5 Best Loans in USA of 2022 – There are two main types of student loans: federal student loans – issued by the US Department of Education – and private student loans. They both differ in interest rates, eligibility requirements, loan modification options, and forgiveness programs.
Federal loans offer more flexible repayment terms, but private student loans can help you cover the total cost of attending your school if you’ve exhausted all other options.
Take advantage of our best student loan guide and find the best lenders to help achieve your higher education goals.
Our Top Picks For Best Student Loans
Best Federal Student Loans:
- Direct Subsidized Loan
- Direct Unsubsidized Loan
- Direct PLUS Loans for Parents & Graduates
Best Private Student Loans:
- College Ave – Best Overall
- Sallie Mae – Best for Graduate Students and Non-degree Granting Schools
- Credible – Best for Parents
- SoFi – Best for No Fees and Discounts
- Ascent – Best for Borrowers Without a Cosigner
- LendKey – Best Marketplace
Federal Student Loans – Pros and Cons
Federal student loans are backed by the U.S. Department of Education and offer exclusive benefits and repayment options that are not available for private student loans.
There are four main types of federal student loan programs available to undergraduate and graduate students as well as parents seeking financial aid to fund their children’s education.
Direct Subsidized Loan
- Only available to undergraduate students with financial need
- Loan amounts depend on the school’s cost of attendance and can’t exceed financial need
- U.S. Department of Education pays interest on the loan while you’re in school at least half-time, during the grace period after you leave school and during deferment.
Direct Unsubsidized Loan
- Available to undergraduate, graduate and professional students
- Don’t require students to demonstrate financial need
- Loan amount depends on the school’s cost of attendance and other financial aid received
- Students are responsible for paying interest at all periods
Direct PLUS Loans
- Available to graduate and professional students as well as parents
- Requires credit check and those with adverse credit history must meet additional requirements
- Loan amount depends on the school’s cost of attendance minus other financial aid received
Direct Consolidation Loans
- Allow borrowers to combine all eligible federal student loans into one loan under one servicer
- Interest rate is fixed and based on the average of the interest rates being consolidated
- Monthly payments may be lower but bowers may end up paying more interest over the life of the loan
Types of student loans
Since private loans don’t offer the same protections that federal loans do, the general advice is to seek private student loans after you’ve exhausted every federal option.
Federal student loans
Federal student loans are the first choice for many due to their low rates, flexible repayment options and federal protections.
The U.S. Department of Education offers the following loan options:
- Need-based: Direct Subsidized Loan
- Non-need-based: Direct Unsubsidized Loan and Direct Plus Loan
To apply for federal loans and additional financial aid, students must submit the Free Application for Federal Student Aid (FAFSA) once every school year.
Your school will calculate how much you’re eligible to borrow based on the cost of attendance and your family’s financial information.
Final loan awards can’t exceed loan limits set by the federal government, but the school may award you less than what you request.
The federal government limits how much a student can borrow annually and over their entire college career across different categories:
- Academic year
- Loan type
- Undergraduate and graduate studies
- Independent or dependent student
Benefits of federal loans include:
- Lower interest rates
- Subsidized interest payments
- 6-month grace period after graduation
- Income-driven repayment plans.
- Possibility of loan forgiveness
Private student loans
Private student loans are similar to personal loans, as they are issued by private banks or credit unions.
Private student loan lenders look at students’ credit scores and credit reports to determine interest rates and loan approval. Since most students don’t have enough credit history, lenders often require a qualifying cosigner.
Private loans don’t feature the same benefits as federal student loans, but they can help pay your school’s total cost of attendance if you’re no longer eligible for federal aid. Most schools will have a list of recommended lenders they partner with.
You will receive the remaining loan amount directly from the school after tuition, fees, and student housing are covered.
Most private lenders start loan repayment while you’re still in school, but some do extend deferment or grace periods, although interest will continue to accrue.
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