Since Federal and State governments have determined that it is in the best interest of society that everyone have access to education, loans for college are set at a significantly lower interest rate than almost all other types of loans.
You eligibility for low-interest college loans is usually determined by your family’s income level. The lowest interest loans are administered directly by the college and offered as part of your overall financial aid package.
Types of College Loans
Subsidized loans are those where the government pays the interest while you are in school. Eligibility for subsidized loans are determined by the FAFSA (Free Application for Federal Student Aid) which takes your family’s wealth into consideration. Most subsidized college loans come in the form of Stafford Federal Student Loans. Once you have graduated from college you are usually given a grace period of 3-6 months before interest starts accumulating.
Unsubsidized loans are more readily available from both the government and non-government institutions. However, on these loans you will be paying interest while in school, so be careful or you might be up for a surprise come graduation time, seeing that you owe a lot more than you expected.
Tax Breaks on College Loan Interest
Keep in mind that the government provides tax credits for any interest that you pay on your student loan. For this reason, it is much more important to pay down other forms of debt before you pay down your college loan. The government does not provide tax breaks on credit card debt or business loans, so you are better off paying those kinds of loans down before your college loan.