Federal student loans have attractive terms, but there are limits on the amount students can borrow. Undergraduates generally can borrow no more than $5,500 per year on Stafford loans, with even lower limits for freshman and sophomores.
If you need additional loans, consider federal PLUS (Parent Loan for Undergraduate Students) loans, which usually are taken out by students’ parents. The fixed interest rate is 8.5 percent.
PLUS loans can supplement the student’s financial aid package, up to the full cost of attendance. Therefore, a family could finance a college education by staying within the federal loan program.
However, not every parent is willing to borrow heavily to finance a child’s education. In many cases, students who have used federal student loans up to their limits turn to private loans to cover the remaining college costs.
Most private student loans have variable interest rates, and some of those variable rates are as high as credit card rates. If your family needs to use private loans for college, shop carefully and read the fine print.