Exploring Types of Student Loans

If scholarships and grants don’t cover everything on your tuition bill, you may be considering federal and private student loans as a way to fill the gap. As you compare different types of student loans, it can be confusing sorting through the different features to determine which are best suited to your individual situation. If you’re wondering how to find a student loan, take a look through this overview of the student loan options and let us help you find the right fit.

  • Do I Need Student Loans?
  • Federal or Private Student Loans?
  • Which Private Lender Should I Choose?
  • Are There Loan Options for Parents?

Take advantage of free and Federal aid first

Before you start filling out applications it is important to determine if you need student loans. If you do, you’ll want to figure out how much you need to cover your college expenses. Below are the first steps in finding out how much you need to fill the gap:

  1. Complete the Free Application for Federal Student Aid (FAFSA), even if you have not yet decided on a specific school. You can always update your application via the FAFSA website.
  2. Search and apply for any scholarships.
  3. Review the financial aid packages you receive from your schools to see your total expenses, federal grants, scholarships, and federal student loans available. You’ll receive an award letter in late March from each school you’ve chosen, but check with the school for specific dates.
  4. Determine how much additional funding you'll need after exhausting grants, scholarships and subsidized federal loans to meet the total cost of attendance.

If there is a balance when you subtract your financial aid received from your total cost of attendance, you will need to find a way to pay the difference. The most common method for college students is finding student loans. Here is a list of the most commonly used types of student loans for college:

  • Federal Perkins Loans (need based, included in financial aid package).
  • Direct Subsidized Loans (need based, included in financial aid package).
  • Direct Unsubsidized Loans (all are eligible, can be accepted with financial aid package).
  • Direct PLUS Loans for parents and graduate students.
  • Private student loans (like the Citizens Bank Student Loan™ and Student Loan for Parents).

Understand the differences between federal and private student loans

When paying for college it’s important to start with the FAFSA as it gives you access to federal student loan options, grants and scholarship opportunities. However, you should also make sure your student lending research includes private student loans as they are often a great supplement to the free and federal funding. Here are some details on federal and private student loans:

Federal student loans

Direct Subsidized Student Loans

A subsidized federal student loan is one in which a borrower is not responsible for the interest accrued while enrolled in school, during a grace period or during deferment. Subsidized student loans are awarded to those who demonstrate a financial need. Your eligibility for a Federal Direct Subsidized Student Loan is determined by the school’s financial aid office using the information on your FAFSA.

Direct Unsubsidized Student Loans

Unsubsidized federal student loans and private student loans apply interest to the student loan amount from the start. Interest on unsubsidized student loans begins accruing upon disbursement (or upon enrollment in school), and continues through the full life of the student loan. All students attending at least half time (as defined by their schools) are eligible to apply for the Federal Direct Unsubsidized Loan.

Direct PLUS Loans

PLUS loans are another type of federal student loan available to parents of dependent undergraduate students, and graduate or professional degree students. Students must be attending a school that participates in the Direct Loan Program and the borrower must not have an adverse credit history. Visit the Federal Student Aid website for more information about any of these loan programs.

Private Student Loans

By definition, private student loans are those offered by banks, credit unions, and other creditors that are not guaranteed by the Federal Government. Private student loans, which are sometimes called alternative loans, can help fill the gap to cover education-related expenses after all federal financial aid has been exhausted. There are several factors that parents and students should take into account when comparing student lending options such as interest rate, time to repay, and if there are any fees for borrowing.

Compare the terms and benefits of private student loan options

With college costs growing at about twice the rate of inflation and many family savings pools affected by economic changes, private student loans are becoming more necessary for paying for college than ever. Private student loans offer an opportunity to close the gap between what a family has on hand and what it costs to send their children to college. Be sure to maximize grants, scholarships and federal loans first before taking out a private student loan.

There are several factors that parents and students should take into account when comparing student lending options:

  • Are the interest rates competitive? This is likely at the top of the list for most people. Make sure to scrutinize and compare both the prevailing student loan interest rates and any associated fees.
  • Are fixed and variable rates available? You'll also need to assess whether fixed or variable college loan interest rates are better for your situation. Most private student loans have variable rates. Does the lender offer both options?
  • What repayment terms or options are offered? Does the loan give you the option of switching to an alternative repayment plan in the event that your financial situation changes? Will you have the flexibility to secure a loan deferment in certain situations?
  • How is the customer service? Are the institution's online capabilities strong? Can you get your questions answered in a timely manner?

When you've decided which school you'll be attending, ask your school's financial aid office for a list of its preferred lenders. Preferred lenders of student loans have originated loans for students of that school before, and may be more familiar with your school's process, personnel or policies. However, your school is required to process a loan from any lender, even if they are not on their preferred lender list.

Consider Loan Options for Parents and Other Family Members

If a traditional student loan does not sound like the right fit for your family’s situation, you may be considering alternative borrowing options to pay for a college education. There are Direct PLUS Loans available to the parent or legal guardian of a college student, and some lenders offer a private loan alternative, like the Citizens Bank Student Loan™ for Parents.

Families may choose to close the financial gap by using a home equity loan for college expenses. Home equity is the difference between the fair market value of your home and what you owe on it. Using a home equity loan doesn’t add financial burden to the student, and may offer repayment terms and interest rates to better suit your needs.

Like with any borrowing option, make sure to research home equity loan options before applying.

For more information about types of student loans, and answers to any of your college financing questions call 1-888-411-0266 to speak to one of our Student Lending Specialists.


Helpful Tools & Information
Student Loan Glossary A quick guide to various terms you'll encounter in the student loan process.
FAQs Answers to frequently asked questions about student finance options.
Student Loan Calculator Use our loan calculator to estimate payments and total costs of borrowing.