Education is a tool that can create social mobility for some. For this reason, many are willing to take out financing to fund their education when they don’t have cash to do so. A common way to finance education is through student loans. A student loan is money borrowed from a private institution or the federal government to fund education expenses. These types of loans are a major financial commitment, so understanding how they work is critical. How Student Loans Work Student loans are often issued by banks or the U.S. Department of Education in the form of federal loans. They provide prospective students money that has to be repaid with interest over time. There are two types of loans – private and federal. Here is a brief explanation of how each works. Private student loans These types of loans come from banks, credit unions or online lenders. To get approved for a private student loan, one usually has to jump through more hoops than with a federal loan. Some prerequisites might include needing a strong credit history which comprises a score 670 or above,