Students can borrow money directly from the federal government. The federal government provides subsidized, unsubsidized and PLUS-type Stafford and Perkins loans. Subsidized loans don't incur interest while a student is in school; unsubsidized loans are not based on financial need and will incur interest at all times; and PLUS loans are unsubsidized loans for parents of dependent students. There is a limit on federal student loans. Stafford, for example, will only lend up to $3,500 per school year (as of 2011). To qualify for a direct loan, your school must participate in the direct loan program. Interest rates are variable for direct loans, but they are commonly lower than private student loan rates. To apply for a direct loan, you must complete the FAFSA. Creditworthiness is not an issue when borrowing from the federal government, but financial need is a factor.
Sallie Mae offers several private student loan options, including the Smart Option Student Loan for students enrolled in two- or four-year colleges and the Career Training Smart Option Student Loan for those who will attend a trade or vocational college. You can choose a fixed repayment or interest repayment plan. Borrowers with a fixed repayment can pay as low as $25 a month while attending school (as of 2011); the interest repayment option requires that you make full monthly interest payments while in school. There is no cap on how much you can borrow, but you or your parents must meet the credit criteria.
Many banks, including Wells Fargo and J.P. Morgan Chase offer loans to students. No payment is required while attending college. Both parents and students can apply for these loans, but being accepted for a private loan is often harder for students with little or no credit history. Wells Fargo offers student loans to fill any expense gap that is not covered by financial aid, to cover extra expenses or to allow parents to assist you with college. Wells Fargo loans have a cap of $25,000 per school year (as of 2011) on many of its loan products. Chase has no limit on the amount you can borrow. You must be creditworthy to borrow money from a bank; financial need is not a factor. Most private loans will send payments directly to the school.
Two of the most popular creditors---Discover and Citibank---offer student loans. You may need a cosigner, depending upon your creditworthiness. Discover offers a student loan product that gives 2 percent of the outstanding balance to the student upon graduation. There is also a credit for participating in automatic debits. Neither company requires repayment while attending school. Many private student loans not associated with a bank will have higher interest rates than other types of student loans. These financial resources should be sought as a last resort.