Overview of Federal Student Loans and Private Student Loans

The process of applying for student loans can be both stressful and confusing. To help, this tutorial reviews the basic types of student loans and how you can qualify for them.

Interest Rate Types

There are two fundamental interest rate types of student loans, subsidized and unsubsidized. Very simply put:

• Subsidized loans have some or all of the interest paid by someone besides the borrower while the borrower is in school. Examples of subsidized loans include the subsidized Stafford Loan and Perkins Loan.
• Unsubsidized loans have interest which accrues from the day the loan starts; you may not be making payments on that interest while in school, but the interest clock is ticking. Examples of unsubsidized loans include the unsubsidized Stafford Loan, Parent PLUS Loan, private alternative student loans, and student loan consolidation.

Loan Programs

There are also two fundamental lending types of student loans, federal and private (Also see: Student Loan Introduction).

• Federal student loans are loans issued by or guaranteed by the U. S. government. These include loans from the U.S. Department of Education, as well as Department of Health and Human Services. Most major banks and credit unions also offer federal student loans; these loans are backed by the U.S. government. And finally, student loan consolidation services offer federal consolidation loans. Interest rates on federal student loans are set by Congress every year, and are traditionally fairly low compared to private loans.
• Private student loans are loans issued and guaranteed by non-federal organizations. These include loans from organizations such as TERI, state or local student loans, private bank student loans, and private agency loans (such as the Sallie Mae Signature Loan). Interest rates on private student loans are set by the issuing lender and can vary wildly. We recommend a private student loan from the Student Loan Network.

Beware! Not everyone knows the difference between federal and private student loans, so make sure when you apply for a loan that you are signing a promissory note for the appropriate loan type.