Student Loans

Coming up with the funds for your online education can feel tricky. When you have exhausted all of your options for scholarships, grants, and work-study opportunities, you may be wondering how you will be able to pay for the last bit of your degree. Thankfully, student loans are available. Unlike grants and scholarships, student loans must be repaid. They are available through the federal government and through private lenders, such as banks, state agencies, and credit unions.

Below, learn more about the different types of student loans available.

Government Student Loans

After you have completed the Free Application for Student Aid (FAFSA), your school may offer government student loans as part of your financial aid award package. These loans, whether provided through federal or state governments, offer many benefits over private loans.

Federal student loans have terms and conditions that are set by laws. They also offer fixed interest rates that are typically lower than those of private loans, deferment options, and multiple repayment options, such as income-based repayment.

Depending on the federal loan type, there may be no credit check required. Direct and Perkins loans do not require credit checks. Some loans additionally offer loan forgiveness. When your loan is forgiven, you no longer need to make payments toward the loan amount. You may be eligible for loan forgiveness depending on the terms of your loan or your employment. For example, income-based loans are forgiven if your balance is not fully repaid within 20 or 25 years.

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For all student loans, you are charged interest. Interest is the amount charged by the lender for using the loan and is expressed as a percentage of the loan’s principal amount. Some loans are subsidized, meaning that while you’re enrolled in courses at least half time, the government pays for the interest on your loan. In addition, the loans can be combined into a direct consolidation loan.

Types of Federal Student Loans

There are a few types of government student loans available. You can learn more about the different types on the federal student aid website.

Direct Subsidized Loan

Direct subsidized loans are available to undergraduate students who demonstrate financial need. The amount you borrow may not exceed your financial need. Your school determines how much you can borrow each academic year. With this type of loan, the U.S. government pays interest while you are enrolled at least half time, for six months after you leave school, and during any deferment periods.

There is a loan fee assessed for direct subsidized loans.

First Disbursement DateLoan Fee
Between Oct. 1, 2017, and Oct. 1, 20181.066%
Between Oct. 1, 2018, and Oct. 1, 20191.062%
  • Interest rate: Fixed; 5.05%*
  • Repayment: Begins six months after you graduate, leave school, or drop below half-time enrollment status
  • Repayment plans: Several offered, including income-driven plans

* Interest amount for loans first disbursed between July 1, 2018, and July 1, 2019.

Direct Unsubsidized Loan

Undergraduate and graduate students can receive a direct unsubsidized loan. There is no obligation to show financial need, and your school will determine how much you are eligible to borrow. When you have a direct unsubsidized loan, you are responsible for paying interest. You can choose to not pay interest while you are in school and during grace, deferment, and forbearance periods; however, your interest will build up over time and be added to the balance of your loan.

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During a forbearance period, you temporarily stop making payments on your student loans, but you remain responsible for all interest that accrues on your loans during that time. In the case of a loan deferment, you temporarily stop making payments on your student loans, and depending on the type of loan, you may not be responsible for the amount of interest accrued during that time.

Direct unsubsidized loans do have a loan fee.

First Disbursement DateLoan Fee
Between Oct. 1, 2017, and Oct. 1, 20181.066%
Between Oct. 1, 2018, and Oct. 1, 20191.062%
  • Interest rate: Fixed; 5.05% for undergraduate students, 6.6% for graduate or professional students*
  • Repayment: Begins six months after you graduate, leave school, or drop below half-time enrollment status
  • Repayment plans: Several offered, including income-driven plans

* Interest amount for loans first disbursed between July 1, 2018, and July 1, 2019.

The amount you can borrow through direct subsidized and unsubsidized loans depends on which year you are in school and if you are a dependent or independent student.

