Given the ever-increasing cost of college and that 72% of undergraduates take out student loans to help pay for college, it’s worth understanding the student loan choices.

By far, the best loan choice is the Federal Direct Loan Program (formerly known as Stafford Loans). These loans come in two varieties – subsidized and unsubsidized. The student must demonstrate financial need for the subsidized loan, but even the unsubsidized loan is a great option. Here are the reasons why:

  1. Students get the same interest rate regardless of credit score
  2. Students don’t have to demonstrate financial need for the unsubsidized loan
  3. If students qualify for the need-based subsidized loan, the government pays the interest on the loan while the student is in school
  4. The loan offers several income-based repayment options and a public service loan forgiveness program

While these loans are unlikely to fully cover the cost of college (annual loan limits range from $5,500 for Freshmen to $7,500 for Seniors), they can cover a portion of the cost at favorable terms.

The interest rate on these loans gets reset once a year, but the current interest rate for the 2016-2017 school year is 3.76%, slightly lower than last school year. Depending on the student’s income during repayment, the interest paid on the loan may be tax-deductible.

In order to be eligible for a Direct Loan, the family must complete the Free Application for Federal Student Aid (FAFSA). New this year, the deadline has moved earlier to October 1st from January 1st. The implication of this change is that you can use already filed prior-prior tax return data instead of estimating in January what you expect your income to be for the year just ended and then needing to file an amendment. This should reduce the amount of time spent completing the FAFSA.

So while the cost of college can be a burden, it can be reduced by fully understanding the student loan choices and using the most favorable ones available.