Student Loan Basics: What Every College Student Needs to Know Before Borrowing

Student loans can help make college possible — but they can also turn into a financial burden if you’re not careful. Before you sign anything, it’s important to understand how student loans work, what types are available, and how to borrow smart.

This guide breaks down everything you need to know, in plain English, so you can make confident decisions about paying for school.

What Are Student Loans?

Student loans are borrowed money you use to pay for college-related expenses — like tuition, books, housing, or transportation — that must be paid back with interest. There are two main types:

• Federal Student Loans – provided by the government
• Private Student Loans – offered by banks, credit unions, or online lenders

Start with federal loans before considering private ones. They usually have lower interest rates and more flexible repayment options.

Federal Student Loans: What You Need to Know

To apply for federal loans, you must fill out the FAFSA (Free Application for Federal Student Aid) at fafsa.gov.

Here are the main types:

1. Direct Subsidized Loans

• Based on financial need
• The government pays your interest while you’re in school
• Best option if you qualify

2. Direct Unsubsidized Loans

• Not based on need
• Interest starts building the moment the loan is disbursed
• Available to all undergraduate and graduate students

3. PLUS Loans

• For parents of students or graduate students
• Requires a credit check
• Higher interest rate than subsidized/unsubsidized loans

4. Perkins Loans (phased out but still in some repayment cycles)

• Previously for students with exceptional financial need

Private Student Loans

Private loans should be your last resort — only after you’ve maxed out federal aid. These are based on credit history, may require a cosigner, and come with higher, variable interest rates.

You’ll also lose access to key benefits like:

• Income-based repayment
• Federal loan forgiveness programs
• Deferment or forbearance in case of hardship

How Much Should You Borrow?

Only borrow what you absolutely need. A good rule of thumb: Don’t borrow more for your entire education than you expect to make in your first year after graduation.

Estimate your total college costs, subtract scholarships, grants, and work-study earnings, and borrow the rest — carefully.

Student Loan Interest: How It Works

Interest is the cost of borrowing money, and it adds up over time. Federal loan rates are fixed and set by Congress each year.

Unsubsidized loans start accruing interest while you’re in school. If you don’t pay it off, that interest gets added to your balance — a process called capitalization.

Repayment: What Happens After Graduation?

Federal student loans usually give you a six-month grace period after graduation before repayment begins.

Repayment options include:

• Standard Plan – fixed payments over 10 years
• Income-Driven Repayment Plans – payments based on your income
• Graduated Plan – payments start low and increase over time
• Extended Plan – up to 25 years to pay off loans

Private loans may have different repayment rules, depending on the lender.

Tips for Managing Student Loans Wisely

• Don’t borrow more than you need
• Make interest payments while still in school if possible
• Explore scholarships and grants to reduce borrowing
• Know your servicer and loan terms
• Avoid for-profit schools with high costs and poor outcomes
• Consider a side hustle or part-time job to help cover costs

Final Thought

Student loans are a useful tool, but they come with long-term responsibility. Borrow wisely, stay informed, and don’t let debt take over your future.

Your education is an investment — make sure the way you fund it is just as smart.