College can be extremely expensive. If you’re like millions of other incoming first years, odds are you’ll be taking out loans to pay for tuition, rent, textbooks, and more. Loans can feel extremely overwhelming, especially when you’re new to the world of credit. But there’s no need to fear - Fizz is here to educate you on the wide variety of loans available and to give you insight on what might work best for you.
Types of loans
When it comes to student loans, there are two main options: federal direct student loans or private student loans. It’s also important to know the difference between subsidized and unsubsidized loans from the government. Let’s take a closer look at each.
Federal direct student loans
You apply for a federal student loan by submitting a FAFSA form - taking on a federal loan means you’re borrowing from the government. Federal student loans are typically the best option when it comes to paying for college expenses. Unlike private student loans, federal direct student loans don’t require income, credit history, or a co-signer to apply. They offer borrowers more repayment options and protections to prevent default. Federal student loans also have flat interest rates set by Congress.
It’s often a good idea to look for federal direct student loans before looking for private student loans. When it comes to federal direct student loans there are two different types — subsidized or unsubsidized — and knowing the difference between the two could save you a lot of money.
Only undergraduates with financial need can qualify for subsidized loans. The advantage of subsidized loans is that the government pays the interest on such loans while you’re in school, during your grace period, or if payments have been paused due to deferment (meaning your loan payments have been paused due to unemployment or going to school part-time). Your college will notify you if you are eligible. If you are, they’ll also let you know how much you can borrow.
All undergrads qualify for unsubsidized loans regardless of financial need. Unlike subsidized loans, the government doesn’t pay the accrued interest on these loans while you’re in school. Interest starts accruing on unsubsidized loans as soon as you take them out and you'll be responsible for paying all interest throughout the life of the loan.
You apply for a private student loan through a bank, credit union, or online lender. When you apply for a private loan, your credit score and income are taken into account. However, since most undergrads don’t have a stable income or line of credit a parent or guardian usually has to co-sign. Your credit score also plays an important role when it comes to the interest rate of the loan. Unlike federal student loans, private loans do not have flat interest rates. On average, borrowers with bad credit or no credit can expect to pay higher interest rates and higher loan fees. Borrowers with bad credit can also expect limits that are much lower. All that to say, you want to make sure you have a good credit score if you’re going to apply for private student loans - and Fizz can help with that!
Private student loans should only be considered after you’ve maxed out the federal loans offered to you. Private loans are almost always pricier and almost always have worse repayment terms. Not to mention that there are additional fees charged by some lenders which significantly increase the price of private loans.
What Fizz can do for you
Choosing to go to college is one of the biggest decisions you can make. Not only does it shape the trajectory of your career, but it can also place you in immense amounts of debt if you’re not careful. That’s why it’s vital that you have a clear understanding of your options when applying for student loans.
Federal direct student loans are typically able to cover most of the expenses that come with an undergrad education. But if you need more money, or if you want to continue on to grad school and beyond, private loans might be necessary. As we talked about, private loans can have high interest rates and fees if you don’t have a high credit score - so it’s best to start building your score sooner rather than later.
That’s where Fizz comes in. With a Fizz card, you can build credit during college by spending money the way you normally do. To make things even better, you won’t have to worry about fees, interest, overspending, or credit checks. You can keep your own bank account, and you can even earn cash back by spending money at places you love around campus.
Fizz is here to help prepare for your financial future, and it’s perfect for anyone in college - even if you’re just starting out. So what are you waiting for? Download the Fizz app and get your very own Fizz card today!
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.