Student Loans

Ideally, you would like to be debt-free when you graduate from college, but this isn't always possible. As a last resort, you may have to consider a low-interest federal student loan to meet your financial need. Like any loan, the money must be paid back and interest will be charged.

(Note: Most tribal colleges do not participate in the federal student loan programs.)

Federal Student Loans

There are two main types of federal student loans available:

  • Subsidized Stafford Loan
  • Unsubsidized Stafford Loan

With a "subsidized" loan, the federal government pays the interest on the loan while you are in school. Subsidized loans are based on need. With an "unsubsidized" loan, the interest on the loan accrues, so the amount you owe when you graduate will be more than the amount you borrowed. Unsubsidized loans are not based on need.

As of July 2010, the lender for these loans is the U.S. Department of Education through its Direct Loan Program. Applying for a Stafford loan starts with filling out the Free Application for Student Aid (FAFSA) form.


When you receive the loan, you must sign a legally binding promissory note. This note is your pledge to repay the debt. Repayment begins six months after you graduate, leave school, or drop below half-time enrollment.

For more information about Stafford loans, visit the Department of Education's Student Financial Aid Web site. The Internet has lots of information about federal student loans. The problem is that much of that information is outdated. How federal student loans are administered changed largely in 2010, so the best way to get current information is to check the Department of Education's Web site or have a talk with your college's financial aid office.

Student Loans

More Federally Backed Loans

Two other federally backed loans include:

  • Direct Parent Loan for Undergraduate Students(PLUS) Loan
  • Perkins Loan

Direct PLUS Loan

Parents of dependent students may apply for a Direct PLUS Loan to help pay their child's education expenses. Parents must meet certain eligibility requirements and the student must be enrolled at least half time. To learn more about the Direct PLUS loan visit the Department of Education's Federal Student Aid Web site.

Campus-Based Perkins Loan

Another type of popular loan program is the Perkins loan. Although it's a federal loan, it is administered directly by the financial aid office at the college. Not all colleges participate in this loan program, so check with your school.

A Perkins loan charges 5 percent, but interest doesn't accrue until nine months after you graduate, leave school, or drop to below half-time enrollment. For more information about Perkins loans, visit the Department of Education's Federal Student Aid Web site.


Student Loans

Private Student Loans

Two other federally backed loans include: The most expensive type of student loan is a private loan from a bank or similar lender. In addition to charging variable and often higher interest rates than federal student loans, these lenders could also charge you costly fees. According to, a good rule of thumb is that 3 percent to 4 percent in fees is about the same as a 1 percent higher interest rate.

How much a lender will charge you in interest and fees will depend on your credit history. Bad credit equals high cost.

Before taking on a private student loan, look into all other options: grants, scholarships, work-study programs, and federal loan programs. Before signing a private loan contract, make sure you have considered the following:

  • The interest rate
  • The fees
  • Whether interest accrues while you're in school (it usually does)
  • When you must start making loan payments (some lenders expect you to make loan payments while you're still in school)
  • If the interest rate can be reduced (some lenders lower the interest rate slightly if payments can be automatically taken out of your bank account or if you make your loan payments on time for a year or more)

When considering a student loan—even a low-interest federal student loan—it's a good idea to know what you'll pay over time. Use this FinAid loan calculator to compare the costs of various loan programs