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Education

What are the Different Types of School Loans?

By Ashtyn Evans
Updated May 17, 2024
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There are three main types of school loans: federal student loans, parent loans, and private loans. Each type of school loan has a specific application process and eligibility requirements. It is in a person’s best interest to only apply for school loans if they have exhausted other resources such as scholarships and financial aid.

Most students will apply for federal school loans when they apply for financial aid. The schools you apply to will make you fill out the application at the same time so that students ineligible for financial aid will still have the option of receiving money through a government-funded loan. Federal school loans, of which the Stafford loan is a type, are handled by the Department of Education.

A student has the ability to receive a subsidized or an unsubsidized federal loan. The main difference in these school loans is that subsidized loans do not charge or build any interest until the moment you start to repay them. Unsubsidized loans begin gathering interest from the moment the school loan is acquired. Almost every student is eligible for this type of loan as long they are going to an eligible school on a part or full-time basis.

School loans may also come in the form of a parent loan or a Parent Loan for Undergraduate Student (PLUS) loan. PLUS loans are only available for parents of children that are undergraduates. These loans allow parents to take on the loan for their children’s education. This school loan generally has the same requirements as federal school loans. The main difference here is that the PLUS is in the parent’s name and not the child's. The parent loan, in many cases, will be a greater amount of money than what is available to an independent student.

Private school loans come from banks, credit unions, and other non-federal institutions. If a person is unable to receive federal loans for whatever reason or the federal school loans they do receive is not sufficient to cover their expenses while at college, they can look to private school loans for assistance. The interest rate on a private school loan is usually going to be higher than a federal or PLUS loan. It is also very important to read and understand the loan agreement that is signed before choosing which institution to get a private loan from, so you can be sure you will be able to pay back the amount plus interest.

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Discussion Comments

By ChessPlayer — On Sep 01, 2010

surflover00- Interest rates for student loans depend on a variety of factors. First of all, the interest rate you get can vary depending on the type of student loan.

Federal student loans have a fixed interest rate, usually around 7 percent. Parent loans that are provided by the government also have fixed interest rates.

Interest rates for private loans will depend on a number of things. Your credit rating will greatly affect your interest rate. If you have poor credit or no credit, you will have a higher interest rate that someone who has good credit.

Another things that will affect the interest rate is if you have a cosigner. You can usually get a lower interest rate if you have a cosigner.

Lastly, the state of the economy can also affect interest rates. During hard economic times, interest rates fall. During economic booms, interest rates rise.

By surflover00 — On Sep 01, 2010

edcollins- I don't think that a court deals with non-payment of students loans. It is usually just handled through a collections agency.

Also, does anyone know if interest rates vary depending on the type of student loan that you get? Do federal loans have lower interest rates?

By edcollins — On Jan 24, 2008

when wages are garnished for non-payment of student loan does there has to be action through a court to collect? also the money was not received by me, all monies went to the school (brymans)

thanks

ed

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