Who Offers the Cheapest Student Loans?

When students and parents are shopping for student loans, the first question asked is often, Who offers the best prices on student loans?

It is a good question, but the answer can be complicated. Before we start comparing loan options, be aware that the best advice is to complete the FAFSA form at www.fafsa.ed.gov and work closely with the financial aid office at your school.

First, understand that there are very different kinds of student loans available. The cheapest loan is the Federal Perkins Loan which is offered directly from schools. It comes with a fixed interest rate of 5%.

On the next level of affordable student loans, we find the Stafford Loan for Students, which offers a fixed rate.

(Don’t forget that eligibility for both the Stafford and PLUS loans is determined by the information you put on your FAFSA form.)

If a parent is willing to help a child pay for college, the next good option is the Federal PLUS Loan for Parents which allows parents to cover up to 100% of remaining expenses with a fixed rate.

These federal loans (Perkins, Stafford, and PLUS) come with rates and fees that are determined by the federal government, so shopping around usually will not lead to savings.

Who Offers the Most Affordable Private Loans?

Private loans are a very different story. Private student loans are offered by banks and other private lenders and can come with a very wide range of fees and interest rates.

Also, unlike government student loans, private student loans require that students pass a credit check in order to qualify. This means that the lender may look at your FICO score, your credit history, and your debt-to-income ratio. This credit check can be used to determine your interest rate as well as your fees. Poor credit will equal either a credit denial or a private loan with less attractive terms.

Because of this credit check, students are often required to apply with a co-signer (or co-borrower) in order to either qualify, or to qualify for an attractive interest rate. The co-signer is often a parent who is more likely to meet the credit requirements.

So before you apply, shop around and look for student loan providers that are offering the lowest fees and interest rates. But also remember that you (or your co-borrower) may need near-perfect credit in order to qualify for the lowest rates being offered.

Another option to consider is the home equity loan. Often times, fixed-rate home equity rates are lower than private student loan rates for customers with good or excellent credit. So this is another option to consider if you have equity in your home that you can borrow against.

So in short, the best advice when it comes to financial aid is this: Look for free money first (scholarships and grants), complete the FAFSA form, consult your financial aid office, and if you need more money, compare all of the options being offered by private lenders.

Which Student Loan Is Best?