Paying for college might even be harder work than graduating from college. So loans can be a necessity for those of us who don’t happen to be a Kardashian or trust fund kid. There are a lot of different types of student loans and a lot of details to compare. Here’s a rundown of loan options you should check out.
1. Federal direct subsidized loans
These loans are a great starting point for undergrads with financial need. The government pays the interest while you’re in school, during your grace period, and if you defer—they pay it then, too.
Perfect for: Undergrads who need financial help and want to save on interest costs. If you qualify, this is one of the best deals out there.
2. Federal direct unsubsidized loans
These loans are available to both undergraduates and graduate students, and they don’t require you to prove financial need. But you’re responsible for the interest from day one.
Perfect for: Students who need funds beyond just subsidized loans. If you can handle the interest, these can be a solid option.
3. Federal PLUS loans
These loans are available to graduate students and to undergrads’ parents. They have higher interest rates and fees, but they can cover your whole tuition cost beyond the limitation of the other financial aid you have.
Perfect for: Grad students and parents who need to pay for expenses that other financial aid didn’t cover. Just be careful of the higher costs.
4. Federal Perkins Loans
They’re no longer available to new borrowers, but Perkins Loans offered low-interest rates for students with exceptional financial need. If you already have one, make sure you know your repayment options.
Perfect for: Current borrowers who need help managing or lowering their repayment. If you’ve got one, take advantage of the favorable terms.
5. State-based loans
A lot of states offer their own student loan programs with competitive interest rates and repayment terms. These can be a great alternative to federal loans.
Perfect for: Students attending in-state colleges. Check your state’s programs for potential savings.
6. Private student loans
You can get these loans from banks, credit unions, and online lenders. Interest rates and terms vary widely, and a good credit score can get you the best rates.
Perfect for: Students needing additional funds after maxing out federal options. Shop around for the best rates and terms.
7. Income-share agreements (ISAs)
ISAs are an alternative to traditional loans. Instead of borrowing money, you agree to pay a percentage of your future income for a set period.
Perfect for: Students looking for flexible repayment tied to their income. If you’re confident about your future earning potential, this can be a good option.
8. College-specific loans
Some colleges offer their own loan programs with good terms for their students. These can include low interest rates and flexible repayment options.
Perfect for: Students at schools that have generous loan programs. Ask your financial aid office about the options available to you.
9. Scholarships and grants
Okay, these aren’t loans, but they’re free money you don’t have to repay! Many organizations offer scholarships and grants based on merit, need, or other criteria.
Perfect for: Everyone! Always apply for as many scholarships and grants as you can. Free money is the best money.
10. Work-study programs
This is also not a student loan, it’s a way to earn money while you’re in school. These programs provide part-time jobs for students with financial needs, so you can earn money to help cover your education costs.
Perfect for: Students who are willing to work part-time. It’s a great way to earn some extra cash and gain work experience.
How to find the right loan for you
Now that you know your student loan options, how do you choose the right one? Here’s a step-by-step guide:
1. Evaluate your financial need
Start with the FAFSA (Free Application for Federal Student Aid). It determines your eligibility for federal loans, grants, and work-study programs.
Step one: Complete the FAFSA early to find out all of your possible aid options.
2. Max out federal loans first
Federal loans usually have better terms and protections than private loans. Take advantage of Direct Subsidized and Unsubsidized Loans before you look at other options.
Pro tip: As a next step, check to see if you qualify for state-based loans or college-specific programs.
3. Consider your career path
Think about your future income potential. If you’re entering a high-paying field, you might be able to manage bigger loan amounts. For lower-paying careers, try to keep your debt to a minimum.
Career clarity: Match your student loan amount to your expected income to avoid future financial stress.
4. Compare interest rates and terms
If you need private loans, shop around. Compare interest rates, repayment terms, and borrower benefits. Use online calculators to see how different loans impact your monthly payments and total costs.
Smart shopping: A little research can save you a lot of money over the life of the loan.
5. Read the fine print
Understand the terms of any loan you consider. Know the interest rate, repayment period, and any fees or penalties. Make sure you won’t run into any surprises down the road.
Due diligence: Don’t sign anything until you’re sure you’re clear on all the details.
6. Consider alternative funding
Look into scholarships, grants, and work-study programs. Every dollar you don’t have to borrow is a dollar saved.
Free money first: Make scholarships and grants your primary focus.
7. Seek advice
Talk to your school’s financial aid office, a financial advisor, or a mentor. They can offer valuable insights and help you navigate your options.
Guidance guru: Don’t try to figure all this out on your own. Expert advice will save you time and effort and can make all the difference.
