What are Student Loans

Student loans are a common type of financial aid used to help individuals gain access to higher education. In the United States, student loan debt has soared in recent years, rising to approximately $1.4 trillion by the end of 2016. An estimated 43 million people have student loans; the average balance is $30,000. Unlike other forms of financial aid for students, in particular grants and scholarships, loans must be repaid.

Are you considering a student loan to finance your education? Perhaps you’ve already taken out a student loan and are hoping to consolidate your debt or refinance your loan. Read on to find out more.  

Federal vs. Private

When you apply for financial aid through your educational institution, student loans may be included as part of your financial aid package. You should make an effort to try to understand the types of loans you are offered. There are two main types of student loans: federal and private. Federal loans, as you might expect, are funded by the federal government. Private loans are nonfederal loans offered by other common lenders, such as banks, credit unions, state organizations, or educational institutions. There are some key advantages to federal loans, which have fixed interest rates and income-based repayment plans. Private loans, even for students, don’t typically offer these services. Private loans may end up costing you more money in the long run.

Subsidized Loans

The federal government offers several different types of loans. Some of the most common loans are Direct Subsidized Loans and Direct Unsubsidized Loans. What’s the difference? On a Direct Subsidized Loan, the government pays the loan interest while the student is still in college and/or while the loan is in deferment. Interest starts to accumulate on the loan when it is taken out, but the student doesn’t have to pay the interest until he or she has completed her degree.


Direct Consolidation Loans allow borrowers to consolidate more than one federal education loan into a single loan. Most borrowers find this easier to manage, as it results in a single monthly payment instead of several monthly payments. In addition, loan consolidation might give you access to a loan repayment and/or forgiveness program.

You do not have to pay a fee to apply to consolidate a student loan from the federal government. Be wary of private companies that contact you to help you consolidate your student debt, as they most likely do not have any affiliation with the United States Department of Education nor its loan services. You do not need to pay anyone to consolidate your loan.


If you have student debt including both federal and private loans, refinancing is another avenue to explore. Refinancing can help you to consolidate all your existing loans to create a single monthly payment, typically with a lower interest rate. Lower monthly payments can help to free up money to pay off additional debt, save, or even invest. If you consider how much you’ll save over the long-term, it’s often worth it to try to refinance—if you have substantial loans you could save more than $20,000. Dentists and doctors could save even more.