What Are the 4 Types of Student Loans?

 

Student loans are one of the major sources of funding for college education in the U.S. Nearly 43 million borrowers take out federal student loans to pay for school. There are four types of federal student loans: direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans.

KEY TAKEAWAYS

• There are four types of federal student loans, including those for dependents, parents helping children enrolled in school, and borrowers consolidating their debts.
• Private student loans are an alternative source for funding a higher education.
• Key differences between federal and private student loans include interest rates, repayment options, and borrower protections.

The 4 Types of Federal Student Loans

Direct Subsidized Loans

Direct subsidized loans are for undergraduate, dependent students and are based on financial need. You’ll receive an amount based on how much you can afford to repay, up to $5,500 depending on your grade level and dependency status.

Subsidized loans are loans in which the federal government pays the interest while you’re in school at least half-time and for six months after you leave school during the grace period. Unsubsidized loans require you to pay for the interest accrued while you’re in school, even if you defer payments until after you graduate.

Direct Unsubsidized Loans

Direct unsubsidized loans are available for both graduate and undergraduate students, and the maximum loan amount isn’t limited based on your grade level or dependency status. These loans are available for independent students as well, since graduate and professional students aren’t considered dependents.

You can receive up to $20,500 in direct unsubsidized loans every year, minus any other funds you get from subsidized loans.

Direct PLUS Loans

Direct PLUS loans are available for both graduate students (grad PLUS loans) and parents of dependent students (parent PLUS loans).4 You’re eligible to borrow up to the cost of attendance determined by your school, minus any other financial aid you receive.

Direct Consolidation Loans

Consolidation loans allow you to combine all of your federal loans into one after you leave school. This makes the loans easier to manage. Most federal loans are eligible for consolidation and you’ll need to take this step to qualify for other types of programs. For instance, Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans require you to consolidate your loans with a direct consolidation loan before you can benefit from these programs.

	Direct Subsidized	Direct Unsubsidized	Direct PLUS	Direct Consolidation
Interest Rates (2023–2024 School Year)	5.50%	5.50% for undergraduates 7.05% for graduate and professional students	8.05%	Weighted average of all loans, rounded up to the nearest one-eighth percent
Repayment Terms	10 to 30 years	10 to 30 years	10 to 30 years	Up to 30 years
Eligibility	Undergraduate, dependent students	Undergraduate, graduate, or professional students regardless of dependency	Graduate student or parent of a dependent undergraduate student	All loans must be in repayment or a grace period and you’re no longer in school
Best For	Undergraduate students who are dependents based on their parents’ or guardians’ tax returns	Those who don’t qualify for need-based aid or those with funding gaps after other financial aid has been applied	Graduate students who have used up all their unsubsidized loans or parents of dependent, undergraduate students	Anyone who wants to qualify for PSLF, IDR plans, or combine loans to make one monthly payment

Private Student Loans

Private student loans come from private lenders, such as banks, credit unions, and other institutions, rather than the federal government. They have their own regulations and standards, and each lender has their own requirements for qualifications.

Private Student Loans vs. Federal Student Loans

Many private lenders offer similar types of student loans as those at the federal level, including undergraduate loans, graduate loans, and loans for parents. But unlike most federal loans, your approval is directly dependent on your credit score and history, how much you need, and whether you have a co-signer to help you in case you can’t qualify on your own.

Interest rates for private student loans tend to be higher than those for federal loans, but you might have the chance to choose a variable interest rate. Federal student loans only offer fixed interest rates, which change annually and are set by federal law. Fixed interest rates mean the interest rate won’t change for the life of the loan, while variable interest rates can fluctuate based on market conditions.

	Private Student Loans	Federal Student Loans
Lender	Individual banks, credit unions, and other financial institutions	U.S. Department of Education
Availability	Year-round, whenever you need it	Between Oct. 1 and June 30
Interest Rate	Depends on your credit score, credit history, and repayment terms	Changes annually and is the same for everyone who borrows that year
How to Get	Through an application with each lender	Through the Free Application for Federal Student Aid (FAFSA)
Repayment Terms	5 to 25 years	10 to 30 years
Credit Pull	Yes	Only for PLUS loans
Can They Be Combined With Other Loans?	Yes, through refinancing with a private lender	Yes, through refinancing or federal consolidation

Which Type of Student Loan Should You Choose?

The type of student loan you should get will depend on your needs, your school, and how much additional financial aid you’re receiving.

If you want to minimize how much you borrow, exhaust all your free money options (i.e., scholarships and grants) first. Then turn to federal student loans—specifically direct subsidized loans, if possible—if you need to borrow money. Move on to unsubsidized if you have any remaining funding gaps. 

You may need to tap into private student loans if you’re still struggling to afford school after you’ve exhausted all your other options.

What Is the Most Common Type of Student Loan?

Federal student loans are the most common type of student loan. There are four main types of federal student loans: subsidized, unsubsidized, parent loans, and consolidation loans. There are also private student loans, which generally have higher interest rates and stricter requirements.

What Is the Average Student Loan Payment Per Month?

The average student loan payment depends on the types of loans borrowed, repayment terms, and income. Folks who have federal student loans may pay less per month than private student loan borrowers. The average student loan payment per month in 2023 was over $200, according to data from Experian.7

Can a Private Student Loan Be Consolidated Into a Federal Student Loan?

No, you can’t consolidate a private student loan into a federal student loan. But you can refinance a federal student loan into a private one.

What’s the Difference Between Subsidized and Unsubsidized Student Loans?

Subsidized loans are loans in which the federal government subsidizes, or covers, the interest that accrues on your loans while you’re in school. Unsubsidized loans require you to pay for the interest, even if you aren’t making payments on your loans while enrolled in school. Subsidized loans are generally less expensive than their unsubsidized counterparts.

Can You Use a Personal Loan Instead of a Student Loan?

Many personal loan providers have requirements that borrowers need to meet to qualify for a loan. Some prohibit using funds to pay for higher education needs and instead encourage you to take out a student loan.