Types of Student Loans ? Ways to Borrow Money for College (2024)

FAQs

What is the best way to borrow money for college? ›

For most students and families who decide to borrow, federal student loans are the best option. Repayment on federal student loans doesn't start until after you leave school, and with fixed interest rates and payment plans, monthly payments can be manageable.

Most students have two main options for student loans: federal (government) loans or private loans from banks, credit unions, and other lenders. You should research all your options for federal loans, also known as Direct loans, before shopping around for private loans.

Federal Loans

There are four types of Direct Loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Direct Subsidized Loans are made to eligible undergraduate students based on financial need. Your school determines the amount you can borrow.

For federal direct student loans, undergraduates can borrow up to $12,500 annually and up to $57,500 total.

Total Repaid

For example, say you have a $50,000 loan balance with a 6.22% interest rate — the average student loan interest rate for graduate students. On the standard 10-year repayment plan, you'd pay $561 per month and $17,277 in interest over time.

The Federal Student Aid office has two types of PLUS loans: one for graduate students and one for parents. A parent PLUS loan offers money to help pay for your child's undergraduate education. Biological and adoptive parents are eligible, and in some cases, stepparents may also qualify.

You can save money by choosing a loan with a low interest rate. A low interest rate means you'll have to pay back less money in the long run. A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college.

If you don't meet baseline eligibility requirements, or if you've previously defaulted on a loan, you may not be approved for a federal student loan. You must maintain "satisfactory progress" in school to be approved for student loans. You can take steps to regain or improve your eligibility for student loans.

For this reason, lenders often require a minimum credit score between 650 and 700 for a private student loan. If you don't have a credit score of at least 650, you'll likely need to add a creditworthy cosigner to your loan.

What is the maximum amount of student loans you can get? ›

$57,500 for undergraduates-No more than $23,000 of this amount may be in subsidized loans. $138,500 for graduate or professional students-No more than $65,500 of this amount may be in subsidized loans. The graduate aggregate limit includes all federal loans received for undergraduate study.

Sallie Mae does not have a maximum amount that you can borrow. Sallie Mae permits students to borrow up to the full cost of attending a qualified school, minus any financial aid they may have received.

For most students, the best student loan is the Federal Direct Subsidized Loan. The subsidized loan does not accrue interest while you attend college and has all the repayment benefits of other federal student loans. If you can, make sure you maximize this loan first before considering others.

A good rule of thumb is to borrow about 125% of the difference between your net college costs and the amount of income and savings you can devote to paying those costs, rounded up to the nearest $1,000.

Federal student loans offer many benefits compared to other options you may consider when paying for college: The interest rate on federal student loans is fixed and usually lower than that on private loans—and much lower than that on a credit card!