Repaying your student loans is an important financial responsibility, but knowing exactly what you’re getting into before you sign on the dotted line might make it a little easier. What types of loans are available to you, and what conditions do each of them come with? What makes you potentially eligible for one type of student loan over another?

To help answer these questions, below is a general overview of the different types of student loans available to borrowers, as well as the options available for repayment. Here’s what we’ll cover:

• What are student loans, and why are they important?
• The key differences between federal and private student loans
• Brief overview of the impact of student loans on credit health and financial well-being

Why Borrow Student Loans?

Whether you’re attending college, graduate- or trade-school, education remains one of the key drivers of mobility and a foundational pillar to living the American Dream. That said, the costs of education increase every year, often making it difficult for parents and students alike to finance their educational goals and grow both personally and professionally.

That said, there are a number of options available for students and parents looking to finance their education, which include federal and private student loans.

Below, we’ve begun to outline the different types of student loans available to borrowers (federal and private), as well as some of their differences and things to consider should you select one.

Types of Federal Student Loans

Below is an overview of the types of Federal Student Loans available to borrowers.

Direct Subsidized Loans

• A Direct Subsidized Loan is a type of federal student loans (made through the William D. Ford Federal Direct Loan Program) where a borrower isn’t generally responsible for paying interest while in an in-school, grace*, or deferment period. (Source)

Direct Unsubsidized Loans

• An unsubsidized loan borrowed through the Direct Loan Program offers undergraduate, graduate, and professional students a low, fixed interest rate and flexible repayment terms. You don’t need to show financial need to qualify. (Source)

Direct PLUS Loans and Direct Parent PLUS Loans

• The U.S. Department of Education makes Direct PLUS Loans to eligible parents and graduate or professional students through schools participating in the Direct Loan Program.

Note: A Direct PLUS Loan is commonly referred to as a parent PLUS loan when made to a parent, and as a grad PLUS loan when made to a graduate or professional student. (Source)

Direct Consolidation Loans

• Many borrowers have a series of different loans disbursed at different times, often at different interest rates. Consolidation loans allow borrowers to combine one or more federal education loans into a single loan with a single payment.
  
• Direct Consolidation Loans are often referenced as a method to lower your monthly payments and also to gain access to federal forgiveness programs.  (We covered forgiveness programs and paths to relief here.)

Below are the pros and cons to consider if you’re not sure whether you need one.

• Pros of Direct Consolidation Loans:
  
• Consolidation could lower your monthly payment by providing access to additional income-driven repayment plans or by giving you more time to repay your loan
• Consolidation loans have a fixed interest rate
• Consolidating loans is necessary to qualify for the income-contingent repayment plan if you have a Parent PLUS loan

• Cons of Direct Consolidation Loans:
  
• While your monthly payment may go down, you may have to pay longer, increasing your total interest
• Consolidating student loans can, in some cases, make it harder to access income-driven repayment plans like SAVE or loan forgiveness programs like Public Service Loan Forgiveness
• Consolidating student loans with a private lender will generally render those loans ineligible for forgiveness and alternative repayment plans

Types of Private Student Loans

Below are the different types of private student loans available as well as their key differences from federal student loans.

• Undergraduate Loans: Private undergraduate loans, as the name states, are for undergraduate students who have exhausted their federal student loan options.
• Graduate Loans: Similarly, private graduate loans are for graduate students who have exhausted their federal student loan options.
• Parent Loans: Private parent loans are for parents with a dependent student who have exhausted their federal student loan options.
• Career/Trade School Loans: Specifically for students enrolled in a trade, career, or technical school who have exhausted their federal student loan options.

Loan Factors to Consider Before You Apply

As you’re navigating whether to look at private lenders to finance your student loan needs, there are several factors you’ll likely want to consider as you make your final choice. Don’t forget to look at the following and consider the terms most favorable to you as you apply.

• Interest rates and loan terms. Make sure to look closely at the interest rates and other loan terms associated with the loan in order to better understand the financial responsibility associated with the loan.
• Co-signer requirements and release options. If you anticipate you’ll need a co-signer, you’ll want to look at the requirements your lender needs from the co-signer before you proceed.
• Repayment flexibility and forbearance policies. Should you bump into any financial troubles in the future, you’ll want to make sure you understand under what circumstances your lender will approve a forbearance or allow you flexibility in repaying your loan.

Options for Different Types of Borrowers

Are you a parent looking to make a choice for your child as they prepare for college? Are you, yourself, an undergraduate or graduate student or attending a technical or other career school? Here are some ideas as to the types of loans available that you might want to consider.

• Undergraduate Students: Federal student loans should be the first option for undergraduate students, as they offer the most favorable terms and conditions.
  Exception: Borrowers who need to borrow more than the federal loan limits may want to consider a private loan.
• Graduate Students: Graduate students often need to borrow more money than undergraduate students, so private loans may be a necessary option. If considering a private loan, it is important to compare interest rates and terms from different lenders before choosing a loan.
• Parents: Parents can borrow money to help pay for their child’s education through a Parent PLUS Loan. However, parents should be aware that they are responsible for repaying this loan, even if their child cannot repay it.
• Career School Students: Students who attend career schools may be eligible for federal loans, but they may also need to borrow money from a private lender.

Related: Managing Student Loans for Better Credit Health

Additional Information / Resources for Student Loan Repayment and Forgiveness

• Explore Income-Driven Repayment (IDR) Plans: IDR plans can make it easier to repay federal student loans by capping your monthly payments at a percentage of your discretionary income.
  Related: What is the SAVE Plan for Student Loans
• Public Service Loan Forgiveness (PSLF): PSLF allows you to have your federal student loans forgiven after 10 years of working full-time in a public service job.
• Private Student Loan Refinancing: If you have private student loans, you may be able to refinance them to get a lower interest rate or better terms.
• 39 Answers to Student Loan Questions: An extensive FAQ-styled article developed by VantageScore in partnership with Dan Currell, former Deputy Under Secretary and Senior Advisor at the U.S. Department of Education, which addresses critical questions surrounding student loans and repayment.

Key Takeaways As You Move Forward

By understanding the different types of student loans and the options available to you, you can make informed decisions about how to finance your education and repay your loans.

Explore VantageScore’s resource page, designed to help borrowers navigate all their student loan repayment-related needs and stay up to date on the latest student loan policies and debt relief measures: VantageScore Student Federal Student Loan Repayment Resources, News & FAQs

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