Types of Student Loans

Though there are two major sources of student loans — federal and private – the federal side dominates the action, both in amount of money available and loan repayment programs.

Of the $1.777 trillion owed in student loan debt in 2024, 92.2% was for federal student loans to 42.7 million borrowers. Federal student loans come in many forms – there are a variety of loans for students, but also loans that parents can take out on their behalf. Federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Parent PLUS Loans, Graduate PLUS Loans, and Direct Consolidation Loans. Private loans can be directly to students, as well as to parents.

Different types of loans, both federal and private, meet different financial needs for the student and their family.  Because they are loans they must be paid back, which also leads to student debt, an issue that’s been on the rise in recent years.

Student Loan Debt

It’s impossible to talk about types of student loans without also discussing the debt that comes with them. The average federal student loan debt was $38,475 in 2024, with private loans bringing it to an estimated $41,618.

Loans for medical and other graduate school can send student loan debt skyrocketing. The states with residents who have the biggest debt load are also states with significant health care industries, or other industries that have a large amount of employees with advanced degrees.

The highest average federal student loan debt for U.S. state and territory residents in 2024:

• District of Columbia, $54,795
• Maryland, $43,692
• Georgia, $42,026
• Virginia, $40,137
• Florida, $39,262
• Illinois, $39,055
• South Carolina, $38,770
• North Carolina, $38,695
• New York, $38,690
• Delaware, $38,683

The lowest average federal student loan debts for residents in 2024 was in:

• Kansas, $33,119
• Wisconsin, $32,628
• Nebraska, $32,377
• West Virginia, $32,358
• Oklahoma, $32,103
• Wyoming, $31,503
• Puerto Rico, $31,022
• South Dakota, $30,928
• Iowa, $30,925
• North Dakota, $29,647

An average 28.6% of undergraduate students a year take out a federal student loan. Some 20% of adults in America with undergraduate degrees have outstanding student loan debt. That increases if they go on to get a postgraduate degree, with 24% paying outstanding student loans.

Private student loans are available, but every expert, even those who work for banks and credit unions, advise students to exhaust all avenues for federal aid first. Private student loans require very good credit or a cosigner, which makes them hard for a student to qualify for. The interest rates are higher than those on federal loans, and federal income-based repayment plans aren’t available for private loans.

Student loans come in forms, and the regulations for them can be different as well. Which student loan is best for you depends on your financial situation, as well as your future plans.

Types of Federal Student Loans

There are four categories of federal student loans, including Direct Consolidation loans, the one many experts advise students to look into to make payments easier when they graduate.

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans
• Direct Consolidation Loans

The difference between subsidized and unsubsidized is that, with subsidized, the federal government pays the interest on the loans until the student is out of school. With unsubsidized loans, the interest accumulates and the borrower must pay it once they start making payments if they don’t opt pay it earlier. All borrowers pay the same interest rate, which changes periodically. For the 2024 fiscal year it was 6.53% for Direct Subsidized and Unsubsidized Loans for undergraduate students, 8.08% for Direct Unsubsidized Loans for graduate or professional students, and 9.08% for Direct PLUS loans. The rate is fixed and will remain the same on the loan amount until it’s paid off, unless it’s consolidated.

Direct Subsidized Loans

Direct Subsidized Loans are for students who can demonstrate financial need. You don’t make payments until you graduate (or leave school). The federal government pays the interest while you’re in school at least half-time, for the first six months after you leave (known as the grace period), and during a deferment, if you apply for and are granted one. After that, you pay the interest. Students who are not dependents of parents, or whose parents don’t qualify for PLUS Loans, have higher loan limits, but the same limit on how much can be subsidized.

Amounts available in Direct Subsidized Loans for undergraduates are:

• First-year undergraduate: $5,500 dependent, $9,500 independent; with no more than $3,500 subsidized
• Second-year undergraduate: $6,500, $10,500; $4,500
• Third-year and beyond undergraduate: $7,500, $12,500; $5,500
• Aggregate loan maximums: $31,000, $57,500; $23,000.

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to any student, undergraduate or graduate, regardless of financial status. Your school determines how much you can borrow, based on their fees and the rest of your financial aid package. The interest accumulates and is added to what you pay when you start making payments after you graduate, or leave school.

The loan limits are the same as those for subsidized loans.

Direct Loans for Graduate Students

Graduate students were no longer eligible for Direct Subsidized Loans after July 1, 2012. The limit they can borrow for Direct Unsubsidized Loans for graduate or professional studies is $20,500 a year. All graduate students are considered independent of their parents. Graduate students can borrow a total – both graduate and undergraduate loans – of $138,500, with a $65,500 limit for subsidized loans, including any borrowed before July 1, 2012.

