Compare Before You Borrow

How do federal, state-based, and for-profit student loans differ?

Student loans can help close your college funding gap, but be aware that every loan type works differently. Before borrowing, compare the cost, repayment flexibility and borrower protections so your family can choose the option that fits best.

Where Do You Start?

Families often compare three types of student loans when seeking funds to pay for education: federal student loans, private education loans from state-based or nonprofit organizations, such as the Arkansas Student Loan Authority, and private loans from for-profit lenders. Each program has important differences that can greatly impact the amount you pay for college.

1. Federal Student Loans: Usually the First Place to Start

Federal student loans are funded by the U.S. Department of Education and are often the best borrowing option for students to consider first. They include fixed interest rates set by federal law, income-driven repayment options, deferment and forbearance options, and certain forgiveness programs for eligible borrowers.

Federal loans also have annual and lifetime borrowing limits. If scholarships, grants, savings, work-study and federal student loans do not cover the full cost of attendance, families may need to compare additional options. Parent PLUS Loans can also help fill a gap, but families should review the full cost, fees and repayment options before borrowing.  A note of warning, Parent PLUS loans often have higher interest rates and fees than loans offered by state-based, nonprofit organizations.  

Helpful Links

Find more information about federal student loans.

• Types of Federal Student Loans
• Income-Driven Repayment
• Parent PLUS Loan

2. State-Based and Nonprofit Education Loans: A Strong Second Choice

After federal options are reviewed, state-based or nonprofit education loans can be a great next option. These lenders are typically mission-driven, with a focus on college access, affordable interest rates, and transparent education financing.

The Arkansas Student Loan Authority (ASLA) is a nonprofit state agency that has supported higher education funding and college planning since 1977. ASLA helps Arkansas students and families, as well as non-residents attending Arkansas schools, by providing college planning information and education financing options. ASLA offers Student, Family, Graduate, and Refinancing loan options. ASLA has many borrower-friendly features such as low-interest fixed rates, multiple repayment options, hardship deferments, co-signer release, and zero fees.

Private education loans do not carry all the same protections as federal student loans. However, when funding for college is needed, a state-based or nonprofit lender may offer more competitive fixed rates, borrower-focused terms along with a mission centered on affordability.

For more information on the Arkansas Student Loan Authority’s loan offerings and college planning services, please visit: alsa.info.

3. For-Profit Private Student Loans: Compare Carefully

For-profit private student loans are offered by banks, credit unions, online lenders and other finance companies. These loans are credit-based. Interest rates, terms, fees and approval requirements can vary significantly.

The lowest advertised rate offered by for-profit lenders is typically not available to most borrowers. Families should compare APR, fixed versus variable rates, repayment terms, in-school payment requirements, cosigner release options, hardship policies and total repayment cost before choosing a lender.

A Simple Borrowing Order

1. Use free money first. Start with scholarships, grants, savings, and work-study programs.
2. Maximize federal student loans. Federal loans generally offer strong borrower protections and flexible repayment options.
3. Compare state-based or nonprofit education loans. Look for competitive terms, transparent costs and a student-focused mission.
4. Evaluate for-profit private loans carefully. Review interest rates, fees, repayment options, hardship policies and total cost.  For-profit private student loans typically have the highest interest rates.

What to Compare Before Signing

Frequently Asked Questions

1. What types of student loans should families compare before borrowing?
Families should compare federal student loans, state-based or nonprofit private education loans, and for-profit private student loans.

2. Why should federal student loans usually be considered first?
Federal student loans often include fixed interest rates, income-driven repayment options, deferment and forbearance options, and certain forgiveness programs for eligible borrowers.

3. What are state-based or nonprofit education loans?
These are private education loans offered by mission-driven organizations, often focused on college access, affordability, and transparent education financing.

4. What is ASLA?
The Arkansas Student Loan Authority is a nonprofit state agency that provides college planning information and education financing options. ASLA serves Arkansas students and families, as well as non-residents attending Arkansas schools.

5. How should I choose a lender for my private student loan? 
Compare the interest rate, APR, fixed or variable rate, fees, repayment term, in-school payment requirements, cosigner requirements, cosigner release options, deferment or hardship options, borrower protections, and total repayment cost.

Final Takeaway

Borrowing is not just about covering the balance of what you owe your college. It is about understanding the long-term cost, repayment options and borrower responsibilities that come with each loan. For many families, the smartest path is to use free money first, consider federal student loans, then compare state-based or nonprofit private education loans before turning to for-profit private lenders.