Student Loans and How They Work

student throwing money

Attending an accredited online school is the first step toward achieving your career dreams.

It's also a great start at managing your college expenses. Contrary to common belief, online students qualify for the same loan choices as students at traditional schools.

Here is an overview of online student loan options—Stafford loans, PLUS loans, Grad PLUS loans, Perkins loans and private loans—and links for additional information on each type of loan.

Stafford Student Loans

Stafford student loans are federal student loans made directly to college and university students. They are designed to supplement personal and family resources, scholarships, grants and work-study. Stafford loans may be subsidized by the U.S. Government or unsubsidized depending on the student's financial need.

Benefits of a Stafford loan:

  • Government supported
  • Available to all undergraduate and graduate students
  • No payments while in school and grace period after graduation
  • Low fixed interest rates
  • Undergraduate students can borrow amounts that vary by class year, and graduate students can borrow up to $20,500 per year

See our Stafford Loan FAQ to learn more about how much you can borrow as an undergraduate or graduate student, and find answers to other frequently asked questions.

PLUS Student Loans

The PLUS loan (Parent Loans for Undergraduate Students) is a federally originated student loan that is available to parents of dependent students enrolled at least half-time in a program that is offered by participating post-secondary institutions.

Parents may obtain this loan for you during your enrollment. Applying for the PLUS loan takes little more than having an acceptable credit history. The yearly borrowing limit on PLUS loans is equal to your school costs minus other financial aid amounts you receive. For example, if your costs are $10,000 and you collect $7,000 in other assistance, your parents can borrow up to $3,000 for you.

Benefits of a PLUS loan:

  • Higher borrower limits
  • Based on credit worthiness
  • Covers cost of education less other financial aid received
  • Fixed interest rates

See our PLUS Loan FAQ for more details about this loan option.

Graduate PLUS Student Loans

The new Grad PLUS loan program is a low-interest, federally-subsidized student loan, guaranteed by the U.S. Government. Like its undergraduate counterpart, the Grad PLUS loan can be used to pay for your total cost of education less any aid already awarded. Also, like the undergraduate PLUS loan, eligibility for the Graduate PLUS loan is largely dependent on your credit rating and history, as opposed to the purely financial need-based Graduate Stafford loan.

Benefits of a Grad PLUS loan:

  • Federally subsidized loan based on credit worthiness
  • Now available directly to graduate students
  • Covers cost of education less other aid received (must apply for Stafford Loan).
  • Fixed interest rates

See our Grad PLUS Loan FAQ for more details about this loan option.

Private Student Loans

Private lenders can also help pay for your online education, bridging the gap between other types of financial aid and the real cost of attending school. The funds go directly to you, when you need it, and it is a much better option than accumulating expensive credit card debt. Also, private loans don't require you to complete federal forms such as the Federal Application for Student Aid (FAFSA).

Eligibility often depends on your (or your parents') credit rating. In many cases, even if you can qualify for a private loan on your own, it is better to apply with a cosigner. Interest rates and fees are based on your credit score, so applying with a cosigner with good credit can lower your rate.

To learn more, see our Private Loans for Undergraduate and Graduate Students FAQ.

Perkins Student Loans

Perkins loans are low interest (5 percent) loans available to both undergraduate and graduate students with exceptional financial need. They are offered through the school you are attending. They operate similar to a Stafford loan, with several notable differences:

  • The loan uses combined government and school funds, but it is paid back directly to your college. It is, in essence, a campus-based loan program.
  • Unlike Stafford loans, there is no fee associated with Perkins loans.
  • Levels of funding depend on when you apply, your level of need and your school's level of funding.
  • Perkins loans have a longer grace period (the time between graduation and when payment starts) than most other loans-nine months, as opposed to six months for Stafford loans.
  • Perkins loans have a 10-year repayment schedule.

To learn more, see our Perkins Loans FAQ for Undergraduate and Graduate Students.