YearDependent Students
(excluding students whose parents are unable to get PLUS Loans)
Independent Students
(and dependent undergraduate students whose parents are unable to get PLUS Loans)
First-Year Undergraduate Annual Limit$5,500, no more than $3,500 may be subsidized loans$9,500, no more than $3,500 may be subsidized loans
Second-Year Undergraduate Annual Limit$6,500, no more than $4,500 may be subsidized loans$10,500, no more than $4,500 may be subsidized loans
Third-Year and Beyond Undergraduate Annual Limit$7,500, no more than $5,500 may be subsidized loans$12,500, no more than $5,500 may be subsidized loans
Graduate and Professional Students Annual LimitN/A$20,500 (unsubsidized loans only)
Subsidized and Unsubsidized Aggregate Limit$31,000, no more than $23,000 may be subsidized loansUndergraduate students: $57,500, no more than $23,000 may be subsidized loans

Graduate and professional students: $138,500, no more than $65,500 may be subsidized loans. Amount includes all federal loans received for undergraduate study.

Direct PLUS Loan

Direct PLUS Loans are available to parents or graduate students. This type of loan requires a credit check, and the maximum loan amount is the student’s cost of attendance minus other financial aid. Parent PLUS Loans are available to parents of dependent undergraduate students who are enrolled at least half time. Grad PLUS loans are available to graduate and professional students.

Both kinds of PLUS Loans have a fee that’s deducted from each disbursement and based on a percentage of the loan amount.

First Disbursement DateLoan Fee
Between Oct. 1, 2017, and Oct. 1, 20184.264%
Between Oct. 1, 2018, and Oct. 1, 20194.248%
  • Interest rate: Fixed; 7.6%
  • Repayment: Payments for parent PLUS Loans begin after loan is fully disbursed; payments for grad PLUS Loans begin six months after you graduate, leave school, or become enrolled less than half time
  • Repayment plans: Standard, graduated, and extended payment plans

Direct Consolidation Loan

If you have multiple federal student loans, you can combine them into a direct consolidation loan. Most government loans are eligible for this option; however, parent PLUS Loans and private student loans cannot be consolidated.

A direct consolidation loan can help you better manage your student loan payments. Instead of having multiple payments due to different loan servicers, you will have a single monthly bill. It may also help lower the amount due each month by providing a longer repayment period (up to 30 years). However, you may end up paying more interest overall than if you kept your loans separate.

  • Interest rate: Fixed; interest rate is the weighted average of the interest rates of all consolidated loans, rounded up to the nearest one-eighth percent
  • Repayment: Begins within 60 days of loan disbursement
  • Repayment plans: Several offered, including income-driven plans

Applying for Government Student Loans

To apply for a government student loan, you need to complete the FAFSA. After your school has received the information from your FAFSA, they will send you a financial aid offer that details the financial assistance you are eligible for and their amounts. Your offer may include federal student loans. You will then accept all or part of the loans through your school.

Before the loan is disbursed to you, you will need to complete entrance counseling, which will help you understand your obligation to repay the loan, and sign a Master Promissory Note, which shows that you agree to your loans’ terms.

Repayment Plans

There are several payment plan options available for federal student loans.

