Janice Madden

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 loans are available to students who demonstrate, via the information they provide on the Free Financial Aid Form (FAFSA), substantial financial need. There is a finite limit on the amount of subsidized loan money students can borrow. However, the government pays the interest on such loans while students are enrolled in college, thus the term “subsidized”.

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.

In most cases, students who qualify for unsubsidized loans need the maximum they are allowed to borrow. If they require funds beyond the subsidized loan maximum, they may turn to unsubsidized loans for additional assistance.

Students can apply for the Stafford Loan or the Perkins Loan. Neither has to be repaid while students remain in college.

There is also the PLUS loan, which can be taken out by parents. The PLUS loan offers a relatively low interest rate, but requires repayment to begin sixty days after the loan is awarded.

Student loans must be repaid. Even bankruptcy does cancel repayment obligation. Lenders will almost always work with folks having financial problems if they are making a genuine effort to repay their loans. However, those who attempt to avoid repayment face wage garnishment, the withholding of income tax refunds, and other serious penalties.

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.