There are three types of student loans: federal loans, private loans, and refinance loans once you leave school.
Federal loans are provided by the government, while banks, credit unions and states make private loans and refinance loans. Federal loans are more flexible overall. The particular loan that’s best for you depends on factors like your financial need, year in school and whether you have a credit history.
To get federal loans, fill out the Free Application for Federal Student Aid, known as the FAFSA. You can apply for private or refinance loans directly with the bank or financial institution you want to borrow from.
The right loan is key to taking on no more student loan debt than is necessary. Here’s a guide to understanding student loans and how they work.
Types of federal student loans
The federal government provides these loans, and Congress sets the interest rates each year. They come with useful protections like the ability to tie payments to income when you graduate or get loans forgiven if you work in a public service field.
Most federal loans don’t require a co-signer or good credit; nearly every student with a high school diploma is eligible to receive them. Fill out the Free Application for Federal Student Aid, known as the FAFSA, to apply.
Direct subsidized loans
There are two types of federal direct loans: subsidized and unsubsidized. Undergrads with financial need can get the subsidized version. The government pays the interest on these loans while you’re in school, in your grace period or pausing payments through deferment. Your college will tell you whether you’re eligible and how much you can borrow.
Direct unsubsidized loans
You don’t need to show financial need to get unsubsidized loans, and they’re an option for both undergrads and graduate students. You’re responsible for paying interest at all times.
» MORE: Compare graduate student loans
Until September 2017, these were available to undergraduates and graduates with particularly high financial need. Students borrowed money from, and repaid it to, their school. The government isn’t making new Perkins loans for the 2019-20 school year. But those with outstanding Perkins loans who work in public service careers may be eligible for Perkins loan forgiveness.
Federal direct PLUS loans are available to both graduate students and parents. They have higher interest rates and origination fees than other federal loans, and they require a credit check. Borrowers with “adverse credit history” will have a harder time qualifying, but they can apply with an endorser, also known as a co-signer.
Types of private student loans
Banks and other financial institutions make private loans to students. When you apply for private loans, the lender will want to see proof you can repay it, usually in the form of a good credit score. A co-signer can help you qualify; that person will be responsible for the loan if you can’t pay it back.
» COMPARE: Private student loans
Private loans are available for specific circumstances if you need them.
Bar exam loans
These loans cover expenses traditional student loans won’t — like prep classes, living expenses and exam application fees — while law students or graduates study for the bar exam. Loan terms range from one to 20 years. Bar loans also typically have higher interest rates than private or federal student loans do.
» COMPARE: Bar loans for 2018
International student loans
Students who aren’t U.S. citizens generally won’t qualify for federal student loans (unless you’re an eligible noncitizen). Several private lenders offer loans for international students, and they often require a U.S. citizen co-signer.
» COMPARE: International student loans
Medical school loans
Private student loans may offer lower interest rates than federal loans for medical students with good credit. But they don’t come with forgiveness options if you work for a nonprofit hospital after graduation, which would qualify you for federal Public Service Loan Forgiveness.
» COMPARE: Medical school loans
Student loans for bad credit
Most federal student loans don’t require a credit check, so they’re your best option. If you need more money for school, a handful of private lenders offer loans specifically for borrowers with bad credit. They’ll decide whether to lend to you based on additional factors like earning potential.
» COMPARE: Student loans for bad credit
Student loans without a co-signer
Undergraduates in particular often need a co-signer to get a private loan. But if you don’t have access to one, a few lenders will assess your ability to repay according to factors beyond credit history, making it more likely you’ll qualify on your own.
» COMPARE: Student loans without a co-signer
Many states offer their own loan programs, but they generally behave more like private loans than federal loans. Search the U.S. Department of Education’s database of state loan options to see what’s available where you live.
Credit union loans
Credit unions and community banks offer private loans, too. If you have an existing relationship with one of these institutions, you may have access to more favorable terms and discounts on your loan than larger financial institutions offer.
Types of student loan refinancing
After you graduate and have shown responsible payment history, you may be able to refinance student loans. That’s when a private lender pays off your loans and gives you a new repayment schedule and lower interest rate. Generally, you need a credit score of 690 or higher to refinance. You’ll lose federal loan protections if you include federal loans in the package.
» COMPARE: Student loan refinancing offers
Parent PLUS refinance loans
Parents are often especially good candidates to refinance PLUS loans. PLUS loan interest rates start off higher, and if parents have long credit histories and strong credit, they’re likely to get a lower interest rate.
» MORE: Refinance parent PLUS loans
Medical school refinance loans: during residency
Some lenders have student loan refinancing programs specifically for medical residents, which could make your monthly payment or interest rate cheaper. Consider refinancing again after residency to get an even lower interest rate.
» COMPARE: Refinancing options during residency
Medical school refinance loans: after residency
As an attending physician with strong income and good credit, you’re an excellent candidate for refinancing. Steer clear if you plan to take advantage of federal loan programs like income-driven repayment or forgiveness.
» COMPARE: Refinancing options after residency