Nobody enjoys figuring out how to pay for school or dealing with student debt. But understanding what type of student loan you need — if at all — and how refinancing works could set you up for a stronger financial future.
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3 top private student loan providers
Best for business students
- Starting APR: 3.05% (variable)
- BBB rating: B
- MBA student discount
- Donates to charitable causes
Best for getting multiple quotes
- Starting APR: 2.84% (variable)
- BBB rating: A+
- Check personalized rates at no cost
- No origination fee
Best for easy approval
- Starting APR: 3% (variable)
- BBB rating: A-
- Lots of educational resources
- Funding for Associate’s degree
I need a student loan. What are my options?
You have two options when you’re looking for a loan to pay for school: Federal loans or private loans.
- Federal student loans are funded by the government, which sets interest rates each year and offer flexible repayment plans.
- Private student loans are funded by providers like banks, credit unions and online lenders, which charge a range of interest rates based on your creditworthiness.
Typically, both private and federal lenders recommend that students apply for federal loans first, since they often have lower interest rates than federal loans and more forgiving repayment options. However, there is a limit to how much federal funding you can qualify for — and how you can use it.
14 types of student loans
Quiz: What type of student loan should I get?
Take our four-question quiz to get a quick recommendation on which type of student loan might be best for your needs.
How federal and private student loans compare
|Federal student loans||Private student loans|
|APR||Fixed rates from 4.53% to 7.08% depending on the loan type||Variable rates as low as 3% or lower, but can reach as high as 18% for fixed rates|
|Restrictions||Only for education-related expenses while you’re a student||For education and post-graduate expenses, such as studying for a bar exam or starting a medical residency|
|Repayment options||Deferred until six month after school, full fixed repayments or graduated and income-based options.||Typically deferred or interest-only repayments until six months after school, full fixed repayments over five to 20 years.|
Federal student loans generally attract lower interest rates than private student loans, but there’s a limit to how much you borrow and what you can use it for.
They also loans tend to be a first choice because they come with benefits like loan forgiveness programs, flexible repayment schedules, extended terms and multiple repayment options.
Students typically turn to private student loans after they’ve maxed out their federal loans or need help paying for a career-related postgraduate cost like studying for the bar exam or relocating for a medical residency.
In addition to taking out a loan in the student’s name, there’s also the option to take out a loan the parent’s name. You might want to consider a Parent PLUS loan if you’ve exhausted all federal financing options. And if you need private financing, it could be an easier choice since parents with good credit and high income don’t have to bring on a cosigner.
You can find out if a parent loan is right for you by visiting our guide.
A breakdown of every student loan option
|Student loan||What it is||How it works||Where to get it|
|Undergraduate student loans||Federal and private student loans to pay for an undergraduate degree program.|
|Graduate student loans||Federal and private student loans to cover the cost of attending a master’s or professional degree program.|
|Bar exam loans||A loan meant to help recent or soon-to-be law school graduates cover the cost of studying for and taking the bar exam.||Typically borrow between $1,000 and $15,000 from a private lender and start repaying it between six and nine months after receiving your funds.||Private student loan providers that offer bar exam loans.|
|Medical residency loans||A loan meant to help recent medical school graduates cover the cost of applying to and relocating for a medical residency, plus required exams.||Typically borrow between $1,000 and $15,000 and defer repayments until between six and 36 months after leaving school.||Private student loan providers that offer medical residency loans.|
|Student loan refinancing||Take out another loan with new rates, terms and repayment options to pay off your current private or federal student loans.||Private student loan providers that offer refinancing.|
Parents can later refinance the loan into the student’s name.
How do I apply for a student loan?
You can apply for a federal student loan by filling out the Free Application for Federal Student Aid (FAFSA) — which also allows you to apply for other types of federal aid like work-study. You can complete this online.
Private student loan providers typically offer online application applications that you can complete along with your cosigner in a few minutes. If you’re applying with a cosigner, they can typically either apply with you or are sent a link to access their part of the application once you’ve completed yours.
How do I find a competitive student loan?
Federal student loans are the same for everyone, but private student loans aren’t as simple. You can find a loan that works best for you by comparing lenders. First make sure you’re eligible, before comparing features like APR, terms and repayment options.
If possible, consider prequalifying with a few lenders once you’ve narrowed it down. That way you’ll get a closer idea of what you’re eligible for than a general range of rates and terms.
What's a cosigner and do I need one?A cosigner is another individual who signs your loan documents with you. Cosigners essentially act to reassure the lender that it’ll get its repayments on time.
Many private lenders recommend undergraduate borrowers to apply with a cosigner. But you might want to consider a cosigner even if it isn’t required. That’s because most lenders have minimum credit requirements that most college students can’t meet — usually a minimum credit score of at least 600 and a debt-to-income ratio below 43%.
