WASHINGTON, D.C. – Here at the annual meeting of the National Association of Student Financial Aid Administrators, the student loan horror stories flow as freely as the coffee and juice.

One college financial aid director tells of a student who unknowingly passed up an affordable government-backed loan and instead signed up for a private alternative student loan at more than twice the interest rate.

Another aid administrator frets about the student who picked a lender simply because she saw an advertisement on a bus… and then, on bad advice from the company’s customer service department, borrowed much more money than needed.

Finally, one school official recounts the story of a lazy student who didn’t feel like filling out the student loan paperwork and thus financed most of her tuition on a credit card with sky-high interest.

I couldn’t help but sh-sh-shudder just thinking about it.

Most of these bad decisions could, of course, have been avoided with just a little knowledge and effort.  To sidestep a major college-financing mistake of your own, you must first recognize that virtually the entire universe of student loans can be organized into a simple “ladder” of desirability with six basic rungs.  I’ve ranked below each of these rungs in order of preference for the typical family.

Federal Perkins Loans

These are generally considered the best student loans available.  Awarded to students with exceptional financial need, a Perkins loan features a low 5 percent interest rate, no origination fees and favorable repayment terms. 

The federal government actually pays your interest while you are enrolled in college and for a nine-month grace period after you leave school.  Undergraduates can borrow up to $4,000 a year, while graduate students can borrow up to $6,000 annually.

A Perkins loan also features more opportunities to receive loan forgiveness than any other federal loan program.  Elementary and secondary school teachers who serve at low-income schools, for instance, can have 100 percent of their Perkins loan balances forgiven by the U.S. Department of Education.  

Special State Government or Institutional Loans

A few state governments, as well as some individual colleges, have created special student loan programs with especially low interest rates.  If you are from an area or attend a school with one of these loan programs, they are usually a great deal.

The state of Texas, for instance, offers a special “B-On-Time” student loan to state residents.  The loan includes a 0 percent interest rate, a 3 percent origination fee and the opportunity to have the entire loan forgiven if the student graduates on time with at least a 3.0 GPA.

Subsidized Stafford Loans

Next in the pecking order are subsidized Stafford loans, which feature a fixed 6.8 percent interest rate.  The “subsidized” part of this loan means that the U.S. government pays the interest on your loan while you are enrolled in college, during your six-month grace period following graduation and during deferment (such as if you later enroll in graduate school). 

Families qualify for this loan based on their financial need.  Compared to the Perkins loan, however, it’s easier to qualify for a subsidized Stafford loan.  If you are a dependent undergraduate student, the borrowing limit is $3,500 your freshman year, $4,500 your sophomore year and $5,500 for each remaining year.

Unsubsidized Stafford Loans

Students who don’t qualify for a subsidized Stafford loan can still secure an unsubsidized version of the loan at the same fixed 6.8 percent rate.  The notable difference is the interest on the loan will continue to accumulate while the student is enrolled in school and during other periods in which monthly payments may be deferred.

Parent Loan for Undergraduate Students (PLUS)

Unlike Stafford loans, in which students assume the loan, PLUS loans allow parents to borrow on behalf of their children.  For most families, the standard PLUS interest rate will be a fixed 8.5 percent.  Due to a Congressional clerical error, however, students at about 25 percent of U.S. colleges (those that are part of the Federal Direct Student Loan program) can actually qualify for a 7.9 percent rate.

To be eligible, parents must pass a credit check that is much less stringent than required for a home mortgage; a family’s debt-to-income ratio is not considered.  PLUS loans can cover up to the entire cost of college, less any other financial aid that has been awarded.

Here’s one new wrinkle to the program:  Graduate and professional degree candidates can now borrow directly under the PLUS program without involving their parents.

Private Alternative Loans

These student loans from private lenders usually have variable interest rates instead of fixed rates and are not backed by the federal government.  As a result, lenders usually require a full credit check and adjust the interest rate offered to you based on your credit history and overall financial health.

Here’s one “gotcha” to avoid:  Most alternative student loans are advertised based on a lower rate offered to those with exceptionally strong credit histories.  Unfortunately, only a tiny segment of borrowers actually qualify for this featured rate.  As a result, most families will be better off with a PLUS loan.

So, where does all this leave you?  If you need to borrow for school, start at the top of the above student loan ladder and don’t step down to a less favorable rung unless absolutely necessary.