Now that we’ve touched on some important information about your loan, this section will identify what type of loan you have, what type of repayment plan you have, and why it matters.
Federal student loans make up the lion’s share of all student loan options. Chances are, your student loan is a federal loan.
Federal loans are separated into two types:
If you have a federal student loan, that’s great news. Virtually all of the special options we’ve touched on so far, such as student loan deferment and forgiveness, are available only to federal student loan holders.
Here are the four types of direct federal loans:
One part of the Stafford Loans program, direct subsidized federal student loans were created specifically for undergraduate students.
The annual cap for direct subsidized loans is between $3,500 and $5,500 annually for the first through the third years, with a cap of $23,000 for dependent students and $65,500 for independent students. Note that those are the maximum amounts you can take out, so if they don’t cover the cost of school, you’ll have to find additional funding elsewhere.
The limits on subsidized loans are strict; however, these loans all share one unique advantage: the federal government will cover your interest charges while you are studying, potentially saving you huge amounts during repayment.
The second loan type of the Stafford Loans program, direct unsubsidized loans won’t cover your interest like subsidized loans will. However, the caps are higher—you can borrow between $5,500 and $12,500 as an undergraduate and up to $20,500 per year as a graduate or professional student.
It’s important to note that subsidized and unsubsidized student loans share the same maximum borrowing amount—up to $31,000 for dependent students, $57,500 for undergraduate independent students, and $138,500 for graduate or professional students. You could have a combination of both loan types, but the cap will not change.
Direct PLUS federal loans are primarily for parents of undergraduate students. These loans cover the cost of their child’s education (the loan is in the parent’s/grandparent’s name). PLUS loans are available to graduate students as well. Part of the benefit of direct PLUS loans is that they can be used to cover the entire cost of education.
Direct consolidation loans allow you to consolidate multiple forms of federal student loans into one easy payment, making loan repayment a much easier process.
Using multiple forms of federal funding to make up the entire amount a student will need to attend the school of their choice is common, so this federal loan program helps simplify things.
Finally, the Federal Perkins loan program is a special type of federal loan that was offered to students with great financial need.
Until recently, they were the ideal financing option because they were subsidized and had a low interest rate. In 2017, the final year this loan type was available, the total amount that could be borrowed was $27,500 for undergrads and $60,000 for graduates.
Although rare, some state financial institutions have begun offering their own type of state student loans. Some states that offer loan programs so far include:
Benefits of state loan programs depend on the particular program; however, several have fixed interest rates that are either comparable to—and in some cases better than—the best federal student loans.
A common option for those who can’t get the full amount they need from federal loans, private or alternative student loans work much like any other type of loan. However, unlike federal loans, they require credit for approval.
Private loans are often issued by traditional lenders, such as banks and credit unions. Alternative lenders are private companies. As a result, it’s typically very easy to determine who your lender is.
In both cases, everything from the interest rate to the repayment terms are wholly decided by the lender, so details will vary greatly.
Tip: Private student loans may include interest rates that vary over time, so it’s important to review your latest statement or call your loan servicer for your current interest rate.
There are many different types of student loans. Taking time to determine what type of loan (or loans) you have can help you determine what options you can take advantage of and the best course of action for repaying your loan.
