Which Loan Is Right For Me?

Yes. If you qualify for a Federal Direct Subsidized Loan (not all students do), you should accept this loan before considering others, because the loan won’t accrue interest until you cease half-time attendance or graduate. Other educational loans (Unsubsidized Direct, PLUS, CAL, and private) begin accruing interest as soon as they disburse.

Every family is different. Some parents have the ability and willingness to borrow in their own names for college costs while others do not. If your parent can’t or doesn’t want to borrow in his or her own name, you can apply for one of the other loan types such as a College Access Loan (CAL, for Texas students) or a private loan and have a parent or another credit-worthy adult serve as a co-signer.

Some families want students to begin establishing credit history while borrowing for college. This will happen if the loan is in the student’s name and the lender reports to credit agencies, as is the case with private loans. If a student is lucky enough to have parents or other relatives willing to actually pay these loans back, the student will gain positive credit history with on-time repayment. With loans in a parent’s name, like the Parent PLUS Loan, a student’s credit will not be impacted either negatively or positively.

This is a personal decision, depending on a person’s risk tolerance. With fixed rate federal (PLUS) or state (CAL, or College Access Loans for Texas) loans the rate is the same for all approved borrowers/cosigners. If you have excellent credit, you’ll get the same interest rate as someone who barely passed the credit check. It’s possible you could get a better rate on a private loan. If your credit is not quite so good, the CAL or PLUS may be a better option for you. If you have good credit, it might be worth your time exploring whether a private education loan would give you a lower interest rate (often without fee). If you apply and don’t like the terms, you don’t have to sign on the dotted line.

 This may depend on how long you think it will take you to repay the loan. In general, while education loan programs typically have specific repayment periods, some families pay the loans off within a shorter time. The less time you spend repaying a loan, the less risk there is that any variable rate will go higher over time. If you anticipate that it will take you 10 years or more to pay off the loan, it’s harder to predict what variable interest rates might do over that longer period of time. Most private loans are based on either the London Interbank Offered Rate (LIBOR) or the prime lending rate. No one can predict the future, but thinking about the likelihood of rates rising might help you make a better decision about choosing a variable or fixed rate loan.

Some of the benefits of federal loans are the variety of built-in repayment options, postponement of payment in certain circumstances, and even possibilities of limited loan forgiveness. These types of cancellation provisions for certain work or service are not available for either state loans (CAL) or private education loans.