Best Student Loan

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If fact we’ll begin with one of those recommendations.  The best student loan is no loan at all.  Most young students who are thinking about college are very naïve when it comes to money matters and especially debt and its consequences.  Most of them only managed the small amount of money given to them by their parents or some money they earned in a summer or after school job.  It is not the least bit unusual for a young person to obtain a credit card for the first time and then in short order run the balance of the card up to the maximum.  Suddenly they are looking at monthly payments of $200 or so, and that only covers the interest charges on what they have borrowed since credit card interest charges can be astronomical, 20% or more.  Young people like this have no idea that student loan debt can put them in a much larger financial hole, one that can affect their lives in a profoundly negative way for decades.  So avoiding student debt entirely is the best way to go. 

Of course this can mean sacrifices.  Perhaps you need to go to a junior college or community college and live at home for several years.  If this is your choice you need to be sure that the courses you are taking will be accepted by a larger institution later and not just wasted.  Starting early helps as well.  It is possible to obtain some college credits by taking certain courses in high school or testing out of the classes.  Here are a number of ways to save money and cut college costs: Cut College Costs.

Remember, the best student loan is no loan at all.  Even if avoiding student debt entirely is not an option, it is a worthwhile goal to work toward.

Federal Student Loans

If you absolutely must borrow some money to finance a college education, be aware that federal student loans are always preferable to private student loans.  Interest rates will certainly be substantially lower, and federal loans offer many advantages to the borrower that private student loans do not.  For example, in times of financial difficulty due to such things as job loss or perhaps illness, federal student loans offer deferment or forbearance.  Some federal loans are subsidized, which means that the loan interest is paid for by the government while the student is still enrolled in school.  Also, federal loans must be consolidated if the borrower wishes, and loan consolidation for private student loans is at the discretion of the lender and may not be offered at all.  For certain types of public service careers it is possible to have a major portion of the borrowed amount forgiven if you have federal student loans.  Ask your financial counselor about how to qualify for these programs.  These programs are not available with private loans.

Private Student Loans

Last of the list of best student loans are private loans.  These are growing in popularity, and about 25% of the student loan industry now consists of private loans.  The probability of defaulting on private student loans is much higher than with federal student loans.  Once a borrower defaults he is in deep trouble.  Neither federal nor private student loans can be dismissed in a bankruptcy, and the borrowers have the right to garnish wages, as well as take money owed to a person for tax refunds or disability payments.  There are millions of people in the U.S. who have defaulted on student loans and now find themselves owing several times the amount they originally borrowed.  Many simply cannot get out from under their student loan debt.  And dealing with collection agencies is no fun at all.  These people are not criminals, they are just normal people who made a mistake or two and who didn’t realize the consequences of taking on too much student debt.

So to revisit the original question, the best student loan is no loan at all.  If that is not possible try to obtain the maximum possible in federal student loans, and do everything possible to avoid private student loans.