The main sources are the federal government, private banks and lenders, and your school itself

Student loans come from three places: the U.S. Department of Education (federal loans), private lenders like banks and credit unions, and your college or university. Federal loans are the most common starting point because they offer fixed interest rates, income-based repayment options, and forgiveness programs that private loans do not. Private loans fill the gap when federal loans do not cover your full cost, and school-based loans are rare but worth asking about.

Most students borrow from the federal government first, exhaust those options, then turn to private lenders if they need more. The order matters because federal loans have stronger protections and lower rates on average. Your school's financial aid office can tell you how much federal aid you may have access to for and point you toward private lenders they work with, though you are not required to use their recommendations.

Key Takeaways

  • Federal student loans come directly from the U.S. Department of Education and include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans, each with different terms and interest rates.
  • Private student loans come from banks, credit unions, and online lenders, require a credit check or cosigner, and have variable or fixed rates that depend on your creditworthiness.
  • Your school may offer institutional loans or emergency funds, which you discover by contacting the financial aid office, not by searching online.
  • Federal loans offer income-based repayment and forgiveness programs; private loans do not, making federal loans the safer choice when available.
  • You apply for federal loans through FAFSA (Free Application for Federal Student Aid), and for private loans directly through each lender's website or application.

Federal student loans and how to access them

Federal loans are issued by the U.S. Department of Education and disbursed through your school. You do not apply directly to the government; instead, you complete the Free Application for Federal Student Aid (FAFSA) on fafsa.gov. Your school uses your FAFSA results to determine how much federal aid you can receive, then notifies you of your award in a financial aid letter.

There are three main types of federal loans. Direct Subsidized Loans are available to undergraduates with financial need; the government pays the interest while you are in school. Direct Unsubsidized Loans are available to undergraduates and graduate students regardless of need; interest accrues from the moment you borrow. Direct PLUS Loans are for graduate students and parents of undergraduates; they require a credit check and have a higher interest rate than Subsidized or Unsubsidized loans.

The interest rates on federal loans are set by Congress and are the same regardless of your credit score or which school you attend. As of the 2024–2025 academic year, rates vary by loan type but do not change once you borrow. You can check current rates on studentaid.gov, which is the official federal student aid website.

Private student loans from banks and lenders

Private student loans come from banks, credit unions, online lenders, and other financial institutions. Unlike federal loans, private loans require a credit check, and your interest rate depends on your credit score and income. If your credit is limited or poor, you may need a cosigner—usually a parent or guardian with established credit—to be approved.

Interest rates on private loans are either fixed (the same for the life of the loan) or variable (changes with market conditions). Variable rates start lower but can rise significantly over time, making them riskier than fixed rates. Private lenders set their own rates, so shopping around matters; a half-percent difference in interest rate adds up to thousands of dollars over ten years.

You apply for private loans directly through the lender's website or by phone. Common private lenders include Sallie Mae, Earnest, SoFi, Discover, and LendingClub, though your bank or credit union may also offer student loans. Your school's financial aid office can provide a list of lenders they work with, but you are free to choose any lender and are not bound by their recommendations.

School-based loans and emergency funds

Some colleges and universities offer their own loans, called institutional or school-based loans. These are less common than federal or private loans, but they may have better terms or be available to students who do not may have access to for federal aid. The only way to learn whether your school offers them is to contact the financial aid office directly—they do not advertise these widely online.

Many schools also maintain emergency loan funds for students facing unexpected costs like car repairs, medical bills, or housing crises mid-semester. These are typically small (a few hundred to a few thousand dollars), short-term, and interest-free or low-interest. Again, your financial aid office is the source; ask specifically about emergency loans or hardship funds.

How to compare federal and private loans side by side

Federal and private loans differ in ways that affect your long-term cost and flexibility. Federal loans offer income-based repayment plans that cap your monthly payment at a percentage of your discretionary income, and some federal loans can be forgiven after 20 to 25 years of may have access to payments. Private loans have no such options; you repay on the lender's schedule or face default.

Federal loans also offer deferment and forbearance if you face hardship—you can pause payments without penalty. Private lenders may offer forbearance but rarely offer deferment, and the terms vary widely. If you become disabled or the borrower dies, federal loans are forgiven; private loans are not, though some private lenders offer death or disability discharge as an option.

The trade-off is that federal loans have borrowing limits. Undergraduates can borrow up to $31,000 in federal loans over four years (as of 2024), though the exact limit depends on your year in school and dependency status. If you need more than that, private loans are your only option. Graduate students can borrow more in federal loans, but there is still a ceiling.

The order to borrow in

Start with federal loans because they have lower rates on average, stronger protections, and repayment flexibility. Complete the FAFSA first to determine your federal aid package. If your school's cost exceeds your federal aid, then explore private loans to cover the gap.

If you are denied federal loans or reach the federal borrowing limit, private loans become necessary. At that point, shop multiple lenders, compare fixed versus variable rates, and consider whether a cosigner will lower your rate enough to justify involving them. Some students find that attending a less expensive school or working part-time reduces the need to borrow heavily from either source.

What happens after you borrow

Once your loan is disbursed, your school applies it to tuition, fees, and room and board. If there is money left over, the school refunds it to you; you can use this for books, supplies, and living expenses. You are responsible for tracking how much you have borrowed across all loans and from all sources—the total adds up quickly.

Federal loans enter a grace period after you graduate or drop below half-time enrollment; you typically do not owe payments for six months. Private loans vary; some have a grace period, others do not. Check your loan documents or contact your lender to confirm when payments begin.

Frequently Asked Questions

Can I get a student loan without filling out the FAFSA?

You cannot get federal loans without the FAFSA, but you can get private loans without it. Private lenders only care about your credit score and income, not your FAFSA results. However, completing the FAFSA is worth doing anyway because it unlocks federal aid and some schools use it to determine institutional aid as well.

What if I have bad credit and no cosigner?

Federal loans do not require a credit check, so you can borrow them regardless of credit history. Private loans almost always require either good credit or a cosigner. If you cannot get a private loan, consider reducing your school costs by attending community college first, working part-time, or choosing a less expensive school.

Can I borrow from multiple lenders at once?

Yes. Many students borrow the maximum federal amount and then take out a private loan from one or more lenders to cover the remaining cost. Keep track of each loan separately because they have different interest rates, repayment terms, and servicers. Your school's financial aid office can help you understand your total borrowing.

Do I have to use the lenders my school recommends?

No. Your school provides a list of preferred lenders for convenience, but you are free to choose any private lender. Shop around and compare rates from multiple lenders before deciding. The lender you choose has no effect on your school or your degree.

What is the difference between a loan and a grant?

A grant is money you do not repay; a loan is money you must repay with interest. Grants are based on financial need and are limited. Loans are available to almost anyone but cost more over time because of interest. Your FAFSA results determine how much grant money you may receive; loans are available to fill any remaining gap.