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. 

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. 

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. 

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.