Student Loans

Student Loans

It isn't always possible to finance a college education out-of-pocket or through scholarships. There are many student loan options beyond that, and a clear order of preference among them.
Federal Student Loans

Your first line of defense is the federal student loan program. A Perkins loan is hard to beat with its fixed 5 percent interest, no repayments until 9 months after graduation, and no extra fees. You need to qualify for this program through the Free Application for Federal Student Aid (FAFSA). Funds are limited, and generally go to students in serious need of low-cost financing.

The next step is the subsidized Stafford student loan. The interest rate is higher-6.8 percent-and the post-graduation grace period is only six months. You apply through the same FAFSA form, and can use both types of loan simultaneously. Another choice-the unsubsidized Stafford student loan-accumulates interest from the day of your first disbursement rather than from the end of the grace period. It's also easier to qualify for.

The last federal student loan is called PLUS. Under this program, no FAFSA form is necessary, and your parents can borrow as much as they need to finance your education. But the interest rate is higher-8.5 percent-and your parents will need to have a decent credit rating. Repayment terms are less generous, and 4 percent of the fees are deducted from every disbursement check. In other words, PLUS has a lot of minuses.
Other Student Loan Options

If you're going to any kind of medical school, there are special Health Professional Student Loans available with rates as low as 6.5 percent, a full year's grace period, and very long repayment periods. These studentt loans are quite affordable, but available only to future healthcare professionals.

Many banks and credit unions offer private education loans, though they are often expensive. Other students get their tuition money from home equity loans or HELOCs against their parents' homes. These can be preferable to PLUS for tax reasons, but are otherwise much the same thing.