Did you know there are dozens of different types of federal student loans? Understanding what type of loan you have is crucial for making informed decisions about repayment, forgiveness, and consolidation. This month, we break down the major categories of student loans and why they matter to borrowers like you.
Direct Loans – The Most Common Type
Low-interest federal loans.
Available for undergraduate and graduate students (including GRAD PLUS loans).
Subsidized Loans – Need-based; interest does not accrue while in school or during the grace period.
Unsubsidized Loans – Not need-based; interest accrues immediately.
Perkins Loans – Discontinued, But Still Relevant
Formerly provided to students with exceptional financial need.
Schools served as the lender using government funds.
Fixed, low-interest rates.
Special categories included Nursing Student Loans, Loans for Disadvantaged Students, Primary Care Loans, and HEAL Loans.
Parent PLUS Loans – A Different Borrower
Taken out by parents for their child’s education.
New laws factor in past defaults and collections when determining eligibility.
These loans can complicate consolidation and repayment options.
Consolidation Loans – Simplifying Multiple Loans
Allows borrowers to combine multiple federal student loans.
Two types: Direct Consolidation Loans (DCL) and FFEL Consolidation Loans (no longer available but still exists).
Cannot reconsolidate a DCL unless a new eligible loan is added.
Parent PLUS loans cannot be consolidated with the student’s loans.
Once consolidated, loans cannot be separated again.
Special requirements apply for consolidating defaulted loans.
Important: Private loans are not eligible for federal consolidation.
Private Student Loans – A Riskier Option
Issued by private lenders.
Higher interest rates based on credit score.
Difficult to discharge in bankruptcy.
Limited access to hardship-based repayment or forgiveness options.
If a borrower refinances federal loans with a private lender, they lose federal protections.