Direct Consolidation Loans

Since students take out separate loans each semester, by the end of their college career they may have eight or more loans to pay back. The Direct Consolidation Loan simplifies that process with on fixed-interest loan with flexible options, based on ability to repay. The interest rate is determined by the average of the loans that are being consolidated, rounded up to the nearest one-eighth of 1%. There is no interest rate cap. There is no fee, but a borrower can only do it once. It may lower your monthly payment, but also may extend the amount of time you’re paying, which means you’ll pay more in the long run.

Private student loans are not eligible for the Direct Consolidation Loan program.

Direct PLUS Loans

Federal Direct PLUS Loans are available for parents of dependent students as well as graduate students. The maximum amount allowed is the cost of attending the school, minus any other financial aid the student receives. The interest rate is a few points higher than that of federal loans to students. PLUS Loans also aren’t included in some federal income-driven repayment plans.

Perkins Loans Discontinued

The Perkins Loan program provided need-based low-interest loans for college students, but was eliminated in 2017 in an attempt to streamline the federal student loan process. Disbursements of the loan continued through June 30, 2018, and students who received a Perkins Loan can still pay it back under the terms of the program. The interest rate of 5% is lower than that of other federal student loans, and borrowers had a nine-month grace period before they began paying. It also offered discharge of the loan if students went into certain careers, like teaching, and remained there for a determined amount of time. Perkins Loans were administered by the school, so combining them into a Direct Consolidated Loan means losing some of their benefits.

FFEL Program Discontinued

The Federal Family Education Loan program began in 1965 as a way to connect private lenders with students who needed loans, with the U.S. Department of Education guaranteeing the loans. The program was discontinued in 2010, but many borrowers are still repaying the loans. They’re eligible for Direct Consolidation Loan inclusion, and also for some, but not all, income-driven repayment (IDR) plans.

Health Profession Student Loans

There are student loans exist for students studying specific areas of medicine such as nursing, dentistry, optometry, sports medicine, or veterinary medicine. Each loan has its own requirements about accepted areas of study and financial need. Learn more about medical education loans from the Health Resources and Services Administration (HRSA), part of the U.S. Department of Health and Human Services.

Federal Student Loan Repayment Plans

The Standard Repayment Plan is for 10 years and based on the amount borrowed. The federal government also offers income-driven repayment (IDR) plans with payback periods of 20-25 years, and different requirements, depending on type of loans and financial situation. Loans that are in default aren’t eligible, and PLUS loans borrowed by parents are also not eligible in some plans.

» Learn More: Federal Student Loan Repayment Plans

Types of Private Student Loans

There are two options for private student loans, those for students and those for their parents. Terms of a private student loan depend on the lender, including interest rates and whether they’re fixed or variable, when the payback period begins, and how long it is. Eligibility and interest rate depend on your credit history. Your interest rate could be fixed or variable and is typically higher than with federally guaranteed education loans but lower than with other debts such as credit card debt. You still may qualify for a private student loan with bad credit.

Some private loans require payments while the borrower is still in school. Private student loans are not eligible for the federal Direct Consolidation Loan. They’re still an option for students or their parents who can’t cover college tuition with federal loans and other financial aid.

» Learn More: Personal Loans for Students

Federal Loans vs. Private Loans

The great majority of student loans are made through the federal Direct Loan Program, but when students need more help to pay for their college education, they turn to private lenders, such as banks or credit unions. Private loans have drawbacks, including expense and stricter eligibility requirements.

The chart below compares federal and private student loans.

The major difference between federal student loans and private student loans is the cost and the use of credit scores in determining eligibility.

Undergraduate students applying for federal loans will not have to go through a credit check. Graduate students seeking federal student loans must go through a credit check and could be denied loans if there is adverse information in their credit history.

Credit checks are the norm for private loans. A credit score of 640 or better is required and, depending on the terms and conditions, you may need a score much higher than that to be approved.

Other differences between public and private student loans include:

• Interest rates on federal loans are fixed. The interest rates on private student loans can be variable or fixed and usually are higher.
• Undergraduate borrowers who can demonstrate financial need could receive a federal subsidized loan, meaning the government pays the interest until you graduate. Private loans are never subsidized. The borrower pays all the interest.
• Federal loans offer flexible repayment options and loan forgiveness programs. Private loans have few repayment options, no loan forgiveness programs, and are unlikely to be included for amnesty in any federal legislation.
• Federal loans don’t have to be repaid until you graduate or drop below half-time status as a student. Many private loans ask for repayment while you’re still in school.