Student Loans: What you must know.

In today's labor market, it does pay to get a good college education and a student loan helps you get through college. The general expectation is you get a high paying job straight out of college and then pay back your student loan and the interest accrued over the years.

Getting a good college education is very important. Study shows that people who have a college degree earn twice as much as those with just a college degree. Getting a college degree is not only difficult for the students who have to worry about which courses to take, which subject to major in, cram for exams and finish homework and projects but also to the parents who might finance them. If the student has to worry about paying for college then it is likely that the stress levels will only increase.

Generally student loans are below the market rate and is a good deal. You also get an annual $2500 federal tax credit on the interest paid over any period which can be claimed by the parent or the student.

The federal government has a huge $50 billion student loan program and not surprisingly, the federal government provides the largest percentage of student loans. The other sources of student loans are from colleges, private lenders and state governments.

One of the major advantages of the federal student loan is that it is guaranteed.What does this mean? It means you don't need any collateral for the loan and the terms are very favorable. The only issue here is that the educational program you've enrolled in has to be approved by the government.

The most popular loan is the Federal Stafford Loan for undergraduate or graduate students. Only students can apply for this type of loan. The Federal Stafford loan is very beneficial to the students primarily because of its low interest rates. It is of two types:

Subsidized and
Unsubsidized.

In the Subsidized Federal Stafford Loan there is an income limit for the household.The major advantages of this type of loan is that the Federal government will not only pay for the interest incurred during the course of study but also during the grace period before repayment begins. If you qualify for this loan,then you've got an excellent deal.

In the Unsubsidized Federal Stafford Loan, the student must pay interest incurred at all times. The repayment does not begin till the grace period.

To find out which Federal Stafford loan you qualify for, work with the financial department of your college or University. They should be able to help you out with the paper work.

If you are a parent of an undergraduate then the Federal PLUS loan might be an alternative. The Federal Parent Loan for Undergraduate Students or PLUS, allows the parent to take a loan on behalf of their child. PLUS allows the parent to borrow the total cost of their child's education, including tuition fees, books, transport, meals etc., minus any financial aid that the child may receive. This program has no income restrictions and even bad credit may be overcome. The repayment plan is very flexible and in most cases has no payment for up to 4 years.

The only thing to note in both the Federal Stafford loan and the PLUS loan is the College or University must be approved to participate in these programs.

If your College or University isn't approved here are some of your options:

National Banks:

Many national banks like Citibank, etc. offer student loans but the repayment options are limited. Some banks may offer you a discounts if you make the payments on time and have direct deposits.

State Loans:

Most states also offer student loans. This is usually more expensive than the Federal Stafford Loan. The application involves Banks who administer the state program.

Military Loan:

If your parents served in the military then a military loan is an option and must be investigated.

College Loan Program:

Some colleges also offer loan programs and these are usually very expensive and must be considered only in an emergency.