Your College Loan Options

Education Loans Come in Many Shapes and Sizes

There are lots of loan options out there. Read on for expert advice and information about all your options.

Some Facts

• 54 percent of all financial aid comes in the form of loans.
• Some loans are need-based -- meaning that they're awarded when the family demonstrates financial need.
• Other education loans are not need-based. Instead, they're designed to help pay the family share of costs.

Some Advice

Need-based loans tend to have better terms, so you should consider those loans first.

Student Loans

There are four main types of Federal student loans:

Perkins Loans
Perkins Loans are need-based loans and are awarded by the financial aid office to students with the highest need. The interest rate is very low -- 5 percent -- and you don't make any loan payments while in school.

Subsidized Stafford or Direct Loans
Subsidized Stafford Loans are need-based loans with interest rates in the 4-6 percent range. The federal government pays the yearly interest while you're in school. This is why they're called "subsidized" loans.

Unsubsidized Stafford or Direct Loans
Unsubsidized Stafford Loans aren't based on financial need and can be used to help pay the family share of costs. You're responsible for paying interest on the loan while in school. You may choose to capitalize the interest. The advantage of doing this is that no interest payments are required. The disadvantage is that the interest is added to the loan, meaning that you will repay more money to the lender.

Grad PLUS Loans
This is a student loan for graduate students sponsored by the federal government that is unrelated to need. Generally, students can borrow Grad PLUS loans up to the total cost of education, minus any aid received. The advantage of this loan is that it allows for greater borrowing capacity. However, we recommend that students consider lower-interest loans, such as the Subsidized Stafford or Unsubsidized loans prior to taking out a Grad PLUS loan.

Other Student Loan Options
Private student loansA number of lenders and other financial institutions offer private education loans to students. These loans are not subsidized and usually carry a higher interest rate than the federal need-based loans. The College Board private loan program is an example of a private education loan for students.

College-sponsored loans
Some colleges have their own loan funds. Interest rates may be lower than federal student loans. Read the college's financial aid information.

Other loans
Besides setting up scholarships, some private organizations and foundations have loan programs as well. Borrowing terms may be quite favorable.

Parent Loans
Parents also have federal, private, and college-sponsored loan options.
Federal PLUS loansThe PLUS Loan program is the largest source of parent loans. Parents can borrow up to the full cost of attendance minus any aid received, and repayment starts 60 days after money is paid to college.

Private parent loans
A number of lenders and other financial institutions offer private education loans for parents. These loans usually carry a higher interest rate than PLUS Loans.

College-sponsored loans
A small number of colleges offer their own parent loans, usually at a better rate than PLUS. Check each college's aid materials to see if such loans are available.