Student Loans

This page will help you to understand the basics of federal and private student loans.

When used wisely, student loans can be an excellent investment in your future. Remember, though, that any loan you choose to use must be repaid – sometimes with lots of interest. If you need to use loans, it is normally recommended to borrow only what you need. Also, it’s best to keep track of how much you borrow so that you don’t drown later when your payments come due.

Federal Loans

Federal Direct Loans are offered by the U.S. Department of Education to borrowers that meet certain requirements. There are three basic types of Direct Loans: Unsubsidized, Subsidized, and PLUS. The biggest differences between Unsubsidized and Subsidized loans is how interest works.

Interest on a Direct Unsubsidized Loan begins accruing (starts building up) the moment you borrow the loan, while interest on a Direct Subsidized Loan is subsidized by the federal government (meaning it is not accruing interest – the government is keeping the interest at zero) while the student is enrolled at least half time. You can find information regarding federal Direct Subsidized Loans and Direct Unsubsidized Loans here.

Some parents may want to take out loans in their name for their student, and will use federal Parent PLUS Loans. You can find information about Direct PLUS Loans here.

Private Loans

Sometimes students will need more money than what is available to them in financial aid and federal loans, and turn to private student loans. Private student loans are loans offered by non-government organizations, such as banks or credit unions. Many loans will need you to have a cosigner to borrow the money or to get the best interest rate and terms.

Keep in mind that educational institutions (colleges and universities) very rarely provide their own loans (that gets really complicated), and often they can’t recommend any specific private loan lenders (that also gets complicated). Usually schools can only point you to federal options and to resources you can use to make informed choices if you decide to use a private loan.

When considering using a private student loan, it is important to use a loan with the best interest rate and terms for your situation; comparing your options from multiple lenders before borrowing is generally best. There are many ways to compare loan lenders, interest rates, and eligibility requirements. One excellent free private student loan lender comparison tool is Elm Select. 

Before taking out any loan, it is always recommended to make sure you know everything about it.