How To Choose The Best Student Loans

Student loans are far from being the highlight of college. However, they are important, and oftentimes, crucial to affording college.

When I started my freshman year, I had little understanding of student loans. Basically, I borrowed blindly for four years. I thought I had no control over student loans - they were necessary.

While there is some truth to that, you can choose what loans, if any, to take out in order to pay your college tuition. There are different options available, and knowing the options will help you get going in the right direction.

How to pay for college

These general guidelines are recommended by most financial experts:

1. Use free money first. This includes grants, scholarships, and other funds that don't require repayment. Take full advantage of scholarship and grant opportunities, and start looking early.

2. Use federal loans next. Federal loans are government loans that offer lower-interest, fixed-rates, and often beat the rates offered by most private lenders. If you qualify for subsidized loans, the government will pay your interest while you are in college (which is a good thing).

3. Use private loans last. Private loans are typically more expensive for two reasons. (1) Variable interest rates. "Variable" means that this rate, even if it is low, could change over time, and most likely, will rise. (2) Fixed rates are usually higher than those offered on federal loans. 

A great resource for comparing private lenders is

Understanding Interest

Interest rates are an important concept to understand, because they can either reduce or increase the total amount of money you must repay.

Terms Defined

Interest Rate:  "the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding." Simply, this means that you are charged money for borrowing money. The lower the rate, the better.

Variable Interest Rate:  "an interest rate on a loan that fluctuates over time. The advantage of a variable interest rate is that if the underlying interest rate or index declines, the borrower's interest payments also fall." A variable rate means that the rate may start, or appear to be low, but could change - whether it's in your favor or not, is totally out of your control.

Fixed Interest Rate:  "a type of loan or mortgage for which the rate of interest does not fluctuate over the life of the loan." Loans with a fixed interest rate may have higher rates, but you are guaranteed that interest rate for the life of the loan.

Differences in interest rates

Federal student loan interest rates

Interest rates on undergrad Direct Loans recently decreased from 4.66% for the 2014-2015 school year to 4.29% for the 2015-2016 school year. Rates for graduate Direct Loans are (5.84%) and Direct PLUS Loans are (6.84%). These fixed rates are locked in for loans disbursed between July 1, 2015 and July 1, 2016.

Private student loan interest rates

Private lenders offer both variable and fixed-rate loans, and the rate you’ll obtain is a direct result of your credit history (and your cosigner’s, if you have one).

Credible can give you personalized offers and comparisons on student loans.

Federal Student Loans

This infographic breaks down the three types of federal student aid. You can apply for federal student aid through the application process - FAFSA. Make sure to follow the deadlines, federal aid is awarded based on need, and on first-come, first-serve basis.

Private Loans

Offered at credit unions and banks, private loans don't require as lengthy of an application process as federal loans. Funds are typically disbursed quickly, often immediately upon approval, and can be used for a variety of college expenses. On the downside, your credit history will factor into your approval, you may need a cosignor, and you may have to start repayment while in school.

Do you still have questions about your student loans? What are they? Send me an email ( or comment below, and get clear on the type of loan that is right for you!

Take care!