Alternative ways to pay for school
Student loans aren’t the only way to pay for college. If you’re not certain you want a student loan, look into these financial aid alternatives.
Just some of the top student loan providers we’ve reviewed
Refinancing student loans
Simply put, student loan refinancing means taking out a new loan to replace your current one. Refinancing can help you save now and in the future by reducing your interest rate, changing how much time you have to repay your loan or reworking the terms of your debt.
Generally, you need good credit and a steady income to qualify for a refinancing loan with low rates. But if you refinance a federal loans with a private lender, you could lose federal benefits that include income-driven repayment plans and loan forgiveness.
Can I refinance my federal loans?
You can, but it might not be the best idea. When you refinance your federal loans with a private lender, you give up several benefits that include loan forgiveness for teachers and public servants, deferment programs for healthcare and legal professionals and flexible repayment plans.
Federal loans also generally come with some of the lowest interest rates out there — rates that are fixed by the federal government. Chances are, you might not be able to find a better deal with refinancing. Talk to your loan servicer to explore your options before turning to refinancing for federal loans.
Refinancing Parent PLUS Loans
Parent PLUS loans don’t come with as many benefits as most other student loans so refinancing might also help you save. You can also refinance a Parent PLUS Loan in your name or your child’s name to help build their credit and release you from their student debt, improving your personal debt-to-income ratio.
What happens after I take out a student loan?
Watch our short video explaining your different repayment options or read more below.
Unlike other types of debt, student loans come with several repayment options. Immediately after you take out your student loans, you might start making full repayments, interest-only repayments or none at all if you’re lucky enough to get a direct subsidized federal loan.
When your funds are disbursed
What happens after you take out your student loan depends on the type of student loan you have.
After you graduate or drop under half-time studies
Six months after leaving school and beyond
What’s a loan servicer?
Loan servicers are companies that lenders hire to manage your loan repayments in exchange for a portion of the profits. The federal government uses loan servicers for all of its loans, but some private lenders use servicers as well.
You don’t get to choose your servicer, and they won’t always reach out after your loans are due. If you’re not sure who your loan servicer is, find it through the National Student Loan Data System.
Student loan repayment plans
When you start making repayments, you might have a choice between several different repayment plans. These can include monthly repayments that stay the same throughout the life of your loan, or repayments that better fit an earning curve as you start your career.
Generally, federal loans come with more flexible options, including several based on your income. Private student loans typically come with fixed repayments over five to 20 years regardless of how much you earn.
Other repayment options
Life happens. You might that you’re unable to make repayments on your loan, even if you’re on an income-based plan. Or maybe you want to let your cosigner off the hook to lower their overall debt load.
Some of the options you might come across for repayments include:
- Forbearance. If you lose your income, are part of a military deployment or simply want to return to school, you might be able to pause your student loan repayments. How long and often you can go into forbearance depends on your loan and lender, but expect interest to continue adding up.
- Deferment. Like forbearance, you can apply to pause your repayments for a legitimate reason. The difference is that your interest doesn’t accumulate while you’re in deferment.
- Cosigner release. You can release your cosigner from most student loans after consistent on-time repayments for a specific time — usually a few years. After your cosigner is released, you’ll be fully responsible for your debt.
- Forgiveness. Depending on your loan type or career, you might be eligible to have some or part of your loans canceled — especially if your have federal loans.
Understanding interest capitalization
Both federal and private student loans can include interest capitalization, adding accrued interest to your loan balance. The most common time for interest capitalization is with a change in your repayments — at the start of repayments deferral or forbearance. Some private lenders also capitalize interest annually or quarterly.
How interest capitalization increases the cost of your loans
Firsthand experiences of finder team members
Anna chooses a repayment plan for her federal loans
Anna was lucky: She got a free ride for college and graduated without any student debt. But when it came to graduate school, she didn’t have nearly as many financing options. By the time she completed her MA, she’d accumulated more than $39,000 in federal unsubsidized student loans.
Anna found income-based repayment plans too complicated, so she signed up for the extended graduated repayment plan offered by her servicer, Great Lakes. Repayments started at an affordable $208 per month for the first two years. And by the time her payments increased, she’d already landed a higher paying job.
Learn more about Anna’s experience with student loans — from how they affected her career to renting an apartment.
Andy negotiates a better deal on private student loans
Andy graduated from college with $62,000 in private student loans from Sallie Mae. But after his grace period was up, he wasn’t making enough money to afford that kind of repayment.
He deferred it for another six months, but by the time his second grace period was over and he still couldn’t afford repayments. Sallie Mae began frequently calling him and his parents — his cosigners — to demand repayments.
Andy explained his situation and convinced Sallie Mae to switch him to an income-based repayment plan. It reduced his monthly repayments to $301 until 2019, when Sallie Mae will reassess his income.
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