Student loans make it possible for many people to attend college, which can open doors and opportunities for years to come. A student loan is money that you borrow to help pay for school with the expectation that you will pay that money back in the future. However, the process of obtaining and repaying a student loan does have some unique attributes. An interest rate is, essentially, the cost of taking out your loan.
It is calculated as a percentage of the amount you borrow and added on to your loan. A fixed interest rate will not change for the life of a loan, while a variable interest rate can change.
Interest rates for federal student loans, which are issued by the government, are currently set once per year and are fixed. Private student loans , which are issued by banks, credit unions, private lenders, and other types of financial institutions, tend to have interest rates that are higher than federal direct student loans, and those rates can be fixed or variable.
Interest rates will differ depending upon the lender, so this should be a key question as you shop around for private student loans. The percentage will vary based on the type of student loan and lender. For federal student loans, the origination fee ranges from 1.
When charged, an origination fee is usually added to the loan amount, so you typically pay the fee as part of the loan. How to apply for student loans How does student loan interest work? What are student loans? There are two main types of student loans: Federal student loans are backed by the U. These loans have fixed interest rates and come with federal benefits and protections. This includes access to deferment and forbearance options, income-driven repayment plans, and student loan forgiveness programs.
Private student loans are issued by private lenders. Unlike federal student loans, private student loans require a credit check and verifiable income. Private Student Loans Types of student loans Many college students end up with a mix of both federal and private student loans to help them pay for school.
There are three main types of federal student loans: Direct Subsidized Loans: These loans are available to undergraduate students with financial need. Direct Unsubsidized Loans: These loans are available to both undergraduate and graduate students, regardless of financial need. PLUS Loans also require a credit check.
Repaying federal student loans: Federal student loans offer several repayment plans, including income-driven repayment IDR plans and student loan forgiveness. Borrow wisely! Compare student loan rates from top lenders Multiple lenders compete to get you the best rate Get actual rates, not estimated ones Finance almost any degree See Your Rates Checking rates will not affect your credit Trustpilot.
Private Student Loans Subsidized vs. Unsubsidized Loans Parent Plus Loans vs. There are four types:. Federal student loans also have deferment and forbearance options, which allow you to temporarily stop making payments without hurting your credit score or defaulting on your loan. Most private student loans have repayment schedules of five to 20 years or more, and many offer grace periods. Federal loans offer up to three years of forbearance or deferment, depending on the circumstance.
Dori Zinn has been a personal finance journalist for more than a decade. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy. Select Region. United States. United Kingdom. Dori Zinn. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
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