All about federal student loans
Federal student loans are made by the federal government. If you’re a student borrowing for undergrad, you have two options: subsidized loans (which are based on financial need) and unsubsidized loans. The main difference is that with a subsidized loan, the government pays the interest that accrues during school, deferment, and grace periods, while with unsubsidized loans, you’re responsible for paying that interest. (And if you don’t pay it before the grace period ends, it gets capitalized, which means it is added to the principal loan amount.) Interest rates on federal loans are fixed, and there’s a cap on how much you can borrow each year. After graduation, you can choose from different repayment plans, including ones based on income. And if you work in certain jobs or fields, there is the possibility of having your loans forgiven (i.e., wiped out) if you meet certain eligibility criteria.
To apply for a federal loan, you must fill out the Free Application for Federal Student Aid (FAFSA) each year you are in school. The application is available on October 1st each year.
All about private student loans
While the government issues federal student loans, private student loans are made by financial institutions like banks or credit unions. And while federal loan terms are standardized, the terms of a private student loan will vary from lender to lender.
Interest rates on a private student loan can be higher or lower than rates on federal loans based on your creditworthiness and/or the creditworthiness of your cosigner, and those rates can be fixed or variable. Repayment plans also vary by lender and are more limited than with federal loans. And with very few exceptions, private student loans generally don’t have loan forgiveness.
To apply for a private student loan, submit an application directly with a specific lender.
Getting a private student loan
Private student loans can be a good option to bridge the gap between federal student loans and total college costs. Discover® Undergraduate Student Loans offer great rates and zero fees. You can also earn cash rewards for good grades, and get an interest rate reduction while enrolled in automatic payments.