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How to Determine Which Type of Student Loan is Best for You


How to Determine Which Type of Student Loan is Best for You

Are you heading off to college? If you are considering getting student loans, you are not alone! Before getting a student loan, try applying for scholarships and grants to cut costs. You can also opt to work part-time or set up a tuition installment plan.

However, if securing a student loan is an option, you need to know how to determine which type of student loan is best for you.

What to Consider in Choosing a Student Loan 

There are several student loans available for you. However, you need to know the key factors to consider when choosing the right student loan:

Interest Rates. Student loans are available at either fixed or variable interest rates. Most lenders offer both options. Lenders vary in their interest rates.

Repayment Terms. This is how long it will take to repay your student loan. Many lenders have specific repayment terms and some allow you to choose the term that you are comfortable with.

Paying your student loan sooner will result in larger monthly payments but a lower overall total cost. A longer repayment term will cost more overall but will allow lower monthly payments.

Repayment Options. This is the manner in which you will be required to repay your student loan. You can choose to start repaying your loan while you are still in school or postpone until you have graduated.

With these factors in mind, you will be able to choose the best student loan.

How to Choose the Best Student Loan

Student loans help you complete your college education. You need to exercise utmost caution in choosing a student loan.

  1. Know how much money you need to borrow. Look at what you have in terms of family support, scholarship, and grants. Then take into your consideration your tuition costs, housing, book and class costs, and other costs.
  2. Complete a Free Application for Federal Student Aid (FAFSA). Your FAFSA will be sent to your school where you will then receive a letter informing you of any available loans you can avail of, and for how much.
  3. Research your federal loan options.  When you submit your FAFSA to your school, you will receive a letter informing you of any available loans you can avail of and for how much.
  4. Shop for private loans.  Private lenders will verify your credit score to see if you qualify and whether you will need a co-signer.
  5. Compare your options. Compare your options in terms of interest rate, repayment term, and monthly repayment.

After deciding which student loans you want, you can start applying for the loan. You will be made to sign the Master Promissory Note (MPN) for a federal loan. Your private student loan will also have a similar document.

Type of Student Loans

You have two main options for student loans: You can opt for a federal loan or a private loan.

1. Federal

Most student loans in the U.S. are federal loans. A federal loan is secured from the federal government with the U.S. Department of Education as the lender.

Direct Subsidized. This is a federal loan for undergraduate students. You are not charged interest for the loan while you are still in school. The government instead pays for the interest.

You can borrow $3,500 to $5,500 per year.

How to qualify. You must show proof of financial need. You qualify for this loan depending on your Free Application for Federal Student Aid (FAFSA) information.


  1. Credit history is not a factor for approval.
  2. Interest is paid for until you graduate.
  3. Fixed interest rate of 4.99% if you secure your loan before July 1, 2023.
  4. There is a repayment grace period of six months after graduation.
  5. Has better terms than other federal loans.


  1. You need to show proof of financial need.
  2. Each disbursement is subject to a 1.057% origination fee.
  3. This is not available to graduate students.

Direct Unsubsidized. This federal loan is open to undergraduate and graduate students as long as you have not reached your lifetime borrowing limit.

The maximum amount you can borrow is $31,000 if you are a dependent student and $57,500 if you are an independent student.


  1. No need to show proof of financial need.
  2. Fixed interest rate of 4.99% if you secure your loan before July 1, 2023.
  3. Credit history is not a factor for approval.
  4. There is a six-month repayment grace period after leaving school.


  1. You have to pay interest throughout the loan period even if it is not yet due for repayment.
  2. Interest accrues if you do not pay interest while in school and during the grace period.
  3. Each disbursement is subject to a 1.057 % origination fee.

Direct PLUS Loans. This federal loan is for parents of undergraduate students, or non-dependent graduates, and professional students.


  1. Your parents can help you pay for your education, or you can pay for your education.
  2. Fixed interest rate of 7.54% for loans disbursed on or after July 1, 2022, and before July 1, 2023.
  3. Your parents can start paying the loan six months after your graduation.


  1. You need to pass a credit check.
  2. Your parents are responsible for paying the interest.
  3. This loan to your parents cannot be consolidated.
  4. Repayment can distract parents from saving for their retirement.
  5. Each disbursement is subject to a 4.228% origination fee.

You can opt for a student loan refinancing for your federal loan and replace it with a private loan. A private lender can pay off your current federal loan (s) and start a new repayment plan under your new loan. Refinancing your loan can lower interest rates.

2. Private Loans

private student loan is secured from private institutions such as credit unions, banks, and other lenders.

Private lenders offer a variety of student loans, so you need to shop around to find what is best for you. A co-signer can lower the interest rate on your loan.

A co-signer can be released from any loan obligation after a period of on-time repayments.


  1. You can avail of larger loan amounts.
  2. Your loan is typically disbursed immediately after approval.
  3. Loan proceeds are not subject to origination fees.
  4. A private student loan can cover costs not covered by federal loans.
  5. You can use loan proceeds not only for education expenses but also for housing and books.


  1. This is not a subsidized loan.
  2. This is sometimes an in school student loan (loan payments begin while you are still in school).
  3. A good credit history is important, and the interest rate is dependent on your credit score.
  4. This can typically not be consolidated.

student loan refinancing for your private student loan is more of a no-brainier than it is with your federal loan.

Final Thoughts

Student loans, federal or private, are money you borrow to pay for your college education. Before choosing a type of student loan, consider your options carefully and choose the loan you are comfortable with in terms of amount, repayment terms, and repayment options.

Banking with Greater Alliance Federal Credit Union

If you or your child has a severe student loan crisis, it’s time to find a safe place. At Greater Alliance Federal Credit Union, we offer student loans up to $120,000 for undergraduates and $160,000 for graduates.

Don’t forget to take advantage of our 0.25% interest rate reduction and other incentives for a positive banking experience. We’ll also refinance your student loan with lower interest rates so you can pay your high-interest loans faster.

To better understand your options for student loans, visit any or our branches or call us at 201-599-5500.