Demystifying Student Loans: Weighing Your Options

A number of loan programs are available to help finance your education. Some loans are based on financial need and are included in your financial aid package. Other loan programs are available to fund the gap between the aid you need to fund your education and the aid available in your financial aid package. The following information details the different loan programs.

Take the First Step with Federal Loans

Because of their comparatively low interest rates, flexible payment plans, and opportunities for deferment and cancellation, federal loans should be your first choice for loan-based funding. Among the federal loans that may be available:

• Perkins Loans: Primarily available to undergraduate students enrolled at least half time, the Perkins Loan has a 5% interest rate. The maximum award per year is $4000 and is offered to the neediest students who are eligible for the Federal Pell Grant.
• Stafford Loans: Stafford Loans are available through the Federal Family Education Loan (FFEL) or Ford Direct Loan programs. Your school may participate in one or both of these programs. Subsidized Stafford Loans (the federal government pays the interest while you are in school) are based on financial need. You must also apply through your school for unsubsidized Stafford Loans (you must pay interest or defer it while you are in school) but they are not awarded by the school and are not based on financial need. The annual maximum for which you are eligible increases each academic year.
• PLUS Loans: Taken out by your parents for your educational expenses, (or by you, if you're a graduate or professional student) these loans depend on a positive credit history and come with flexible payment plans.

Federal Loan Deferment & Forgiveness Programs

In addition to flexible payment plans and grace periods, federal student loans often feature attractive deferment and cancellation options. Depending on the type of loan you receive, you may be eligible for cancellation if you teach certain subject areas in low-income schools, serve in the Peace Corps or military, or complete other requirements. Talk to your school's financial aid office for more information.

Shopping For Private Loans

If you still need additional funding after qualifying for federal loans, consider applying for a private loan. Banks and private lending institutions fund private educational loans. Compare private loans to be sure you're getting the best deal on interest rates, payment plans, and other details.

Sources
FSA Cancellation/Deferment
FSA Loans