Student Loans Simplified

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Selecting the most appropriate college loan(s) will help students for their education and avoid an unpleasant experience when repayment becomes due. Failure to comprehend the options, conversely, may well lead to unpleasant surprises and serious financial difficulties.

There are two main types of student loans; subsidized and unsubsidized. The important difference between the two is who pays the interest while a student is enrolled in college.

Subsidized student loans are available to students who demonstrate significant financial need. There is a ceiling on the amount of subsidized loan money students can borrow, however the government pays the interest on such loans while students are enrolled and during the first six months thereafter.

Unsubsidized loans are available to all students, regardless of financial need, and are available in far larger amounts. But, students, not the federal government, assume responsibility for the interest payments.

Generally, students who qualify for unsubsidized loans need the maximum they are allowed to borrow. If they require additional funds, unsubsidized loans are also available to them.

Students can apply for the Perkins Loan or the Stafford Loan. Payment on each begins after a student has graduated or has been away from college for six months. This six month “grace period” may be extended at the discretion of the individual lenders.

In addition, there is also the PLUS loan, which can be given to parents. The PLUS loan requires repayment to begin almost immediately, but interest is reasonable.

Please be aware that student loans must be repaid, without exception. Even bankruptcy does not free borrowers of the obligation of full repayment. Generally, lenders will work with anyone making a good faith effort to repay their loans, but those who avoid contact with lenders or simply refuse to make payment may be subject to harsh penalties which including wage garnishment and the withholding of income tax refunds.

Because a college degree will increase your lifetime income by an average of nearly $1 million, it’s a great investment. But, you certainly want to shop for the best terms you can get and avoid the temptation to borrow more than is necessary.

About the Author: Janet Madden is the Director of Guidance at a large, urban high school. In addition to working with high school students, she advises adults in her school’s evening programs on online colleges and accredited online degree programs.

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