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Which are the best student loans?

Written by Mark Kantrowitz | Updated March 11, 2022

If your college savings don’t cover the full net price, you may need to borrow to cover your college costs. So, if you need to borrow to pay for college, which loan should you choose? The answer is simple: Borrow federal student loans. 

The best student loans

Federal student loans are the best student loans. They offer low, fixed interest rates without requiring a cosigner. Eligibility does not depend on your credit scores or credit history, so most students should be able to qualify.

Federal student loans also offer better repayment options, including longer deferments and forbearances, lower monthly payments through extended repayment and income-driven repayment, as well as death and disability discharges and loan forgiveness. 

See also: Complete Guide to Student Loan Forgiveness

The main drawback of federal student loans is the low annual and aggregate loan limits. But, this also means you’re less likely to over-borrow if you stick to just federal student loans. If parents want their children to have skin in the game, federal student loans are a good way of doing this. 

Loans for parents

You should borrow Federal Parent PLUS loans, private student loans and private parent loans only if you have exhausted the loan limits on federal student loans. But, needing to borrow more money may be a sign that you are borrowing too much. 

Counting just the loans that the student is expected to repay, total student loan debt at graduation, including capitalized interest, should be less than the student’s annual starting salary. If total debt is less than annual income, the monthly loan payments will be affordable on a 10-year repayment term. 

Some students may need to borrow private student loans because they are ineligible for federal student loans. To be eligible for federal student loans, the student must be a U.S. citizen or permanent resident, enrolled on at least a half-time basis, and earning good grades. 

Use our Loan Calculator to determine the monthly loan payment and total payments on your student loans.

Private student loans

Private student loans may offer variable interest rate options instead of or in addition to fixed interest rates. In the current rising-rate environment, the cost of a variable-rate loan may increase significantly over the life of the loan. Private student loans with fixed interest rates may be resistant to increasing the length of the repayment term. 

Most private student loans require a creditworthy cosigner, who is really a co-borrower, equally obligated to repay the debt. Cosigning a loan may ruin the cosigner’s credit and make it more difficult for them to obtain new credit, such as refinancing a mortgage. 

See also: Complete Guide to Cosigning a Student Loan

Most private student loans do not provide transparent, up-front pricing, so it is best to shop around to find the lowest cost loan. The best advertised rate is not necessarily the rate you’ll get. Don’t be fooled by variable interest rates, which may seem to be less expensive, but are the equivalent of a fixed-rate loan with an interest rate that is as many as four percentage points higher.

Fees are like up-front interest and the equivalent of a higher no-fee interest rate, with 4% in fees roughly equal to a one percentage point higher interest rate on a 10-year term. That, in turn, increases the monthly payment by as much as 5% and the total interest by as much as a quarter.

Use our Loan Comparison Calculator to compare two or more different loans, identifying which loan offers a lower monthly payment and which one offers a lower total cost.

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About the author

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions. Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association. Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation. Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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