dependent college students who demonstrate financial need
- Loan is made by the U.S. Department of Education
- You will want to speak with the Financial Aid Office at your school for more information
- Student must complete the FAFSA in order to qualify
- Interest on Direct PLUS Loans is fixed at 7.9%
- Federal Perkins Loan
- Low interest federal student loans for students with exceptional financial need
- The loan will be made by your school (not all schools participate in this program)
- The interest rate is 5%
- You can borrow up to $5,500 – the maximum you can borrow is $27,500
Loan Limits for Subsidized and Unsubsidized Loans:
|Year in School||Dependent Students||Independent Students|
|1st Year||$5,500 (up to $3,500 unsubsidized)||$9,500 (up to $3,500 unsubsidized)|
|2nd Year||$6,500 (up to $4,500 unsubsidized)||$10,500 (up to $4,500 unsubsidized)|
|3rd Year and beyond||$7,500/year (up to $5,500 unsubsidized)||$12,500/year (up to $5,500 unsubsidized)|
|Maximum Loan||$31,000 (up to $23,000 unsubsidized)||$57,500 (up to $23,000 unsubsidized)|
Additional Information about Student Loans:
- Federal Student Aid Loan Programs Fact Sheet
- Federal Student Loans: Learn the Basics and Manage your Debt