Repayment PlanEligible LoansMonthly Payment and Time Frame
StandardDirect Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation LoansPayments are a fixed amount. Loan is fully paid within 10 years, or within 10 to 30 years for consolidation loans.
GraduatedDirect Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation LoansPayments are lower in the beginning and increase throughout the life of the loan, usually every two years. Loan is fully paid in 10 years, or within 10 to 30 years for consolidation loans.
ExtendedDirect Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, PLUS Loans, Consolidation LoansPayments are either fixed or graduated. Loan is fully paid within 25 years.
Revised Pay As You EarnDirect Subsidized and Unsubsidized Loans, Direct grad PLUS Loans, Direct Consolidation Loans that exclude parent PLUS LoansMonthly payments are 10% of your discretionary income (the amount you have available after necessary expenses, such as food, rent, and utilities) and are recalculated each year depending on your updated income and family size. If your loan isn’t fully repaid after 20 years (for undergraduate study) or 25 years (for graduate study), the outstanding balance is forgiven.
Pay As You EarnDirect Subsidized and Unsubsidized Loans, Direct Grad PLUS Loans, Direct Consolidation Loans that exclude parent PLUS LoansMonthly payments are 10% of your discretionary income, but never more than what you would pay under the 10-year Standard Repayment Plan, and payments are recalculated each year based on your updated income and family size. If your loan is not fully repaid after 20 years, the outstanding balance is forgiven.
Income-BasedDirect Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, Grad PLUS Loans, Consolidation Loans that exclude Parent PLUS LoansMonthly payments are 10 or 15% of your discretionary income (depending on when you received first loans), but never more than what you would pay under the 10-year Standard Repayment Plan, and payments are calculated based on your updated income and family size. If your loan is not fully repaid after 20 or 25 years (depending on when you received first loans), the outstanding balance is forgiven. However, you may have to pay income tax on any forgiven amount.
Income ContingentDirect Subsidized and Unsubsidized Loans, Direct Grad PLUS Loans, Direct Consolidation LoansMonthly payments are the lesser of 20% of your discretionary income or the amount you would pay on a fixed amount repayment plan over 12 years, adjusted to your income. Payments are recalculated each year based on your updated income, family size, and total amount of direct loans. If your loan is not fully repaid after 25 years, any outstanding balance is forgiven.
Income SensitiveSubsidized and Unsubsidized Federal Stafford Loans, FFEL PLUS Loans, FFEL Consolidation LoansMonthly payments are based on your annual income. Loans are fully paid within 15 years.

Private Student Loans

Sometimes after exhausting all of your options for grants, scholarships, work-study, and federal loans, you may need additional funds in order to pay for your online degree program. In this case, there are numerous private student loans for which you can apply.

Available through banks, credit unions, and state-affiliated or state-based organizations, private student loans are typically more expensive than government loans and generally should be your last option for financial assistance. They are available to students enrolled in undergraduate, graduate, certificate, health profession, medical, and dental programs. Parents of students may also take out a private loan to help finance their children’s college education.

Loan terms are set by the lender and not by laws. It’s not uncommon for private loans to not offer forbearance or deferment options if you are having difficulties with making payments. Additionally, private loans cannot be incorporated into a direct consolidation loan, but some lenders will allow you to refinance.

You can learn more about the differences between federal and private student loans on the Federal Student Aid website.

Applying for Private Student Loans

To apply for a private loan, you should check with your school to see if they work with a lender. You can also ask other individuals for any recommendations. The application process for a private student loan is typically completed online through the lender’s website. Note that private loans require creditworthiness, so there will be a credit check.

When searching for a private student loan, you should consider the loan’s terms. Find out if the interest rates are fixed or variable, when the loan will mature, and if there are any hidden fees, such as an origination fee. These factors, among others, can help you determine if a private loan is right for financing your education.

If you need help finding the right private student loan, you can compare loan options online through various websites like PrivateStudentLoans.com.

Private Student Loan Rates

Interest rates for private student loans can vary and can be either higher or lower than federal loan rates. The average interest rate is about 6% for variable-rate loans and about 7.5% for fixed-rate loans. Loans may have a fixed or variable interest rate. Usually, they are unsubsidized, meaning that you are accountable for all of the interest.

Repayment

Repayment terms depend on the lender of the loan. Compared to federal student loans, private loans sometimes require repayment while you are still enrolled in courses. However, some allow you to defer payments until after you leave your school.

Most private student loans do not offer a forgiveness program if your loan is not repaid in full within a certain period of time. In certain situations, you may be able to have your loan forgiven if your private loan is through a state agency.

Financing Your Online Education

While there are many financial aid options available — including grants, scholarships, and work-study opportunities — student loans can help you when you need to find more money to fund your online college education. When investing in your future, loans, especially from the federal government, can be a great option.

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