Cheapest Student Loan Rates

Q: Which student loans offer the cheapest interest rates?

This can be a tricky question, because depending on Prime lending rates, private student loans with variable rates can sometimes be the cheapest.

Private student loans, usually offered by banks, come with variable rates that go up and down depending on market forces.

Federal student loans, on the other hand, come with fixed rates.

In general, federal student loans (such as the Perkins, Stafford, and PLUS loans) are the cheapest loans over time because the interest rates remain steady over time.

Remember that you may be repaying your student loans for ten years or more.

So here are all the student loan options to consider:

Federal Perkins Loans (Best Choice Option)
- 5 percent fixed rate
- Receive up to $5,500 a year
- No payments until after school

Perkins Loans are made through participating schools to undergraduate, graduate and professional degree students. They are offered to students who demonstrate financial need and are enrolled full-time or part-time. These loans must be repaid to your school.

Federal Stafford Loans (Best Choice Option)
- Low fixed rate
- Receive up to $9,500 your first year
- No payments until after school

Stafford Loans are for undergraduate, graduate and professional degree students. You must be enrolled as at least a half-time student to be eligible for a Stafford Loan. There are two types of Stafford Loans: subsidized and unsubsidized. You must have financial need to receive a subsidized Stafford Loan. The U.S. Department of Education will pay (subsidize) the interest that accrues on subsidized Stafford Loans during certain periods. Financial need is not a requirement to obtain an unsubsidized Stafford Loan. You are responsible for paying the interest that accrues on unsubsidized Stafford Loans.

Federal PLUS Loans for Parents (Good Choice Option)
- A federal loan that parents can use for a child
- Low fixed rate
- Receive up to total cost of education

The PLUS Loan can be a good option if a parent is willing to help you pay for school. PLUS Loans are loans parents can obtain to help pay the cost of education for their dependent undergraduate children. Some parents prefer the PLUS Loan to home equity loans because they do not have to put their home at risk. It is also a better option for parents who may be considering taking money out of a retirement account for education purposes. In addition, graduate and professional degree students may obtain Graduate PLUS Loans to help pay for their own education.

Private Student Loans (Last Choice Option)
- Must have good credit or cosigner to qualify
- Comes with a variable interest rate
- Can usually cover all education costs
- Payments can be delayed until after school
- Choose a private loan where the school certifies
  the loan and receives the funds for you...
- Avoid private loans where the money comes straight
  to you -- these loans can be very expensive.

Private student loans from banks can be a good option after you have maximized all of your federal student aid options first. Because private student loans are typically more expensive than federal student loans, it is not recommended that you use a private loan to cover all of your education costs. If you must take out a private student loan, use those funds to cover your extra or left-over expenses. Also, if possible, it is a good idea to make interest payments on your private loan while you are still in school. If you do not, you may be surprised by the amount of interest that has accrued while you were in school. If you are a graduate or professional degree student, consider the Graduate PLUS Loan before taking out a private student loan.

Last word of advice: Check out your free money options before considering any student loan. You can qualify for federal student aid by filling out the FAFSA (or Free Application for Federal Student Aid) at