Key points
- Federal student loans offer the most borrower protections and flexible repayment options, but Grad PLUS loans expire in 2026.
- Private loans and education lines of credit may help fill financing gaps, but they typically come with fewer protections.
- Alternatives like HELOCs or personal loans are available, but they carry different financial risks and borrowing terms.
When it comes to paying for college or graduate school, students and their families often face a range of student loan options. Each option comes with its own set of terms, protections, and trade-offs. With recent federal changes leading to the gradual phase-out of the Grad PLUS loan, understanding each of your borrowing options is more important than ever.
Remember, student loans should be your last option for paying for college. However, we know that nearly two-thirds of households end up having to borrow. So it’s essential to know your options.
Here’s a summary of the main types of student loans and some alternatives families are considering.
1. Federal Direct Subsidized Loans
Who can borrow: Undergraduate students with financial needs.
Loan limits:
Annual limits range from $3,500 to $5,500, depending on the academic year.
Main Features: The government pays the interest while the student is in school and during certain deferral periods. These loans come with access to income-driven repayment plans, deferment, forbearance and forgiveness programs.
2. Unsubsidized Federal Direct Loans
Who can borrow:Undergraduate, graduate and professional students, regardless of financial need.
Loan limits:Up to $20,500 per year for graduate students; Lower amounts for undergraduate students.
Main Features: Interest begins to accrue upon exchange. These loans also provide access to income-based repayment programs and federal student loan forgiveness programs.
3. Parent Plus Loans
Who can borrow:Parents of dependent college students.
Loan limits: For the 2025-26 academic year, full cost of attendance less other financial aid received. Starting in 2026, there will be new caps on Parent PLUS loans of $20,000 per year, totaling $65,000 per student.
Main Features: Requires a credit check, has a higher interest rate than direct loans, and is not eligible for most repayment plans. Parents are solely responsible for payment.
4. Grad PLUS Loans (expiring in 2025-2026)
Who can borrow: Graduate and professional students (until academic year 2025-26).
Loan limits:Up to the full cost of attendance.
Main Features: Similar to Parent PLUS in terms of credit checks and higher interest rates. These loans are being phased out due to provisions in the Big Beautiful Bill, ending new borrowing after June 30, 2026. Existing borrowers are renewing for up to three school years.
5. Private student loans
Who can borrow: Students with strong credit or creditworthy co-signers.
Loan limits:
It varies by lender, and often amounts to the full cost of attendance.
Main Features: Terms and conditions vary widely. Interest rates may be fixed or variable. Less payment protection than federal loans. It should only be used after federal aid has been exhausted.
6. Education line of credit
Who can borrow:Students or families with good credit.
Loan limits: Usually determined by the institution or based on creditworthiness, the goal is to cover all years of college.
Main Features: It can offer a revolving credit to pay tuition over time. They can be reused each semester without placing a new order. Interest rates are sometimes lower than some private loans but usually lack federal benefits.
7. Alternatives: HELOCs and personal loans
Who can borrow: Homeowners (for HELOCs); Anyone with eligible credit (for personal loans).
Loan limits:Based on home ownership or borrower profile.
Key Features of HELOCs: Borrowers use their home equity to secure funds for college. Interest rates are usually lower, but the home is a security.
Key features of personal loans: Unsecured and term loans are often used to cover smaller tuition fee gaps. Shorter repayment terms and higher interest rates than student loans. May be required for things like coding bootcamp.
Pros:These options may offer better interest rates or terms for families with excellent credit.
cons: They lack student loan protections like deferment, forbearance, income-based repayment, and forgiveness.
Instructions
What are the main differences in federal and private student loans?
Federal student loans are offered directly by the U.S. government, and private loans are offered by many banks and private lenders.
How do I choose between Parent PLUS loans and private loans?
As of 2026, Parent PLUS loans are actually a last resort versus private loans. You should choose a private loan if the interest rate offered is lower than the Parent PLUS loan rate.
What happens to Grad PLUS loans after 2025-2026?
The Grad PLUS Loan Program will end and borrowers will need to borrow Direct Graduate Loans.
Can I Use a HELOC to Pay for College Instead of Student Loans?
Yes, but it is not a recommended option.
Final thoughts
Choosing how to pay for higher education is rarely easy. With upcoming changes in federal policy, including the end of Grad PLUS loans, students and families should carefully evaluate each borrowing option.
Understanding the terms, protections, and long-term costs of federal loans, private loans, and alternative credit options can make a real difference when planning for school expenses. Before signing anything, it’s a good idea to compare all the available options, starting with those that offer the most favorable terms for the borrower.
Don’t miss these other stories:
How to Pay for College: The Best Order of Operations
Best Student Loans and Current Rates November 2025
Top 10 Private Student Loan Lenders for College
Editor: Colin Greaves
The post 7 Student Loan Types and Alternatives appeared first on The College Investor.
