Choosing education loans

How to choose student loans

Student loans are a special category of consumer loans to be used only for college expenses, like tuition, room and board, books, and other supplies.

Here's where student loans fit into the financial aid process:

1. Family completes the FAFSA or Free Application for Federal Student Aid and any other forms required by the school.
2. School sends a financial aid award package, outlining the aid being offered.
3. Student and family accepts or declines the aid (all or in part).
4. If student loans are in the award, the student and family need to apply for each kind of student loan they choose to use.

There are many different kinds of student loans. Here's the order in which they should be used:

1. Always use federally-backed or funded student loan types - such as Perkins, Stafford/Direct Loans, and PLUS loans for parents. All of these loans have fixed interest rates and lower (or no) credit score qualifications for borrowers.
1. If the school is part of the direct lending program, federal student loans will come from the school
2. If the school is not part of the direct lending program, federal student loans will come from a lender
2. If you qualify for Unsubsidized Stafford Student Loans, definitely use those. This means the government pays the interest on the student loan while you are in school, saving you money.
3. PLUS loans for parents are a good option, too, since most federal student loans have limits - students can only borrow specific dollar amounts depending on their need or their year in school. PLUS loans allow the parent of the college student to borrow up to the total cost of attendance (less other financial aid received), either instead of or as a supplement to other student loans.
4. The next options for students and their families are private student loans (sometimes called "alternative student loans"). Private student loans are backed by private banks, credit unions or other lending companies and often have competitive rates.