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Understanding Different Types of Student Loans

Drexel University School of Education

College tuition can be expensive, but student loans can make payments more manageable. Student loans are borrowed money that students must repay over a designated period of time in order to make college expenses affordable prior to having a career as a primary source of income.

Although loans have the same basic definition, not all loans function in the exact same way:

  • Private vs. Federal Student Loans - Federal loans are provided by the government and may include specific benefits set by law, such as fixed interest rates. Private loans are given by private institutions, such as banks or credit unions. Private loans do not have one set of fixed benefits; their terms can vary depending on the conditions set by the lending organization.
  • Subsidized vs. Unsubsidized - The major difference between subsidized and unsubsidized loans involves interest. If a student has a subsidized loan, the federal government will pay the interest for the loan while the student is actively enrolled in college courses. Students with unsubsidized loans are required to begin paying interest on their own as soon as the loan is taken out.
  • Dependent vs. Independent - There are certain factors involved in whether a student qualifies as dependent or independent when applying for federal student loans. Students applying as dependent must include the income of their parents, as well as their own financial assets. Students applying as independent are only required to include their own income.

When considering which student loans to apply for, students should be cognizant of student loan limits and maximum student loan amounts. Independent students will typically have a higher limit than dependent students and limits and maximums can increase depending on which year in a student’s education the loan is taking effect, such as whether they are in their first, second, third, or fourth year, or beyond.

Types of Federal and Private Student Loans

A major difference between federal and private student loans boils down to interest rates. However, it is important to recognize that both types of loans come with positive and potentially negative aspects. For a better understanding of the pros and cons for federal and private loans, visit Drexel University’s Understanding Student Loans.

Types of Student Loans: Subsidized vs. Unsubsidized

The primary benefit of a subsidized loan is that you are not required to pay interest while you are an actively enrolled student. The government will cover the interest on your loans for up to six months after you graduate, which can help you begin building savings after graduation before you start to repay your loans.

Another positive benefit of a subsidized loan is that you are not responsible to pay interest for the loan during a period of deferment, or financial hardship.

Of course, every loan does come with its own fine print. Subsidized loans have limits to what students are able to borrow. Those limits depend on whether a student is in their first year of college, all the way up to their fourth year. Currently, students in their first year are limited to taking out $3,500 in student loans, $4,500 in their second year, and $5,500 in their third and fourth years of school.

Students paying for unsubsidized loans are immediately required to pay interest as soon as the loan is taken. However, one defining characteristic of an unsubsidized loan that may make it more appealing than a subsidized loan is its loan limits are typically higher.

Direct Graduate PLUS Loans

Loan applications may differ between undergraduate and graduate students. Direct Graduate PLUS Loans apply to graduate students only. To qualify for a Direct Graduate PLUS Loan, you must complete a FAFSA (Free Application of Federal Student Aid) form and pass a standard credit check.

There are several benefits that may be appealing to you to apply for a Direct Graduate PLUS Loan. The interest rate is always fixed, and a co-signer is not required. Income-based payment plans are also available. However, a low credit score can negatively impact your Graduate PLUS loan application.

University Loans and Grants

Most universities and colleges offer financial aid where the terms of loans and grants are specific to each school. Grants differ from loans because students who are granted money are not required to repay that money to the university. However, students must still complete a FAFSA evaluation to see if they qualify to receive a grant.

Universities can determine the terms of their loans. Because of this, limitations and interest-rates may vary. Payment plans can be created based on your financial standings determined by a FAFSA evaluation and the policies of the university.

Independent and Dependent Student Loan Amounts

Independent loans are granted based on your personal income. Typically, students who are given independent loans receive more money than students applying for dependent loans due to the fact that students filing as dependent have additional financial support from their parents. A FAFSA evaluation will determine if you are qualified to apply for an independent loan based on marital status, age, and unique financial circumstances. Graduate students may not be eligible for dependent loan status. Due to criteria such as age and personal income, graduate students are viewed as independent.

Year Dependent Students
Independent Students
First-Year Undergraduate
$5,500  $9,500
Second-Year Undergraduate
Third-Year Undergraduate $7,500
Graduate Not Applicable

Learn More about Different Types of Student Loans & How You Can Apply

To apply for a specific loan, contact our Financial Aid department and schedule an appointment at Drexel University to access additional resources.