By Will Geiger

Will Geiger is the co-founder of Scholarships360 and has a decade of experience in college admissions and financial aid. He is a former Senior Assistant Director of Admissions at Kenyon College where he personally reviewed 10,000 admissions applications and essays. Will also managed the Kenyon College merit scholarship program and served on the financial aid appeals committee. He has also worked as an Associate Director of College Counseling at a high school in New Haven, Connecticut. Will earned his master’s in education from the University of Pennsylvania and received his undergraduate degree in history from Wake Forest University.

Updated: August 7th, 2021

Student loans are a reality for many students. Many schools have financial aid packages that include loans.  Other schools “gap” (ie: do not meet all need) students which can leave private loans as a final option. In this guide, we want to help you understand the three main types of student loans that you will find:

• Federal Student Loans
• Private Student Loans
• Student Loan Refinancing

In order to navigate the student loan process, it is critical that student and parents have a clear understanding of both types of student loans. This will make the process of paying for college less stressful, but also ensure that you are spending less money and find the best student loans.

Learn more: Top financial aid questions you should be asking

Federal student loans

Federal student loans are loans from the government made directly to students.  These loans require no payments as long as the student is enrolled in school at least halftime.

There are two major types of federal student loans that you should know about: Federal Stafford Student Loans, also known as Direct Student Loans, and PLUS Loans (also known as Parent PLUS).

Stafford Direct Loans are the most common type of federal student loan and can be subsidized or unsubsidized.  Both types loans accrue interest when you are in college, but with Subsidized Direct Stafford Loans, the government pays the interest while you are in school.  

Parent PLUS Loans are specifically for parents. These can help pay for college costs that are not covered by their child’s financial aid package. Parent PLUS loans can range up to the full cost of attendance. It should be noted that these loans are the financial responsibility of the parent, not the student.

Private student loans

Private student loans are typically the final type of loan families will look at (they are also called alternative student loans).  If you are in a situation where your federal/institutional loans and grants are not enough, private student loans are a way to bridge the gap. In some situations, private student loans may offer better rates than Parent PLUS loans, so keep that in mind.  Private student loans can be made to parents or students.

Student loan refinancing

Student loan refinancing is when a private lender pays off your student loans and then gives you a new student loan with a new interest rate and new terms.

To qualify for student loan refinancing, students will need to submit a refinancing application. One of the major factors that refinancing lenders will look at is credit score credit score. So, a better credit score will give you a better interest rate.

Learn more: How long does it take to build credit?

Fixed and Variable interest rates

Some students will be presented with a choice between fixed and variable interest rates for their loans. Fixed interest rates remain the same throughout the entire period of repayment. Variable interest rates may fluctuate with the market. While fixed interest rates have the advantage of reliability, some variable interest rates may initially be lower than fixed rates.

It’s worth noting, however, that only private borrowers will be faced with this choice. All federal loans come with fixed interest rates, so that’s one less decision for you to make!

Repayment flexibility

Federal student loans may come with more flexibility than private loans. For example, if loan interest and repayments are suspended due to a national disaster, only federal loans will be included in this ruling. So, if you take out private loans, you may be on a more unforgiving repayment schedule.