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loansBy now you’ve heard about the horrors of excessive student loans. Many students in recent years have been set up for life-long financial trouble by easily obtained, difficult to repay loans. If you don’t want to be one of them, you should really only consider student loans after you have sourced any and all free money opportunities: scholarships, grants, and Great Aunt Martha’s secret stash of silver dollars.

If, and only if, you still need further aid to fund your college education, seek out student loans. Remember, this is a huge commitment. You will live with these loans for years, and sometimes even decades! In order to understand student loans, there are a few things you need to understand.

Know what kind of loan you are applying for

Plus loans— These loans are strictly for parents of students. Regulated by U.S. department of eduction, they can often be trusted to have decent rates. The parent(s) applying must have good credit. Maximum loan amount is based on the cost of attendance at a particular institution.

Stafford loans— These variety come in both subsidized and unsubsidized. They are both federal loans eligible to students that are going to accredited schools that participate in Title IV funding (look for that when choosing an institution). Loan limits vary depending on if student is deemed dependent or independent.

Perkins loans— Set by government at 5%, these are exceptional need-based loans available to undergraduate and graduate students. Not all schools participate in this government program, in which your school becomes the lender. Undergraduates may borrow up to $5,500 per year according to 2014. https://studentaid.ed.gov/types/loans/perkins.

Private loans—These often come with a very high interest rate. However, they are not need-based, so they are available to everyone. Most depend on credit scores. Some rates are variable (meaning they change frequently), so buyer beware – private loans should only be a last-ditch necessity.

Read the fine print

Many federal loans offer a grace period of 6 months after completing education. Some may offer a period of deferment (a postponement of payment) when in school for at least half-time. Deferments may be helpful when considering going back to school after a time of working or when considering graduate school. This is a real benefit, as not having to pay a few hundred dollars a month will alleviate a lot of stress when pursuing an advanced degree or looking for work.

Repayment options and loan interest

Sure, who’s thinking about this right now? You need money for college; all you’re thinking about is loan approval. Please consider this stuff now! Remember, this is just like any other loan, or credit card – even if you’re paying it off, interest is getting stacked on top of the principal.

Here’s the deal: you may think, oh swell, my interest rate is only 4.5%, that’s a lot better than my Macy’s credit card at 22% right? And yes, you are right. However, repayment on a loan this big is complicated. Your $300 credit card bill is definitely easier to pay off, even with 22% interest. One of the complicated issues is that most loan holders (both government and private) will not allow for “paying down the principal” (say, unlike house mortgages). That means this interest rate stays with you for the life of the loan, and depending on your chosen repayment plan, can accrue interest every month. You may end up paying thousands more than the principal amount.

Final words

Maybe you’ve been hearing about loan forgiveness or cancellation: “Don’t worry, they’re going to forgive all these loans eventually!” And it may be true, to a limited degree. Depending on many factors, such as your job, public service, disability or other circumstances, you may have options to lower or have your loan completely disappear!

But don’t count on it. If you take out loans, you’re going to have to pay them back. Think twice before signing those papers, and make the smartest value choice for you.