What is the best loan option for students?

Quick Guide: Identifying the Best Student Loans

Obtaining a loan involves paying regular charges known as interest. Choosing a loan with a low-interest rate can save you money in the long run. The most favorable option is often a subsidized loan, where the federal government covers interest payments while you’re in college. Here are different types of student loans. (It’s important to note that eligibility for these loans may vary among students).

Federal Perkins Loans

Educational institutions can grant Perkins loans to students with more pressing financial needs, using funds from the federal government. These loans offer a low fixed interest rate of 5 percent and do not require payments during the college period. The maximum amount you can borrow is $27,500.

Federal Direct Subsidized Loans

These needs-based loans have a low-interest rate of 3.73 percent, and the government covers the interest while you pursue your college studies. The interest rate is fixed, meaning it will not change over time. The loan limit is $3,500 for the first year, increasing to $4,500 in the second year, and $5,500 each year for the third and fourth.

Federal Direct Unsubsidized Loans

These non-needs-based government loans also have a fixed interest rate of 3.73 percent. However, they allow you to borrow a larger amount compared to subsidized direct loans. You have the option to pay the interest while studying or add it to the loan amount, with the latter resulting in higher payments over time.

Federal Direct PLUS Loans

These non-needs-based loans allow parents (and graduate students) to borrow the total cost of tuition, minus any other financial aid received. The interest rate is fixed at 6.28 percent.

Private (Alternative) and State Loans

These loans from banks, universities, private organizations, and state government agencies generally are not needs-based or subsidized. They may require good credit, often meaning an adult with good credit must co-sign the loan. The interest rates on these loans are usually higher than federal loans, and rates may increase over time. Additionally, these loans may have terms that are not as favorable as federal loans.

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