If you’re like most students and parents facing a tuition bill, you’re going to need to borrow. That’s a pretty simple reality.

It does get complicated, however, because there are many different types of student and parent loans. My previous posting – about “alternative” loans – mentioned the mistake many families make in tapping private student loans instead of federal ones. Here’s a quick rule of thumb to help you figure out where to borrow.

Undergraduate Student
Generally speaking*, a borrower should exhaust each of the following sources before moving on to the next one listed:

• Federal Perkins loan (rarely available and dependent on need** but ask your school anyway)
• Federal Stafford
Loan (sometimes referred to as “Ford” or “Direct”)

If further borrowing is necessary:

• If the parents are willing to borrow, then a fixed-rate, federal PLUS loan is a great option
• If the parents are not willing to borrow, then investigate private student
loan options, but remember that a co-signer will almost definitely be required (might be that parent who wasn’t willing to borrow a PLUS loan)

Graduate / Professional Student
Generally speaking*, a borrower should exhaust each of the following sources before moving on to the next one listed:

• Federal Perkins Loan (rarely available and dependent on need**, but ask your school anyway)
• Federal Stafford Loan (sometimes referred to as “Ford” or “Direct”)

If further borrowing is necessary, choose between:

• Fixed-rate, federal PLUS Loan, or
• Private loan (the PLUS Loan will usually be the better option)

* Of course there are exceptions to these rules, so do your own homework and investigation. For example, some schools offer their own loans with lenient terms. There may also be state loans available to you with terms better than federal or private loans. Read your financial aid award letter. Ask your financial aid office. Learn about all your options. And always shop around.

** Perkins loans only represent 2% of all student loans each year and are generally awarded to lower-income students. Some schools don’t have access to Perkins loan money, even if you would have qualified by need (so don’t blame the school; availability of funds for Perkins loans has been established through a confusing political process that goes back decades).