A Beginner’s Guide to Understanding Student Loans for College A Beginner’s Guide to Understanding Student Loans for College
You are going to go to college. Are you thinking about financing your education with student loans? Here’s a beginner’s guide to help you... A Beginner’s Guide to Understanding Student Loans for College

You are going to go to college. Are you thinking about financing your education with student loans? Here’s a beginner’s guide to help you better understand federal and private loans, along with some solid tips for you to pay the loans back.

It can be overwhelming to try to navigate the world of student loans. With many different loan types, each with its own nuances, making sense of it all can be frustrating and overwhelming. We wanted to help, so this beginner’s guide was created with relation to the various types of student loans available. We also touch on the basics of managing your student loans and paying them back. If you are thinking about taking a student loan, it would be a good idea for you to talk to your school’s financial aid office. If you have your own personal financial advisor, talk to them

In the United States, there are two types of student loans commonly issued: federal loans and private loans. Federal loans can be lent and/or backed by the federal government, while private loans are generally lent by banks and other private lenders.

Federal loans

For the most part, federal loans are thought to be a better option for students because they have a fixed interest rate that is usually lower than what private loans offer. As long as you are enrolled in school part-time or full-time, your payments will be delayed. When borrowers graduate, drop to less than part-time enrollment, or permanently leave school, federal loans have a grace period before you have to start your repayment.

Students interested in applying for a federal loan can find more information about loan terms, eligibility, and application instructions at the Department of Education’s Federal Student Aid site.

Here’s a summary of the four federal loan programs:

Federal Perkins Loans. Your school is the lender, but not all schools offer this type of loan. The loan is available to graduate students, eligible undergraduate students, and professional students. Eligibility depends on you being able to demonstrate financial need that is based on your federal student aid application and the funds you have available.

Direct Unsubsidized Loans. Available to eligible undergraduate students and graduate students no matter what your financial needs are. With unsubsidized loans, you are always responsible for the interest.

Direct Subsidized Loans. Undergraduate students are eligible for these loans if they are able to show proof of financial need. The federal government will pay the interest on subsidized loans when you are in school at least half-time, during the times when your repayment is deferred, for the first six months after you leave school, and if you drop below half-time enrollment.

Direct PLUS Loans. If you are an eligible graduate, professional student, or you are an eligible parent of a dependent undergraduate, you can qualify for these loans. There is no obligation to demonstrate financial need, but borrowers can be refused if there is a negative credit history. The amount you are approved for depends on what other financial assistance you get.

Private loans

Usually, students choose to get private loans only if all federal loan options have been exhausted along with other financial aid like scholarships, work-study programs, and grants. Private loans almost always have a higher interest rate and it is a variable interest rate, which means it can go up or down during the term of the loan. So, if the rates go up, the amount you have to pay back will also go up. Your eligibility for a private loan depends on your credit history.

If you do decide to get a private loan, keep these 3 things in mind when you are shopping around:

  • Interest rate. Generally, interest rates vary depending on your credit score. You’ll want to shop for the lowest interest rate you can get, and having a better credit score will help.
  • Fees. Numerous private loans also have additional fees. Those fees depend on who the lender is and the loan’s type. These fees may be deducted from the total amount you are eligible for, added to the total amount you owe, or billed individually.
  • Co-signer. Some private loans might need a co-signer who agrees to be responsible for the loan should you not be able to make the payments. Having a co-signer that has good credit can mean a lower interest rate for you.

When you are looking at private loans, there are other important terms to think about, such as the size of your monthly payments, repayment options, deferment options, and grace periods.

Paying back your loan(s)

Typically, federal loans have a more flexible repayment plan than private loans. With either federal or private loans, you need to know the details of each loan and you need to keep track of the amount you owe. A loan calculator can help estimate how much you will have to pay based on your loan terms, the time it will take to pay off a loan, or the monthly amount you will need to pay, all of which will help you plan for the future.

To make sure you don’t have any late fees and to make your repayment easier, you might want to set up automatic payments through your bank account. Some providers will even offer you a reduced interest rate if you sign up for automatic payments.

When you consolidate your loans, it can make repayment easier. Of course, there are always tradeoffs. When you consolidate, it can give you lower monthly payments, but the repayment period can become longer, which means you could end up paying more in total.

What happens when you cannot pay your student loan

With both private and federal loans, there may be options that let you delay making your payments for a specific time period. In a few cases, you might be able to have your student loan forgiven partially or completely, although this doesn’t happen often and is difficult to get.Federal loans can give you more flexibility in forbearance or deferring.

If you are having problems paying, you should think about your loan provider and the options you have so that you don’t end up defaulting. If you fail to pay back a loan, your credit score can be hurt really badly, and it could even mean wage garnishment.


When you decide to take out a student loan, this is a serious decision. You can easily find yourself lost in the jargon and the details. By understanding your student loans and your repayment options early on, your eliminate confusion and stress.

[Featured image credit: Tulane Public Relations via Flickr, used under CC BY-NC 2.0 / Image cropped, color effects added]

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