Best Student Loans

While many colleges offer generous financial aid packages in absolute dollars, undergraduate students are often left to fill a gap between aid and the cost of attendance. That gap is most often bridged with federal loans, and sometimes even private loans.

As the U.S. Department of Education reports, researchers in the area of student loan debt believe that owing a monthly repayment amount that is greater than 12% of monthly income is a burden for borrowers. While the class of 2008 graduated into a recession, current and future graduates can benefit from lessons learned as well as a generally more flexible climate of student loan repayment (for example, the emerging popularity of income-driven repayment plans).

As students increasingly see themselves as loan consumers, they are bound to become increasingly savvy about shopping for the optimal education for their loan dollars. To that end, students are well advised to seek out the best student loans.

Top Student Loans

The best loans are Direct Subsidized Loans because the interest rate is fixed at a low rate. The federal government also pays the interest accruing while a student is in school. Other loans to consider include:

• Federal Perkins Loan: These loans are awarded to students with the highest need and have a fixed interest rate of 5%.
• Direct Unsubsidized Loans: These loans are not need-based and have a higher interest rate, fixed at 5.05%.
• Federal Parent PLUS Loans: These loans are not need-based, and eligible parents can borrow an amount not to exceed the difference between any financial aid provided and the cost of attendance. The interest rate is fixed at 7.6%.
• Private Loans and State Loans: These loans are not need-based and never subsidized. They often carry variable interest rates. Creditworthiness is a factor.

Private Lenders

There is no conclusive list of the best banks for private student loans, but the following providers are considered among the most reputable:

• College Ave
• Sallie Mae
• Discover Student Loans
• Wells Fargo
• Citizens Bank
• SunTrust
• PNC

Alternative Financing Strategies

According to Forbes, students and parents should consider thinking expansively about borrowing. While the federal student loan and private student loan tracks are available, there may be other sources of private funding worthy of consideration, such as:

• Mortgage and Home Equity Loans: For many parents, their greatest financial asset is their home. Parents interested in this college financing option can talk with a broker about a cash-out refinance of a mortgage, or a remortgaging option, both of which would provide liquid funds to pay for college.
• Cash Value Option on a Life Insurance Policy: Parents who have life insurance policies can consider taking a loan against the cash value part of the policy. The cost of interest and principal repayment will need to be measured against the cost of other options.
• 401K Loans: By law, the maximum loan that can be taken is 50% of vested interest, and it must be repaid within five years through payroll debits (and to avoid a possible tax penalty of 10%).