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Fast Fact

Almost $1 in every $4 that students borrow comes from alternative (private) loans.

Source: National Consumer Law Center

Types of Loans

Your student aid package will include grants, scholarships, and other aid that you do not have to pay back, but loans will be a part as well. You have to pay loans back (with interest), so it's important that you select the best one for your situation.

Federal Loans

As of July 1, 2010, federal loans are available only through the Federal Direct Loan Program (FDLP), in which the lender is the U.S. Department of Education. If you have federal loans disbursed prior to July 1, 2010, you may have gotten them through the Federal Family Education Loan Program (FFELP), in which you could select your lender.

There are several types of FDLP loans available:

Direct Stafford loans for students
Direct PLUS loans for graduate students and for parents
Perkins loans for students with extreme financial need (as defined by the school)

The federal government regulates these loans and controls the interest rates, which are generally lower than those for nonfederal loan programs. The government also sets guidelines surrounding the loan terms. Federal loans can be:

Subsidized—The government pays the interest for the borrower while in school, in grace, or in deferment.
Unsubsidized—The borrower is responsible for paying the interest on the loan. If the borrower chooses not to pay while in school, in grace, or in deferment, the interest may be added to the principal balance (through "capitalization").

Alternative (Private) Loans

These loans often have less favorable terms than federal loans do. Consider alternative loans ONLY when you have exhausted all other sources of funding.

Compare Types of Loans

	Federal Loans: Subsidized	Federal Loans: Unsubsidized	Alternative Loans
Loan Types	Direct Stafford loans Perkins loans	Direct Stafford loans Direct PLUS loans (for graduate students and parents)	Private loans
Eligibility	Based on financial need and other criteria	Based on unmet financial need and other criteria Direct PLUS loans—Based on creditworthiness and may require an endorser	Based on unmet financial need and other criteria Based on creditworthiness May require a co-signer
Pros	A grace period Various repayment plans Options for postponing or reducing payments Loan discharge and forgiveness available	A grace period (Direct Stafford only) Various repayment plans Options for postponing or reducing payments Loan discharge and forgiveness available	Fill gaps in cost of attendance when all other aid options (federal loans, grants, scholarships) have been exhausted
Cons	Have loan limits that may not cover the "gap"	Have loan limits that may not cover the "gap" Direct PLUS loans—Limited to the cost of attendance minus the amount of any aid you have received	May have less favorable terms than federal loans May have higher interest rates May not offer a grace period Generally have fewer and less flexible repayment options than federal loans May not offer options for postponing or reducing payments Loan discharge and forgiveness may not be available Have more fees than federal loans

Helpful Tips

Applying for a loan is as easy as 1-2-3!
Subsidized loan amounts are based on financial need. If you don't qualify for a subsidized loan, an unsubsidized loan (available regardless of financial need) is still a better option than an alternative (private) loan.
Beware of educational loan offers that seem "too good to be true." While you may get the funds easily, you may pay more through high interest rates.