Quick Guide: Which College Loans Are Best?

Taking out a loan means paying regular charges called interest. You can save money by choosing a loan with a low interest rate. A low interest rate means you’ll have to pay back less money in the long run. A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you’re in college. Here are the types of student loans. (Keep in mind that not all students are eligible for every loan.)

1. Federal Perkins Loans
   Colleges may award these loans to students with the highest financial need, using federal government money. The 5 percent fixed interest rate is low, and you don't make any loan payments while in college. You can borrow a total of $27,500.
2. Federal Direct Subsidized Loans
   These need-based loans have a low interest rate of 3.73 percent, and the government pays the interest charges while you're in college. This interest rate is fixed, which means it will not change over time. You can borrow up to $3,500 your freshman year, and this limit increases to $4,500 for your sophomore year, and $5,500 each for your junior and your senior year.
3. Federal Direct Unsubsidized Loans
   These non-need-based government loans also have a fixed interest rate of 3.73 percent. But they allow you to borrow more money than a Direct Subsidized Loan alone. You can pay the interest while you’re in college or add it to the amount of your loan. The second option means you’ll end up paying more money over time.
4. Federal Direct Plus Loans
   These non-need-based government loans allow parents (and graduate students) to borrow the total cost of attending college, minus any other aid received. They have a 6.28 percent fixed interest rate.
5. Private (Alternative) and State Loans
   These loans from banks, colleges, private organizations and state government agencies usually are not need based or subsidized. They may require good credit, which often means an adult with good credit must cosign the loan. Interest rates on these loans are often higher than on federal loans, and the rates may rise over time. These loans may also have terms that are not as favorable as those of federal loans.

This article is intended for informational purposes and is not intended as tax or financial advice.