Most students who attend college need to borrow money to pay for tuition, room and board, and other expenses. If savings do not cover the total cost of college, and grants or scholarships are not available, most students will need to take out some type of loan.

Student loans come from two primary sources: the federal government and private lenders, such as banks. In order to obtain federal student loans, students and parents need to file the Free Application for Federal Student Aid (FAFSA). The FAFSA is the sole application for all federal financial aid including federal student loans.

The general rule of thumb for student loans is to go with the lowest interest rates available and with the best options for deferring payment until after graduation. Both Federal Stafford Loans and Federal Perkins Loans are low-interest loans with good repayment plans. In addition, parents may qualify for Parent Federal PLUS Loans, which can be used for education costs. Graduate Federal PLUS Loans are an affordable way for graduate or professional students to finance their education. Private loans usually help cover costs not covered by Federal loans.

There are four primary federal loans and a federal consolidated loan plan:

Federal Stafford Loan

Federal Perkins Loan

Federal PLUS Loan

Federal Graduate PLUS Loan

Federal Consolidation Loan

Federal Stafford Loans provide low-interest, fixed-rate, long-term loans for undergraduate and graduate students. Two types of Stafford Loans exist: subsidized and unsubsidized.

Both types of loans offer the following benefits:

-Low interest rate

-No payments while in school

-Flexible repayment options

To qualify for a Subsidized Stafford Loan, a student must demonstrate financial need. While in school, the federal government pays the interest on the loan. Upon graduation, the student starts payments.

Unsubsidized Stafford Loans are not based on financial need. While in school, the student remains responsible for the interest on the loan, as well as during grace and deferment periods. There is, however, an option to defer the interest until repayment. When repayment begins, the interest is simply added to the principal.

It is possible to combine subsidized loans with unsubsidized loans and borrow the maximum amount permitted each year.

Perkins loans feature low interest rates funded by both colleges and the federal government. Perkins loans are awarded to students who demonstrate the most significant financial need.

Similar to Stafford Loans, Perkins Loans offer the following benefits:

-Low interest rate.

-No payments while in school.

Each college's Financial Aid Office determines qualification and the loan amount. Technically, the school is the lender, and the student repays the school over time.

Most school's Federal Perkins Loans are provided to students who demonstrate the most financial need.

The interest rate on a Perkins Loan is fixed at 5% for the life of the loan. No payments are required during school, and there is a nine-month grace period before repayment begins after leaving school. The loan term is up to 10 years.

Designed for dependent undergraduate students, these loans enable parents to finance up to the full cost of education, less other financial aid awarded.

PLUS loans offer the following benefits:

-Attractive financing

-Tax savings

-Loan covering the full cost of education

A parent can borrow up to the total cost of the student's education less any other financial aid received. There is no minimum loan amount. The maximum lifetime amount you can borrow per student cannot exceed the total cost of education for the student.

For PLUS Loans with first disbursements on or after July 1, 2006, the interest rate is fixed at 8.50%. The interest on student loans is tax deductible. Repayment begins within 60 days after the loan is fully disbursed.

Designed specifically for graduate and professional students, these loans enable students to finance up to the full cost of education, less other financial aid awarded.

Graduate PLUS loans offer the following benefits:

-No loan limits

-Minimal credit requirements

-Fixed interest rate

A student can borrow up to the total cost of education less any other financial aid received. The maximum lifetime amount borrowed cannot exceed the total cost of education. There is no minimum loan amount.

For PLUS Loans with first disbursements on or after July 1, 2006, the interest rate is fixed at 8.50%. The interest on student loans is tax deductible. Repayment begins within 60 days after the loan is fully disbursed.

These loans combine several student or parent loans into one loan from a single lender, which is then used to pay off the balances on the other loans. Consolidation loans are available for most federal loans. Some lenders offer private consolidation loans for private education loans as well.

Private student loans cannot, in general, be consolidated with federal student loans.

Private loans often help offset or pay for costs Federal loans, grants, or scholarships don't cover. Offered through private education lenders, private loan costs and features can vary significantly by provider. When comparing private loan options it's important to find the best interest rate and repayment options, along with a lender who you know will be around for the long-term, make it easy to pay the loan and manage your account.

Offered by various lenders, private loans offer flexibility. Unlike federal loans, they require no government forms and there is no application deadline. They may also cover education expenses such as personal computers, transportation, or previous loan account balances.

Most private lenders even provide easy online applications and quick credit response.

For more information, Citibank's http://www.CollegeLenderList.com provides a list of recommended lenders.

Since most private education loans do not compete on price, a private consolidation loans is merely replacing one or more private education loans with another. So the main benefit of such a consolidation is obtaining a single monthly payment. Also, since the consolidation resets the term of the loan, this may reduce the monthly payment.

Private education loans tend to have interest rates comparable to home equity loans. If a private education loan has a variable interest rate, consider using a fixed-rate home equity loan to pay off the private education loan, locking in the lower, stable interest rate, if possible.

U.S. Federal Student Aid

http://www.studentaid.ed.gov

U.S. Department of Education

http://www.ed.gov

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