Student loan options explained

student thinking

“Student loans." This topic is usually discussed with a sigh and accompanied by stress and anxiety.

What type of loan should I take out?

How will I pay off this debt as a new educator?

Where do I start?

It seems overwhelming right now, but it doesn’t have to be. In this blog post, we will help explain the various available options.

Before taking out loans

While student loans are the most talked about financial aid, be sure to learn about other types of financial aid such as grants, scholarships and work-study programs. Loans should be taken only after all other financial aid options are fully utilized.

Student loan options

Generally speaking, there are two types of student loans: federal loans and non-federal. Non-federal loans mostly are loans from banks or credit unions but can also include state-issued loans. So, the most common term for non-federal loans is private loans.

Typically, it is recommended to pursue federal loans first because:

  • They are generally not dependent on credit history.
  • They tend to have lower interest rates.
  • They can have more flexible repayment options.

Private loans are generally meant to “fill in the gaps.”

Federal student loans

Today, there are three types of federal student loans: Direct, Parent PLUS and Graduate PLUS loans.

1) Direct Loans
These loans generally do not take into account your credit history; they are based on financial need. Direct loans can be either subsidized or unsubsidized, which is just a fancy way of saying that interest can start accruing before or after graduation.

Simply put, a subsidized loan doesn't start charging you for borrowing money until after you leave school.

An unsubsidized loan starts charging interest from the time the loan is taken. Subsidized loans have their interest paid for by the government as long as you are in school at least half time, you are in your grace period (repayment for most federal loans doesn’t start until six months after graduation) or your loans are in deferment (a temporary suspension of payments). This is the most common type of federal Direct loan today.

2) Parent PLUS Loans
Parent PLUS loans are available for parents of undergraduate students who are enrolled at least half-time at an approved educational institution. Please keep in mind that, while these loans are used to help pay for the child’s education, repayment of the Parent Plus loan is the sole legal responsibility of the parent who took out the loan. Parent PLUS loans have no grace period, so repayment will start sooner than other loan types, though you can typically put these loans into deferment while the child is enrolled at school. However, you should avoid deferment if possible.

3) Graduate PLUS Loans
Graduate PLUS loans are available to eligible students who are pursuing a graduate or professional degree.

NOTE: It is important to remember that only federal loans can qualify for currently available federal forgiveness programs.

Private student loans

A word to the wary: If you'll need flexible repayment plans or possible forgiveness, private loans won't be the best choice. Unlike federal loans, forgiveness programs for private loans are limited or nonexistent.

Private loans are generally borrowed from banks or credit unions, though this term is used for any non-federal loan. Because each lender will have unique interest rates and repayment stipulations, the specifics about private loans will vary depending on the lender and borrower. However, understanding a few basic characteristics of private loans will help determine if they’re right for you.

The first notable difference of private loans is that they may require payments while you are still in school.

Also, the terms of private loans vary by lender, which means that interest rates can be fixed or variable. If variable, your interest rates could increase while you’re still repaying. You also might need to have established credit to take out some private loans, which could be a challenge for a young, aspiring educator. Even if you qualify for the loan without needing a cosigner, you may qualify for a better interest rate by having someone cosign.

So, when might a private loan be a wise choice? If you have already borrowed the maximum amount in federal loans but still need more to cover the costs of school, a private loan can be used to bridge the gap and get you the money you need to earn your degree.

There’s always help

Navigating the loan landscape for first-time borrowers can be overwhelming at first, but the more you know about the different kinds of loans, the more prepared you will be to borrow responsibly and set up a prudent payment plan.

To find out more about available financial aid options, head to or contact the financial aid department at your school.

Visit the HMConnection page to read more articles.

AM-C04286 (Feb. 20)

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