Federal student loans are the most common source, and you access them through the Free Application for Federal Student Aid (FAFSA)
The U.S. Department of Education offers federal student loans directly to students and parents. You do not borrow from the Department itself — instead, you complete the FAFSA, which tells schools and the government what you need, and then the school's financial aid office tells you what federal loans you may have access to for. The main federal loan types are Direct Subsidized Loans (the government pays interest while you are in school), Direct Unsubsidized Loans (interest accrues from day one), and Direct PLUS Loans (for parents or graduate students). Federal loans have fixed interest rates set by Congress, income-driven repayment plans, and forgiveness programs that private loans do not offer.
You submit the FAFSA once per year, usually starting October 1st for the following academic year. Your school receives the results and sends you a financial aid package that lists how much federal loan money you can borrow. You then accept or decline each loan type through your school's financial aid portal. The money goes to your school first to cover tuition and fees; any leftover is sent to you.
Key Takeaways
- Federal loans come through the FAFSA and your school's financial aid office, not directly from a government office you contact yourself.
- Private loans come from banks, credit unions, and online lenders, and they have variable interest rates and fewer repayment protections than federal loans.
- State loan programs exist in some states and may offer lower rates or forgiveness for graduates who work in certain fields or regions.
- Your school's financial aid office can tell you which loans you are offered and in what order to borrow them — federal first is almost always the better choice.
- Employer tuition assistance and 529 college savings plans are not loans but can reduce how much you need to borrow.
Private loans from banks and online lenders are the second major source
Private student loans come from banks, credit unions, and online lending companies. Unlike federal loans, private loans are not backed by the government, so lenders set their own interest rates and terms. Most private loans have variable interest rates, meaning the rate can go up or down over time. You typically need a credit score of 650 or higher to borrow, and if your score is lower, you may need a cosigner (usually a parent) to be approved.
Private loans are meant to fill the gap after you have borrowed the maximum federal loan amount. You apply directly to the lender's website or through your school's financial aid office if they have a preferred lender list. The application process is faster than federal loans — sometimes approved within days — but the terms are less flexible. Private loans do not offer income-driven repayment or forgiveness programs, and if you fall behind, the lender can charge high late fees and damage your credit.
Interest rates on private loans vary widely depending on the lender, your credit, and market conditions. As of 2024, rates range from around 4% to 14%, but this changes. Always compare rates from at least three lenders before borrowing, because a 2% difference in interest rate costs thousands of dollars over a 10-year repayment period.
State loan programs may offer lower rates or forgiveness in specific fields
Some states run their own student loan programs or offer loan forgiveness for graduates who work in high-need areas. For example, some states forgive loans for teachers, nurses, or social workers who commit to working in rural or low-income communities. Other states offer state-specific loans with lower interest rates than federal loans for residents attending in-state schools.
State programs vary significantly by location. Your state's higher education agency website lists what is available in your state. If you are considering a career in education, healthcare, or public service, check your state's program before taking out private loans, because forgiveness can save you tens of thousands of dollars.
Employer tuition assistance and education savings accounts reduce how much you need to borrow
Many employers offer tuition reimbursement or education assistance as an employee benefit. Some cover tuition fully; others reimburse a set dollar amount per year (often $5,000 to $10,000). If you are working while in school, ask your HR department whether this benefit exists and what you need to do to use it. Money from an employer does not need to be repaid and reduces the amount you have to borrow.
A 529 college savings plan is a tax-advantaged account that families can open to save for education costs. If your family has one in your name, that money should be used before you borrow loans. The same applies to other education savings accounts like Coverdell ESAs. These are not loans and do not require repayment.
Your school's financial aid office is the starting point for understanding your options
Every school has a financial aid office staffed with advisors who know the loan programs available to you and can explain the differences. They can tell you how much federal loan money you are offered, what the interest rate is, and what your monthly payment would be under different repayment plans. They can also tell you whether your school has preferred private lenders (which sometimes offer slightly better terms) and whether your state has loan programs you should know about.
Contact your school's financial aid office before you apply for private loans. Many students borrow private loans without realizing they could have borrowed more federal loans first, which is usually a mistake because federal loans have lower rates and more protections.
Comparing federal, private, and state loans: what each offers
| Loan Type | Interest Rate | Repayment Options | Forgiveness Programs |
|---|---|---|---|
| Federal Subsidized | Fixed, set by Congress (5.5% for 2024–2025) | Income-driven, standard, graduated | Public Service Loan Forgiveness, income-driven forgiveness after 20–25 years |
| Federal Unsubsidized | Fixed, set by Congress (5.5% for 2024–2025) | Income-driven, standard, graduated | Public Service Loan Forgiveness, income-driven forgiveness after 20–25 years |
| Federal PLUS | Fixed, set by Congress (8.5% for 2024–2025) | Standard, graduated, income-contingent | Public Service Loan Forgiveness only |
| Private | Variable or fixed, 4%–14% depending on lender and credit | Set by lender; usually standard only | None, unless employer-sponsored |
| State Programs | Varies by state; often lower than private | Varies by state | Varies by state; often tied to employment in specific fields |
Frequently Asked Questions
Do I have to borrow federal loans before I can get private loans?
No, there is no legal requirement. However, financial advisors recommend borrowing federal loans first because they have fixed rates, income-driven repayment, and forgiveness programs. Private loans should be your last resort after you have borrowed the maximum federal amount.
What if I do not may have access to for federal loans?
Most students may have access to for at least some federal loans. If you are a U.S. citizen or may be able to access noncitizen and are enrolled in an accredited school, you can borrow federal loans. If you have been convicted of a drug offense, you may be temporarily ineligible, but you can regain may be able to access after a waiting period. Contact your school's financial aid office to find out your specific situation.
Can I borrow from multiple lenders at the same time?
Yes. You can borrow federal loans from the Department of Education and private loans from one or more private lenders in the same year. However, borrowing from multiple private lenders means multiple monthly payments and multiple interest rates. Most students borrow from one private lender only, after maxing out federal loans.
What happens if I cannot repay my loans after graduation?
Federal loans offer income-driven repayment plans that cap your monthly payment at 10% to 20% of your discretionary income, and any remaining balance is forgiven after 20 to 25 years. Private loans do not have this option. If you cannot pay a private loan, the lender can sue you, garnish your wages, or damage your credit. This is another reason to prioritize federal loans.
Are there loans specifically for graduate or professional school?
Yes. Federal Direct Unsubsidized Loans and Federal PLUS Loans are available to graduate and professional students, and the borrowing limits are much higher than for undergraduates. Graduate students can borrow up to the full cost of attendance. Private lenders also offer graduate loans with higher limits than undergraduate loans.