If your student will need loans for college, it pays to know what’s available in federal and private student loans and carefully consider your options. As of 2025, 43 million U.S. college graduates carried an average of $39,075 in federal loan debt.
When you are looking for student loans, there is a dizzying array of options. Broadly, there are federal loans from the government, and private loans through banks and other lenders. Within each category is a variety of loan types, each with their own pros and cons.
Students should always use and max out federal loans before looking into private borrowing. Federal loans are generally cheaper, easier to obtain, and have better repayment terms and conditions than private loans.
What Are Federal Student Loans?
Federal loans are borrowed from the federal government. They offer fixed interest rates, along with protections and favorable repayment terms. Some of their benefits include income-based repayment, longer deferment options, and loan forgiveness opportunities.
Direct or Stafford Federal Loans
Direct loans from the government can be subsidized or unsubsidized. A subsidized loan is a better deal, because the government will pay the interest on the borrowed money while the student is in school and for six months after graduation. Subsidized loans are only available to students who demonstrate a financial need as determined by the FAFSA.
Unsubsidized direct loans are available to any student, but begin accruing interest right away. The 2025-2026 interest rate for direct undergraduate student loans is 6.39% fixed. For graduate students the rate is 7.94% fixed. Those rates apply for loans first disbursed between July 1, 2025 and June 30, 2026.
Undergrad or graduate students are eligible for direct loans, whether dependent or independent. In order to borrow a subsidized or unsubsidized federal loan, you MUST fill out the FAFSA.
As of 2025, here are the federal Direct Loan annual and lifetime limits:
Undergraduate (Dependent students):
• Year 1: $5,500 total, up to $3,500 subsidized
• Year 2: $6,500 total, up to $4,500 subsidized
• Year 3 and beyond: $7,500 total, up to $5,500 subsidized
• Aggregate cap: $31,000 total (with a $23,000 subsidized limit)
Undergraduate (Independent / Dependent whose parents are denied PLUS):
• Year 1: $9,500 total, up to $3,500 subsidized
• Year 2: $10,500 total, up to $4,500 subsidized
• Year 3 and beyond: $12,500 total, up to $5,500 subsidized
• Aggregate cap: $57,500 total (still only $23,000 subsidized)
Graduate & Professional students:
• Annual (Unsubsidized) limit: $20,500 (varies for certain health/medical programs)
• Aggregate cap: $138,500 (this includes any undergraduate loans, with up to $65,500 in subsidized loans)
Parent PLUS Loans
To be eligible for a Parent PLUS loan, you must be the parent of a dependent undergraduate, or a graduate or professional student enrolled at least half-time.
The borrower’s credit history is reviewed for adverse events, but approval does not depend on a specific credit score or debt-to-income ratio. If red flags appear, a cosigner may be required. Unlike private loans, there is no early release for a cosigner on a PLUS loan.
Parent PLUS loans carry the highest interest rate of any federal student loan, though the rate is fixed. For loans first disbursed between July 1, 2025 and June 30, 2026, the rate is 8.94%. You can apply by submitting the FAFSA.
PLUS loans also have a disbursement (origination) fee of 4.228%, deducted before funds are released. That means you receive about 95.7% of the borrowed amount, but you are responsible for repaying the full loan, with interest.
Currently, the maximum amount you can borrow is the cost of attendance, set by the school, minus any other financial aid received. Because of the higher interest rate and fees, families sometimes compare PLUS loans with private student loans (often requiring a cosigner) to determine the lowest overall borrowing cost.
Upcoming change: Starting July 1, 2026, Parent PLUS loans will be capped for the first time under the One Big Beautiful Bill Act. Parents will be limited to borrowing no more than $20,000 per child each year, with a lifetime maximum of $65,000 per student. These caps — and new repayment rules — will apply to families whose students begin college in fall 2026 or later.
>RELATED ARTICLE: How the New Student Loan Law Changes Paying for College and Grad School
What Are Private Student Loans?
Once federal loans have been exhausted, you may find that your student still has additional financial need. This is where private loans come in. There are private loans for students and for parents, and each one has its own terms and conditions.
Unlike federal loans where rates and terms are the same for everyone, private loans are tailored to your credit and financial history. As a result, it pays to shop around. Private loans are available from banks, credit unions, and state agencies.
Private Student Loans
Private loans for students are a way to help pay for college if federal funds are not enough. A student will be reviewed by standard underwriting guidelines, which means that credit history and credit score are important. In most cases, a student’s credit history will not be strong enough to qualify, and they will need a cosigner.
You will find both fixed-rate and variable-rate loan options. While variable rate loans may have a lower interest rate, it can change over time. This makes it hard to know exactly what future payments will be or how much interest you will pay. Certain private lenders may offer forbearance or deferment options, but it isn’t common.
After graduation, a student’s new income and credit rating may allow private loans to be refinanced to get better interest rates. A federal PLUS loan can also be refinanced into a private student loan if a parent wants to shift the responsibility to the student.
Here’s more detail on everything you need to know about what private student loans are.
You can seek private loans at a variety of financial institutions.
Private Parent Loans
Private parent loans were introduced to compete with federal PLUS loans, and have begun to gain ground as PLUS interest rates have increased. These loans may be lower priced than a federal PLUS loan, but they won’t have the benefits.
If you have a federal PLUS loan, you may be able to refinance it into a private parent loan. This can help you save money on interest.
Use Caution When Borrowing
At the end of the day, every loan requires repayment. Encourage your student to look carefully at the financial arrangements they make for school. Late payments can have a big impact on credit history and the ability to make major purchases in the future.
If a graduate has trouble finding a job, or can’t find well-paying work, large loans can become a major problem. Make sure you and your student borrow only what is truly needed for school. Rely as much as possible on working during school/summers and finding a school generous with grants and scholarships to help reduce the amount of money you may need to borrow.
Before being approved for a loan, the borrower (you or your parents) will undergo a credit check to make sure they don’t have any red flags in their credit history.
Graduate students and parents seeking to take out federal PLUS loans may also need a cosigner if they have any adverse credit history within the last five years, such as bills that are more than 90 days overdue, or a bankruptcy or foreclosure.
Those who endorse a PLUS loan (the government’s term for a cosigner), cannot be released until the loan has been repaid in full. Servicers collecting payments on federal PLUS loans can use the same tactics against endorsers that they employ against the delinquent borrowers, including wage garnishment.”
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