Marti Bloom

Taking advantage of the right college loans can help students cover their higher education costs without going into major debt. And, both online degree and traditional college students may avail themselves of these loan programs.

It is critical that students understand that making poor student loan choices can be very costly. Here are a few of the things they should know to avoid financial problems.

Student loans may be subsidized or unsubsidized. Subsidized loans require students to have financial need as defined by a formula set by Congress. There is a ceiling on subsidized loans, but interest rates are very low because the government subsidizes the lenders. Typically, students begin repayment not later than six months after leaving college.

Unsubsidized loans, however, are available to all students, regardless of their financial standing. Overall, unsubsidized loans are available for larger amounts than are those which are subsidized, and unsubsidized interest rates are somewhat higher.

Generally, students who are eligible for for unsubsidized loans require the maximum they are allowed to borrow. If they require additional funds, they may also take out unsubsidized loans.

The Perkins Loan and the Stafford Loan are most popular. Students begin repaying these loans 6 months after leaving college. The “grace period” of 6 months is routinely extended to students, as a courtesy, by individual lenders.

Another option is the PLUS loan, or so called Parent Loan, which can be given to parents with appropriate credit. The PLUS loan, like most others, features a fairly low interest rate. Repayment begins sixty days after the loan award date.

It is important to understand that student loans must be repaid. Dropping out of college or declaring bankruptcy, for instance, does not materially impact the repayment obligation. However, lenders do work with borrowers who contact them if they are facing economic difficulty. Those who avoid contact with lenders and fail to meet their obligations, conversely, may have their income tax refunds withheld or their salaries garnished.

Traditional college students and online college, students alike can benefit from the wise use of student loans. In fact, most students find that student loans…investments in themselves…are among the the best investment they make. But borrowers must remember two things. The first is that borrowing should be limited to cover the costs of educational necessities (not for luxury items). The second is that there are likely to be serious consequences if they do not repay their loans as agreed.