If you are planning your journey through higher education, you are almost certainly looking at taking student loans. Between the tuition, to the room and boarding, and books and other related fees, the cost of higher education piles up quickly. And there is nothing wrong with taking out loans.
However, not all loans are created equal. Certain loans are far better than others, saving you thousands of dollars in the long wrong, as well as being easier to pay off. If you are thinking about taking out student loans, consider the following options!
- Direct Subsidized Loans:
- Direct Unsubsidized Loans:
- Direct PLUS Loans:
- Parent PLUS Loans:
- Private Loans:
Direct subsidized loans are "directly" from the federal government, and the way they are subsidized is by offering a low-interest rate (as of right now it is 4.3%). These loans are not awarded based on your creditworthiness (or your credit score). Instead, they are awarded based on your assessed financial need. Your financial need is assessed based on the information you provide in the Free Application for Federal Student Assistance (or the FAFSA).
These are another government supplied loan. They do not offer as low rates as subsidized loans do, but the rate is still decent (usually around 6%). Again, like subsidized loans, these are not awarded on your creditworthiness. You will also need to file the FAFSA and have your financial need assessed to determine if you qualify for these loans, and if so, how much.
This is another federal loan, but it is designed for students who have had a bit of time to establish their credit history. Unlike the previous two loans, this loan type does require an assessment of your creditworthiness. However, if you qualify, you can borrow up to the amount of tuition you need (the previous two are capped at close to $12,000). Their interest rate is close to the same as unsubsidized loans. If your individual credit bars you from using PLUS loans, a co-signer is allowed to be used to help you qualify.
This is another federal loan type, but it is not designed for students to take out. Instead, it is designed for the parents of students to take out on their behalf. This means the parents, not the students, are legally responsible for the repayment of the loan. Interest rates will still be around 6%. Unlike the previous three loans, this loan program usually requires repayment to begin immediately upon receiving the loan (like a car loan or a mortgage). There are some exceptions to this that can be explored, especially during the initial loan application process.
Private loans are, of course, not endorsed or associated with the federal government in any way. Instead, they are offered by a variety of lenders, including banks, credit unions, and lenders specializing in student loans.
The perks of using private student loans are similar to other standard loans offer. You can shop around for rates, you can negotiate repayment terms that best fit you, and these lenders will generally offer special repayment options for students. For example, even though your repayment may begin immediately, you could have payments as low as $25 a month.
Where can I get student loans? 
The first four loans on this list are easy to find. Generally, the university you are attending will be assisting you with the loans (especially for subsidized and unsubsidized loans), and the only thing you will need to do is fill out the FAFSA.
However, if you are looking at private loans, you will have a lot of different options to choose from. Consider the following:
- Your local bank or credit union:
- Other brick and mortar banks or credit unions:
- Online lenders:
If you already have an established working relationship with a bank or credit union, then it might be worth seeing what student loan options they offer. They may be able to offer you better rates or more flexible repayment plans if you have a history of good business with them. You may be able to qualify for special discounts for holding multiple account types within the same institution.
Of course, you do not have to work with your existing bank if you do not want to. Shopping around local banks may find you better rates than if you just look at your current bank or credit union.
If you like the idea of shopping through dozens of different lending options to make sure you have found the best rate for you, online lenders are likely going to be a great option for you. You can get rate quotes at the click of a mouse, and many lenders can give you rate quotes without running a hard credit check on you. The downside, of course, is that customer service will all be over the phone or through e-mail. You will never have a face-to-face interaction with your loan officer. If that makes you feel uncomfortable, you may want to stick with local options.
If you qualify for government loans, they will almost always be the best option. They have fixed, low-interest rates that are quite favorable to students. However, if you continue your educational journey to graduate studies and beyond, you may need to look at other options to be able to fully fund your education.
Also, use care when taking out student loans. Regardless of the kind you get, once you have them, they are with you. Forever. Even if you file for bankruptcy, student loans will not be discharged and you will be required to pay them back. That is why it is even more important to make sure you are getting the perfect loan that fits your financial expectations perfectly. This is especially true if you have to go the route of private loans.
Take your time, shop for good rates, and make sure that the financial decisions you make are not only good for you in the present but set you up for success in the future.
