Private & Federal Student Loan Details

The two most important factors to consider when choosing a school are the overall costs, and what free aid and student loans you can obtain to cover the cost. As you start looking at student loan options you may have a lot of questions, but don’t get overwhelmed – we’re here to help. This breakdown will help you understand the differences between federal and private student loans, the differences between subsidized and unsubsidized federal student loans, and what to expect when repaying your loans.

  • Understanding Student Loan Rates
  • Subsidized vs Unsubsidized
  • Understanding Loan Repayment

How Do Interest Rates Work?

Whether it’s through the Federal Direct Loan program or through a private lender like Citizens Bank, interest rates are one of the crucial factors to consider when selecting the right options to pay for your college education. The interest rate determines how much it will cost to take out a loan, in addition to the original amount borrowed. For most loans, interest begins to accrue when funds are sent to the school and continues to accrue until the balance is paid in full.

The interest rate is one reason to first examine your options through the Federal Direct Loan program. Direct Loans offer a fixed rate (set on July 1st each year) that may be lower than private loans from banks or credit unions, and have repayment options that may not be available from other lenders. However, you may find private loans with comparable rates and other features or terms that align with your needs, so it’s important to research all of your options.

Most private student loans feature both fixed and variable interest rates, and a borrower’s exact rate is based on credit scores. Fixed rates don’t fluctuate; they remain stable for the life of the loan. Variable rates fluctuate based on the index the lender uses, such as the commonly-used one-month LIBOR index.

There are two broad types of student loan interest rates—fixed and variable. As the words imply, fixed rates do not fluctuate, but remain stable for the life of the loan. Variable rates fluctuate based on the broader economy and Federal Reserve policies. Private student loan rates can adjust monthly or quarterly throughout the year. The new rates for federal student loans are instituted on July 1 of each year.

Pay attention to the APR

It’s important to look beyond interest rates as well. One effective way of making valid comparison between competing student loans is to compare the APR (annual percentage rate). You'll want the lowest possible APR you can get. An APR is expressed as a percentage and includes the annual cost of a college student loan, factoring in interest, any fees, and periods of deferment. To compare, make a list of the APR each lender offers and find the lowest rate. It’s important to note that each lender may handle fees differently, so make sure to ask if there are additional fees that are not included in the APR you’re offered.

An example of how student loan interest works

You'll find a host of calculators and other tools online that will help you calculate what you would owe each month on various student loans under various repayment plans, based on the student loan interest rate and repayment period. To see how student loan interest rates impact the total cost of borrowing, check out our calculators and repayment examples.

Learn more about our affordable Citizens Bank Student Loan™

Find helpful information about our affordable Citizens Bank Student Loan™. If you still have questions, call a student loan specialist at 1-800-708-6684, and we'll help walk you through the process.

What are Federal Student Loans?

When reviewing the financial aid award package from your school, it’s important to understand the difference between Federal Direct subsidized and unsubsidized student loans, and compare those to your available private student loan options. Direct Subsidized and Unsubsidized Loans are available to all students who’ve submitted the Free Application for Federal Student Aid (FAFSA), and the amount available is determined by the college or university.

What’s the difference between subsidized and unsubsidized loans?

Direct Subsidized Loans are available to undergraduate students with financial need and the amount offered is determined by the school. The biggest benefit to taking out Direct Subsidized Loans is the U.S. Department of Education pays the accruing interest on the loan while a student is enrolled in school at least half-time, while borrowers are responsible for the accrued interest with all other loan programs. Always consider subsidized student loans first because the interest is paid for; this offers a lower total cost of borrowing.

Direct Unsubsidized Loans are available to undergraduate and graduate students, and a financial need is not required. The amount offered is determined by the college or university, but is based on the cost of attendance and other financial aid received rather than financial need. Students are responsible to pay the interest that accrues while enrolled in school, but payments can be deferred up to six months after leaving school.

In either case, most federal student loans will not be able to cover the entire cost of college so most students supplement with private student loans to fill the gap.

When interest begins accruing

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.

Learn more about affordable student loan options from Citizens Bank

If you are interested in additional student lending resources or have questions, call a student lending specialist at 1-800-708-6684, and we'll help walk you through the entire process of financing your child's education.

Understand your obligations for repayment

Once you’ve graduated from college and your grace period has ended, you’ll begin to receive your first billing statements with the payment amounts and due dates for your student loans. There are several steps you can take to better manage the repayment of your student debt, help you save money, and establish a good credit history.

The first step to having an organized approach to repayment is making a list or spreadsheet of all your student loan information. This should include monthly payment amounts, due dates, interest rates, repayment terms, and the servicer(s) that will be processing payments. All of this information can be found on your monthly billing statement, or you can contact the loan servicer.

If you find that you can’t afford your student loan payments, reach out to the loan servicer to find out if alternative repayment options are available. Most Federal Direct Loans are eligible for income based repayment, or income contingent repayment, which could lower your monthly payment for a set period of time.

Planning loan payments

Creating a monthly plan for your student loan payments is a critical part of staying on top of your debt and establishing a positive credit history. It’s also an important exercise when it’s time to create or adjust your personal budget after college. When you establish an income after college, consider whether you’d rather make all of your student loan payments at once, or if you’d rather split the monthly payments in four weekly payments to better manage your finances. If you plan to make a payment larger than what’s required, find out if the loan servicer has any pre-payment penalties for paying-off the loan ahead of schedule.

Pay the full amount each month before the due date in order to stay current. Failure to do so can result in delinquency being reported to the credit bureaus as well as late payment fees, which will increase the total cost of the loan. Instead of manually making payments each month, it can be helpful to setup automated payments through the servicer, or your personal bank. Also, some lenders offer interest rate discounts for automated payments, which could save you even more over the life of the loan.


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.