Student Loans
Although you should be careful not to borrow yourself into a lifetime of debt, avoiding loans altogether could delay your graduation and your progress up the career ladder. For most students, some level of borrowing is both necessary and prudent.
The following list provides information about the most common types of student loans. The list reflects the order in which you should apply for and accept loans to get the lowest interest rates and the best repayment terms.
- Subsidized federal student loans are backed by the government, which pays the loan interest on your behalf while you are enrolled in undergraduate, graduate, or professional school. These loans require at least half-time enrollment and a submitted FAFSA application.
- Unsubsidized federal student loans may require that you make interest payments while you are enrolled. If not, the interest is added to the amount you owe; this is called capitalization.
- Parent Loan for Undergraduate Students (called PLUS loans) are applied for and owed by parents but disbursed directly to students. The interest on PLUS loans is usually higher than the interest on federal student loans but lower than that on private loans. Parents who apply must provide information on the FAFSA.
- Private student loans are offered through banks and credit unions. Private loans often have stricter credit requirements and higher interest rates than federal loans do, and interest payments on private loans begin immediately.
Student loans are a very important source of money for college, but like paid employment, loans should be considered carefully. Loans for costs such as books and tuition are good investments. Loans for a more lavish lifestyle are likely to weigh you down in the future. As one wise person put it, if by borrowing you live like a wealthy graduate while you’re a student, you’ll live like a student after you graduate. Student loans can be a good way to begin using credit wisely, a skill you are likely to need throughout your life.