Perkins loans
Low-interest-rate federal Perkins loans are another first-come, first-served option. The federal government only guarantees each school only a certain amount of Perkins loan money each year. This program is yet another reason for students to fill out FAFSAs as early as possible.

Unlike grants, loan money must be paid back. However, students can take up to 10 years to repay Perkins loans. If you attend school at least half-time, you have nine months after you graduate, leave school or drop below half-time status to begin to repay your loan, or perhaps longer if you're in the military. Payments are scheduled over a 10-year period. Perkins loans carry fixed interest rates.

Perkins loans also can be discharged or canceled in full or in part for various reasons, including for graduates who are employed in specific teaching positions, certain public or nonprofit family services jobs, and law enforcement or in military service in certain hostile areas.

Stafford loans
Federal Stafford loans are the backbone of the Department of Education's self-help aid program for students. The advantage of Stafford loans is that their interest rate is lower than what students or parents could get through a private lender. However, it's usually higher than the rate for a Perkins loan. Stafford loans are available to students enrolled in an eligible program at least half-time and carry variable interest rates that are adjusted each July 1 for the following 12 months.

There are two types of Stafford loans -- Direct and FFEL. Direct Stafford loans are made through the William D. Ford Federal Direct Loan (Direct Loan) program, while FFEL Stafford loans are made by the Federal Family Education Loan (FFEL) program. The terms and conditions are much the same, but in the Direct Loan program, the money comes directly from the U.S. government. If your school does not participate in the Direct Loan program, the money is lent to you from a bank, credit union or other lender that participates in the FFEL program.

A Stafford loan may either be subsidized or nonsubsidized. Subsidized loans are based on financial need, and the federal government pays interest on the loans while the student is in school. Students pick up the payments on loan interest and principal six months after they graduate.

Students who don't show financial need, according to the Department of Education's guidelines, but still need more money for school, may qualify for an unsubsidized Stafford loan. This type of loan doesn't offer the interest grace period. The borrower is responsible for interest charges beginning the date the loan is disbursed.

Students can take from 10 to 30 years to pay off their Stafford loans, depending on the amount they owe and the type of repayment plan they choose. Under certain conditions you can receive a deferment or discharge of the loan. For more on deferment or discharge, see Chapter 5.

Loans for parents
Federal loans also are available to parents of college students, and can help bridge an important college funding gap. Parents may borrow up to the full cost of a student's education, minus any financial aid received, with a Parent Loan for Undergraduate Students, or PLUS. These loans are government-sponsored and have a variable interest rate that is capped at 9 percent.

Families must pass a credit check to qualify for a PLUS loan and the student must meet certain eligibility requirements. Monthly payments begin within 60 days of the loan disbursement. Repayment on a PLUS loan is 10 years, with no early repayment penalty. Generally, PLUS loans carry the same deferment and discharge policies as Stafford loans.

Although many families prefer not to borrow money at all, it's important to remember that federal loans tend to have lower interest rates and more flexible repayment policies than other types of loans. Families who need to borrow money for college should be sure to exhaust all federal loan options before turning to private lenders.

For more information on federal student aid programs, go to FAFSA or StudentAid. And to find up-to-date interest rates in your city and state on Stafford loans, PLUS, alternative loans and home equity loans, visit theCompare Rates tab on Bankrate's College Finance home page.