Look Before You Leap

Figuring out how to pay for college isn’t easy. For most people, savings, grants and scholarships don’t cover all the costs. Working helps, but working too much while you’re in school (more than 15 hours a week) can hurt your grades and chances of graduating. Using student loans to fill the gap can help you stay and succeed in college, but it’s important to shop around and borrow only as much as you really need.

If you’ve been offered student loans as part of your college’s financial aid package, talk to a financial aid officer to see if you might be eligible for more grants. If your financial situation has changed, or there are relevant circumstances not reflected in your FAFSA, you may be able to borrow less. If you’ve decided that borrowing is a good choice for you, here are some tips to help you get a fair deal:
Start with the safest loans

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Federal loans are the safest place to start. Interest rates on federal loans don’t change over time and aren’t affected by your credit rating. Federal loans also come with some guaranteed borrower protections in case you’re unemployed or have other financial problems after college.
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Perkins and Subsidized Stafford loans are the safest and most affordable federal loans. If you qualify for them, they’re a great deal, because the government pays all the interest while you’re in school. The interest rate for Perkins loans is fixed at 5%, and for Subsidized Staffords it’s fixed at no more than 6.8%.
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Unsubsidized Stafford Loans are the next best option, and they’re available to everyone, regardless of income. Interest builds up while you’re in school, but you don’t have to start making payments until six months after you graduate, and you still get the federal borrower protections. The interest rate for Unsubsidized Staffords is fixed at no more than 6.8%.
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PLUS Loans, which are only for parents and graduate students, have a higher interest rate of up to 8.5%, but they are generally a better deal than private loans (except, perhaps, some home equity loans).
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Private student loans, sometimes called “alternative” loans, are much riskier. They’re a lot like credit cards: even if they start at what seem like low rates, those rates can shoot up at any time, and the interest costs can quickly surpass whatever you borrowed to begin with. Also, they don’t have the borrower protections that come with federal loans.
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If you have a lot of financial need, use federal loans before you consider a private loan.
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Beware of private loans in disguise: some schools put their own name on private loans, or the loans may have other brand names that make them look safer than they really are. Lenders often offer both federal and private loans, so make sure you know what you’re getting before you sign on the line.