Comparing College Loans

Which Loan Is Best for You?

Comparing loans isn't always easy, since the loan terms can vary. Here are some factors to consider when comparing loans:

Four Key Variables

The four most important variables to consider are interest rate, whether loans are subsidized or not, loan fees, and repayment options.

Interest Rate

The lower the interest rate, the less expensive the loan and the less you'll repay over time.
Subsidized or Unsubsidized?

Loans based on financial need are subsidized. This means that the federal government pays the interest on the loan while you're in school. This benefit makes the loan much less expensive for you. If you qualify, always borrow a subsidized loan first.

Fees

Most loans have origination and other processing fees. This means that although you borrow (and must repay) the entire loan amount, say $2,500, you may only receive $2,400 after the fees are deducted. So, keep your eyes on these fees.

Repayment Plans

Some offer a full range of repayment plans as well as incentives, such as interest rate reductions for on-time payments. Before borrowing a loan, make sure you understand the repayment requirements and options.

You Pay Back More Than You Receive

Even with the favorable terms of a student loan, whenever you borrow money, you will pay back more than you receive. Only borrow what you need.

Find the Least Expensive Loan

Try first for the least expensive loan. The least expensive loan is generally the loan with the lowest interest rate. In order, they are:

• Perkins
• Subsidized Stafford/Direct
• Unsubsidized Stafford/Direct
• Private

Note: If you have access to a special loan program from a college or private source, find out the terms and compare it with the above loans.

File the FAFSA

If you're thinking about taking out a loan, file the Free Application for Federal Student Aid (FAFSA). If you show need, the loan will be less expensive than if you borrow "outside of need." The federal rules will help guide you as the FAFSA is required before the college can approve an unsubsidized loan.