What Are the 4 Types of Student Loans?

Student loans are one of the major sources of funding for college education in the U.S. Nearly 43 million borrowers take out federal student loans to pay for school. There are four types of federal student loans: direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and direct consolidation loans.

The 4 Types of Federal Student Loans

Direct Subsidized Loans

Direct subsidized loans are for undergraduate, dependent students and are based on financial need. You’ll receive an amount based on how much you can afford to repay, up to $5,500 depending on your grade level and dependency status.

Subsidized loans are loans in which the federal government pays the interest while you’re in school at least half-time and for six months after you leave school during the grace period. Unsubsidized loans require you to pay for the interest accrued while you’re in school, even if you defer payments until after you graduate.

Direct Unsubsidized Loans

Direct unsubsidized loans are available for both graduate and undergraduate students, and the maximum loan amount isn’t limited based on your grade level or dependency status. These loans are available for independent students as well, since graduate and professional students aren’t considered dependents.

You can receive up to $20,500 in direct unsubsidized loans every year, minus any other funds you get from subsidized loans.

Direct PLUS Loans

Direct PLUS loans are available for both graduate students (grad PLUS loans) and parents of dependent students (parent PLUS loans). You’re eligible to borrow up to the cost of attendance determined by your school, minus any other financial aid you receive.

Direct Consolidation Loans

Consolidation loans allow you to combine all of your federal loans into one after you leave school. This makes the loans easier to manage. Most federal loans are eligible for consolidation and you’ll need to take this step to qualify for other types of programs. For instance, Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans require you to consolidate your loans with a direct consolidation loan before you can benefit from these programs.

Private Student Loans

Private student loans come from private lenders, such as banks, credit unions, and other institutions, rather than the federal government. They have their own regulations and standards, and each lender has their own requirements for qualifications.

Private Student Loans vs. Federal Student Loans

Many private lenders offer similar types of student loans as those at the federal level, including undergraduate loans, graduate loans, and loans for parents. But unlike most federal loans, your approval is directly dependent on your credit score and history, how much you need, and whether you have a co-signer to help you in case you can’t qualify on your own.

Interest rates for private student loans tend to be higher than those for federal loans, but you might have the chance to choose a variable interest rate. Federal student loans only offer fixed interest rates, which change annually and are set by federal law. Fixed interest rates mean the interest rate won’t change for the life of the loan, while variable interest rates can fluctuate based on market conditions.

Which Type of Student Loan Should You Choose?

The type of student loan you should get will depend on your needs, your school, and how much additional financial aid you’re receiving.

If you want to minimize how much you borrow, exhaust all your free money options (i.e., scholarships and grants) first. Then turn to federal student loans—specifically direct subsidized loans, if possible—if you need to borrow money. Move on to unsubsidized if you have any remaining funding gaps. 

You may need to tap into private student loans if you’re still struggling to afford school after you’ve exhausted all your other options.

The Bottom Line

It’s important to know the difference between the four types of student loans as you’re exploring different ways to pay for college. You may qualify for some student loans and not others, so make sure to complete your FAFSA early and determine whether you’ll have any funding gaps that you’ll need to cover.