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What You Need to Know About Student Loans
If you’re new to the world of education funding, the details can be confusing. As Vermont's non-profit state agency for higher education, VSAC wants to ensure you apply for all eligible free financial aid before considering student loans. Always maximize free money first to cover as much of your education as possible and reduce future education costs. If you need a loan to cover the rest, we'll help you understand your options so you can confidently make the right choices now and successfully manage the long-term costs of education.
What Are Education Loans and Who Offers Them?
There are two main types of education loans: federal and non-federal.
The U.S. Department of Education offers loans to families for undergraduate education. These typically appear on your financial aid offer.
For students:
Federal Direct loans are for students enrolled in college or a training program at least half-time. There are two types:
- Subsidized (based on financial need)
- Unsubsidized (not based on financial need)
For parents:
Federal Direct PLUS parent loans are for up to the full remaining cost of attendance. PLUS loans are available through your school.
Learn more at studentaid.gov/loans.
These loans, often called alternative loans or private loans, go by all sorts of brand names, depending on the lender. Available through:
- VSAC and other nonprofit state agencies
- your college
- commercial lenders (banks, credit unions)
For students & parents:
Families can use these loan types to cover costs that remain after students borrow federal Direct loans.
Non-federal loans are NOT created equal—each lender sets its own terms, and they have different benefits, interest rates, and repayment options than federal loans.
Students - Accept These Loan Types First
VSAC recommends that you accept federal student loans before considering any other types of loans.
Federal student loans (in the student’s name) from the U.S. Department of Education are considered the best place for students to start. These loans offer benefits like flexible repayment options (for example, making monthly payments based on your income or deferring payments during periods of hardship).
The financial aid office at each school will determine whether you’re eligible for federal loans, based on the information you reported on your Free Application for Federal Student Aid (FAFSA).
VSAC recommends that you accept the maximum in federal student loans—Direct Subsidized first
(if offered), then Direct Unsubsidized—before considering any other types of loans.
| First year | $5,500 |
|---|---|
| Second year | $6,500 |
| Remaining years (up to $5,500 may be in subsidized loans) | $7,500 |
| Cumulative (undergraduate) | $31,000 |
Sub or Unsub?
Federal Direct Subsidized loans, for students with greater financial need, do not accrue interest while a student is in school or in a deferment period. Your school will determine whether you’re eligible.
Federal Direct Unsubsidized loans, available for all students regardless of financial need, start accruing interest when the loan is disbursed (while you’re still in school).