How Do I Choose the Best Student Loan to Pay for College?
Many students (and their parents) have to borrow money to
pay for college.
Today’s average student graduates after four years owing about $25,000 – and many
students owe much more! Of the federal, state-based, and private student
loans,
which type is best for you? Here are some guidelines to help you evaluate your loan
options:
- Consider federal and state student loans first. Government loans
have the most favorable repayment terms and interest rates. They also have the most
liberal deferment and forbearance options. Wondering what those terms mean? Visit
our
student loan glossary.
- Next, consider private loans. If you are unable to borrow a federal
or state loan, or if you need additional loans, consider a private student loan
from a trusted bank or other financial institution. Private loans usually require
borrowers to pass a credit check or have a creditworthy co-signer. Explore private
loan options before using high-interest credit cards or home-equity lines of credit
to finance an education.
- Credit cards are a last resort. You can pay for college expenses
with a credit card, but their interest rates are usually far higher than those that
the government or banks will charge you.
Even small differences in interest rates can really increase the total amount you
must repay. Check out this chart which shows the different total costs for a 10-year
loan:
|
Loan Type
|
If you borrow:
|
At this interest rate:
|
Estimated Monthly Payments:
|
The total cost of the loan is:
|
|
Federal or State Loans
|
$10,000
|
7%
|
$116
|
$13,920
|
|
Private Loans
|
$10,000
|
11%
|
$138
|
$16,530
|
|
Credit Cards
|
$10,000
|
17%
|
$174
|
$20,880
|
Interest rates are an important factor to consider when selecting a loan, but look
at other aspects too, such as repayment terms. Download
Selecting the Best Loan
to help you compare loan and lender options. To learn more, review the entire
student loan
section of StudentAid.com, including our
student loan glossary
and
student loan FAQs.