Student Loans: Choosing a Loan That's Right for You

If you have to take out student loans, you essentially have two choices: federal student loans and private loans.

For most borrowers, federal student loans are the best option. When you start to pay back your federal loans, the interest rate will be fixed, which will help you predict your payments after graduation. And in some cases, the federal government will pay the interest on your loans while you are in school - these loans are called subsidized loans.

Other student loans are generally private student loans. The most common private student loans are offered by banks. Their interest rates are often variable, which means your interest rates and payments could go up over time. Private loans can also be more expensive - rates have been as high as 16% over the past couple of years. And when it is time to repay, private loans don't offer as many options to reduce or postpone payments.

For most people, federal student loans are a better deal than private student loans, so you'll want to take advantage of federal options first.

1. Fill out the FAFSA

You must complete this form to be eligible for any federal student loans or grants. Submit the FAFSA as early as possible. Find your FAFSA deadlines online. 

Even if you are not sure you'll be eligible for any federal aid, you still need the FAFSA - schools often award scholarships and other grant aid using FAFSA information. 

If you are having trouble filling out the form, contact the Department of Education. 

2. Explore all your federal loan options first

If you need to borrow to pay for school, federal student loans almost always cost less than private student loans and have more protections when it's time for repayment. If you are choosing between schools, compare each school's aid offer.

3. Shop around if your aid package doesn't cover the full cost of college

Talk to your school's financial aid office about alternative scholarships or loan options. You may want to ask your parent to consider taking out a PLUS loan. And if you decide a private student loan is your best option, make sure you understand the terms and costs.