College is expensive, and most students need to borrow money to afford it. While I support the idea of debt-free college, the reality is different for many families. Due to inflation, many families haven’t been able to save for college, and most won’t get enough money from grants and scholarships to cover all their costs. Families from low-income backgrounds, in particular, often struggle to save for college expenses. Then there are those who insist on chasing the dream school at all costs (generally not a good idea). So, if you find you can't afford college without some amount of loans, it’s important to consider how much you borrow because you’ll have to pay it back later, with interest.

Think of student loans as a double-edged sword. On one side, they can cut through the barriers to higher education, providing the means to achieve your academic and professional goals. On the other side, if not handled carefully, they can affect your overall financial health.

In this article, I'll explain the best student loans you can get, ways to borrow less, and smart strategies to avoid too much debt. I'll start with federal loans, which are the safest choice for most students, then cover parent and private loans. I will also share strategies to cut your college costs, like graduating on time or living at home, to save on costs.

Federal Student Loans

Federal student loans are usually the best place to start when borrowing for college. They have lower interest rates than most private loans and offer better repayment options. So, if you absolutely must borrow (not just to keep up with the Jones'), I say consider federal student loans first. Check out the loan types and other features below.

The gateway to financial aid--including grant, scholarships, and loans--is the Free Application for Federal Student Aid (FAFSA) students must complete before they enter college and every year they are in college. If your child is applying to a private college, you may also have to complete the CSS PROFILE which is used to award institutional funds (college's own money).

>>RELATED POST: How to Apply for Financial Aid

Types of Federal Student Loans

Here are the main types of federal student loans with repayment options:

Loan Type	Who Qualifies	Interest Rate	Loan Limit (per year)	When Interest Starts	Repayment Options
Direct Subsidized Loan	Students with financial need	6.53% (fixed)	$3,500 - $5,500	After graduation	Income-driven, Standard, Graduated
Direct Unsubsidized Loan	All students	6.53% (fixed)	$5,500 - $7,500	While in school	Income-driven, Standard, Graduated
Parent PLUS Loan	Parents of dependent students	9.08 % (fixed)	Up to cost of attendance	When disbursed	Income-driven, Extended, Standard

(For loans disbursed between 07/01/2024 through 06/30/2025)

Private Student Loans

Private student loans are offered by banks, credit unions, and online lenders. They can help cover extra costs, but they often have higher interest rates and fewer protections than federal loans.

These loans can come in handy if you have exhausted the annual maximum loans available to you. Private loans will generally require a credit check. While you can borrow up to the full cost of attendance, your interest rate could vary based on your credit score. In most cases, students will require a co-signer, unlike federal loans. The only federal loans that requires a credit check are the Parent PLUS or Grad PLUS Loans (for graduate students).

Private Loans: Pros & Cons

Private Loan Features	Pros	Cons
Interest Rates	Sometimes lower for borrowers with high credit scores	Rates are often higher than federal loans
Repayment Options	Can cover full cost of attendance	No income-driven repayment options, limited deferment
Credit Requirements	Good credit or a co-signer needed	Students with no credit history may need a parent co-signer
Repayment Flexibility	Some lenders allow short-term deferment	No forgiveness options, and payments can’t be based on income

 

5 Strategies to Borrow Less

Graduate in Four Years
Finishing college on time can save you thousands in tuition and other expenses. Stay on track by meeting with your advisor regularly to plan your courses, and if required classes are full, consider taking them over the summer at a community college.

Live at Home to Save on Room and Board
Living at home can save you thousands by cutting costs on rent, utilities, and meal plans. You can still join clubs and make friends—don’t let the fear of missing out on campus life stop you from saving money.

Start at a Community College
Community college is a smart way to save tens of thousands of dollars on a bachelor’s degree. Many states now offer free community college, making it an affordable starting point before transferring to a four-year university.

Only Borrow What You Need
Colleges may offer you more loan money than you actually need. Avoid the temptation to accept it all. Create a budget and borrow only the minimum required to keep your debt manageable after graduation.

Apply for Private Scholarships
Scholarships from local organizations can reduce your need for loans. Start small with local opportunities, which have better odds, and work your way up to national scholarships. Even small awards add up and help you avoid extra debt.

>>RELATED POST: When Should You Start Applying for Scholarships

Comparing Repayment Options: Federal & Private Loans

Repayment plans can make a big difference in how manageable your loans feel. Federal loans offer more flexible options than private loans.

Federal loans offer flexible repayment terms if you have Federal loans—some fixed and some income driven plan (IDR). There are also forgiveness options for students planning to go into public service—the Public Service Loan Forgiveness (PSLR) and the Teacher Loan Forgiveness (TLR) program for students who plan to teach in a low-income school for five years.

A federal court's recent ruling has halted some repayment terms under the Saving on the Valuable Education (SAVE) program and IDR plans. Check the Department of Education's website for updates.

 

Repayment Plan	Description	Available for
Standard repayment	Fixed payments over 10 years	Federal and some private loans
Graduated repayment	Starts with low payments that increase every 2 years	Federal loans
Income-Driven Repayment (IDR)	Payments based on your income and family size, with loan forgiveness after 20-25 years.	Federal loans
Fixed Rate	Fixed monthly payment over the life of the loan	Private loans
Variable Rate	Payments fluctuate based on current interest rates	Private loans

 

Parent PLUS Loans – Things Parents Should Know

Parent PLUS loans can fill the funding gap for parents who want to help cover their child's college costs. However, these loans are in the parent's name, not the student's, and come with higher interest rates.

Advantages of Parent PLUS Loans

Parent PLUS loans can be very helpful for families who need extra money to pay for college. One big advantage is that they can cover the full cost of attendance, including tuition, room and board, and other expenses. This means parents can borrow enough to make sure their child has everything they need for school. Another advantage is that the interest rate is the same for every parent who passes a credit check.

Disadvantages of Parent PLUS Loans

However, there are also some downsides to Parent PLUS loans. One major disadvantage is that parents are responsible for paying back the loan, not the student. This can be a big financial burden, especially if the parents already have other debts. Another disadvantage is that the interest rates are usually higher than other federal student loans (currently around 9.08% for the 7/1/24 to 7/1/25 period), which means parents will end up paying more money over time. Additionally, if parents have a poor credit history, they might not qualify for the loan or could face higher interest rates.

How Much Should You Borrow?

When it comes to borrowing, less is more. A common rule is to borrow at most what you expect to earn in your first year after graduation.

You can also use a loan calculator and/or a federal loan simulator to figure out your monthly payments. You could try different loan amounts and repayment terms to see what works best. 

While it can be tempting to send your child to their dream college just because they got in, it's important to ask yourself: Can we afford this? And not just in the first year, but over four years. Remember, some scholarships colleges offer might only be available to your student in their first year. It's the colleges' way to entice your child to come to that specific college. 

Whatever you do, don't mortgage your retirement to send your child to their dream college. It's really not about where you go, but more about what you do with the opportunities available to you whether you're at a community college or a highly selective college. Take advantage of internship and networking opportunities to set yourself up for success after college. 

Wrap Up

If you need to borrow money for school, be smart about it. First, look for other ways to lower your costs, like applying for private scholarships or starting at a community college. If you do take out loans, borrow only what you really need to avoid having too much debt. Start with federal loans, and only consider private or Parent PLUS loans if absolutely necessary. Learning about your loan options, repayment plans, and borrowing tips can help you keep your costs under control and avoid money problems later.