A college education is one of the largest investments you will make. How you choose to pay for it can impact your financial future long after graduation. Today’s students and families have more ways to pay for college than ever, including savings, 529 plans, scholarships, grants, work-study programs, employer assistance, and student loans. Many students turn to student loans to help cover the cost of tuition, fees and other expenses.
Generally, there are two types of student loans—federal student loans and private student loans. Both federal and private student loans can help cover tuition, fees and other expenses, but the differences between them can have a lasting impact.
Federal Student Loans
Federal student loans are funded by the U.S. Department of Education and are typically the first place students should look when borrowing for college. For dependent undergraduate students, there are two main options: loans in the student’s name and loans in the parent’s name.
Direct Loans for Students
Direct Loans are the most common option and allow students to borrow in their own name without a cosigner.
Direct Loans offer
- Fixed interest rates set annually
- No credit check for most undergraduate borrowers
- The student assumes the debt
- Subsidized and unsubsidized options
All students who complete a FAFSA® will be considered for a Direct Unsubsidized Loan. There is no credit check, and students can borrow up to $5,500 for the first year, $6,500 for the second year, and $7,500 for subsequent years, with a max of $31,000 for a bachelor’s degree.
Students who demonstrate financial need may qualify for a Direct Subsidized Loan. In this type of loan, the U.S. Department of Education covers (i.e., subsidizes) the interest for this loan. The student will not be charged interest while they are enrolled in school at least half-time or during the six-month grace period once they graduate or leave the school.
While students are allowed to defer repayment of their federal student loans, the interest will accrue on unsubsidized loans, which means it's "costing" them to use this loan. Differently, a student in school can defer their subsidized loan and not accrue interest. Students can always choose to pay the interest that accrues even when they are not required to make a payment, and doing so will likely decrease the amount of money they repay over the life of the loan.
What to keep in mind:
Recent changes to federal repayment programs have created some uncertainty around future repayment options. Understanding how your loan works before you borrow is more important than ever.
A Direct PLUS Loans for Parents
A Direct PLUS for Parents Loan is a federal student loan where parents of dependent, undergraduate students are eligible to borrow up to the full cost of attendance minus any financial aid their student received, including grants, scholarships, or loans. We recommend shopping around before taking out a Direct PLUS for Parents Loan, as rates and options are not necessarily the best for everyone.
These loans:
- Often have a higher interest rate than private student loans
- Require the parent to be the borrower, leaving the parent responsible for all payments with no option to transfer the loan to the student
- Has an option to defer but are unsubsidized and begin accruing interest immediately
Beginning July 1, 2026, new federal limits will cap Parent PLUS borrowing at:
- $20,000 per year
- $65,000 total per student [gov]
In the past, parents could borrow up to the full cost of attendance. These new limits make it important to plan ahead and consider all available funding options.
It’s always smart to compare this option with others, as it may not be the most cost-effective choice for every family.
Getting Started
To begin the process for any federal student loan option, you must first complete the Free Application for Federal Student Aid (FAFSA®) form. This is also the key to qualifying for grants and other financial aid.
Private Student Loans
Private student loans are loans made by a lender such as a bank, credit union, or other financial institution.
Private student loans may be a good option for students who have exhausted their direct federal student loans and need additional funding to cover the cost of education.
Private student loans offer:
- The ability to shop around for the best interest rate
- An interest rate that is determined by your credit history
- Various repayment options
- Often the student can assume the loan at some point
In today’s rate environment, qualified borrowers may find private loan rates that are competitive with or lower than some federal options.
However, private loans do not offer the same repayment flexibility or forgiveness programs that come with federal loans.
A Simple Way to Bridge the Gap
When scholarships, grants, and federal aid aren’t enough, private student loans can be a necessary and cost-effective way to fill educational funding gaps.
At CommunityAmerica, we want to make financing college easy so you can focus on achieving your dreams of higher education at the school of your choice.
CommunityAmerica offers a student loan that functions as a line of credit that might be the right fit for your family.
You’ll also find:
- Flexible repayment options
- Competitive rates
- A co-borrower release once the student qualifies on their own
And if you have any questions, get in touch with our free dedicated for personalized guidance so you can move forward with confidence.
