Student Loan Basics

Federal & State Loans vs. Private Loans

If you have already maximized aid from scholarships and grants, a federal or state student loan may be your next best option. Student loans, like all loans, consist of principal (the amount borrowed) and interest (the amount charged for lending the money). Student loans may also have an origination fee, a document preparation fee, and other charges which are the cost for processing and disbursing the loan.

Federal and state student loans are loans that are either made by or guaranteed by the state or federal government. The single largest source of student aid is federal student loans. Each year, the federal government estimates that more than $90 billion is available to students in the form of federal student aid. Federal financial aid is typically what comes to mind when families and students think about funding for college. These are low interest and long term loans for undergraduate and graduate students.

Private loans generally have different interest rates that vary based on your credit history, credit score and other factors. Private loan interest rates are often higher than federal and state loan interest rates and can change over time according to an index.