These Student Loan Tips Should Be Required Reading Before College

Make sure you know *exactly* what you're getting into.

Going to college is a huge milestone! On the one hand, for many of us it's our first taste of adult life. But on the other hand, taking out loans for school can leave you with thousands of dollars in debt. So before you borrow, it's a really, really good idea to get the lowdown on student loans and make sure you totally understand what you're getting into.

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In a nutshell, student loans are funds you borrow from the federal government or a private lender to pay for your post-secondary education. For federal loans, you apply through the Free Application for Federal Student Aid, which is the same form you use to apply for financial aid.

To get a private loan, you need to go through a private lender or bank, and they will pull your credit report to determine if you're eligible for a loan.

All of this can add up to a pretty penny but remember, school is an investment in yourself and a great opportunity to learn who you are and about the world around you. And it's totally normal if you need a little financial help to make it happen.

Here are 15 things you should know before signing up for student loans:

1. Scholarships and grants are ~free money~, so apply for as many as you can.

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First things first, don't even look at a loan application before applying for scholarships and grants. Research and apply for as many as you can, both before you start college and every year that you're in school. Scholarships and grants can shrink the amount that you need to borrow and your future self will thank you. To help you get started, I rounded up some scholarship-searching tips.

2. Your student loans should be used for education-related costs only.

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Just in case it needed to be said: No, it's not usually a good idea to use your student loan money to pay for spring break or a new car. But in addition to covering your tuition, you can use student loan funds to pay for your room and board, books and supplies (including that computer that you need for writing all your papers), and any other equipment that you need to complete your coursework.

3. You will end up owing more than you borrowed.

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Not only will you have to pay back what you owe, but you'll also have to pay fees and interest. All federal loans charge a loan fee (as of now it’s at 1.057% for direct student loans for undergrads). Interest is compounded, or added to your loan, daily, and these interest charges start getting added to the amount that you owe while you're still in school. But depending on which type of loan you take out, you *might* not have to worry about interest until after you leave college.

4. Understanding the different types of student loans will help you determine which loans make the most sense for you.

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To help you get a leg up on loan types, here's a crash course in the different kinds of federal loans that are currently out there:

• Direct subsidized loans: These loans are offered to students who show a financial need. In the world of federal student loans, subsidized means that the government is paying for the interest charges that build up while you’re in school.

• Direct unsubsidized loans: These loans are offered to students who don't qualify for direct subsidized loans. They are unsubsidized, which means that if you take on one of these loans, you're responsible for paying the interest that accrues while you're in school.

• Direct PLUS loans: These loans are usually offered to graduate students and to parents of undergrads who take on loans to help cover their child's education. Unlike the other kinds of federal loan, direct PLUS loans do require a credit check.

• Direct consolidation loans: If you take out multiple federal loans, you can consolidate them so you only have one monthly payment to worry about.

Private loans aren't listed on your financial aid package and are usually obtained through a private bank or lender. Since they come from a variety of institutions, private loans can vary a great deal in their terms and interest rates.

5. To take out private student loans, you might need a cosigner.

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If you're looking into a private student loan, you might not have enough credit history or meet the lender's income requirements to qualify. In that case, you'll need a cosigner to take out your private student loans. A cosigner is someone (usually a parent, guardian, or awesome family member) who agrees to pay back the private loan if you don't. It's a pretty big responsibility, which is why it can be a good idea to have someone in mind you trust (and who trusts you) who will qualify and be approved for the loan.

6. And private loans tend to have higher interest rates than federal loans, which means they're likely to cost you more over time.

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Private loans can useful when it comes to covering the cost of your education. Just remember, their interest rates are generally higher compared to those of federal loans, which makes private loans pricier in the long run. For an undergrad, the federal interest rate on a fixed federal student loan is 2.75% for the 2020–21 school year, while private student loans can have fixed rates from 3.34% up to 14.99%.

Additionally, if you take out multiple loans, you won't be able to consolidate private loans with federal loans either. You can, however, refinance private loans in the future if want to lower your repayment rates.

7. But everyone's finances are different, so shop around to find the best loan for you.

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Now that you know more about the kinds of loans that are out there, your next step is finding the loan that works for you and your pockets.

“Compare your loan options,” says Elaine Rubin, director of corporate communications at Edvisors. She also suggests taking into consideration:

• The cost of each loan in terms of the interest rate or APR

• Origination or loan fees assessed on the loan

• Eligibility criteria for the borrower of the loans and whether you need to meet certain enrollment minimums (like half-time enrollment in your program)

• The terms and if there are any borrower benefits associated with your loans like interest subsidies, variety of repayment plans, loan postponement options, or forgiveness or discharge options available

“Just because federal options are offered to you, it doesn’t necessarily mean you shouldn’t compare private student loan options,” says Rubin. “It may turn out that federal student loans may be the best option but you want to do the research now to make that determination.”

8. And bust out an online student loan calculator to see what your monthly payments will be.

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It’s important to have an idea of what your repayment plan will look like before borrowing a loan. To figure it out, go to a student loan calculator and plug in the amount you’re thinking about borrowing, the interest rate, and length of the repayment term.

Your crystal ball/calculator will show you what you'll have to pay on a monthly basis and how much interest you'll have. Getting a peek into your financial future before committing to a loan is a smart move and will help ease your postgraduation anxiety. Get started with this student loan calculator from SmartAsset.

And if you want to go a little further, you can also look up salaries for entry-level jobs in your field on sites like Indeed to give you a better idea of what your financial picture might look like after graduation.

9. You don't have to take out the maximum amount you're offered. Instead, it's usually better to only borrow what you really need.

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Feel free to say no to big loans, even if they cover all your costs. Thanks to interest charges and fees, repayment can be easier if you borrow as little as you can. Have a serious discussion with your parents or guardians about how much they can afford to contribute toward your education and you might also look into any work-study programs or consider getting an outside job while you're still in school. Having a loan cover all your costs may feel good in the moment but when repayment begins, it can come back to kick you in the…wallet.

10. If you take out multiple loans, keep a list so you don't lose track of payments.

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Especially if you're borrowing from a hodgepodge of private and federal loans, some bills can slip through the cracks of your memory. And after graduation, life picks up fast and it can be hard to remember all the loans you used. It's up to you to track them down and pay your lenders. So throughout college, keep a list of all the loans you take out. That way, when you graduate, you'll know who you borrowed from and avoid missing payments (which can hurt your credit scores).

11. If you take out federal student loans, there are a few different payment plans you can choose from.

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After you get that degree, check out studentaid.gov to find a federal student loan repayment plan that fits your situation. There are currently a few different kinds of plans available:

• The standard repayment plan: On this plan, you pay a set amount per month until your loan is paid off, typically over about 10 years.

• The graduated repayment plan: On this plan, you start paying a smaller monthly amount, which gradually increases every two years until the loan is paid. That typically takes about 10 years. This plan might make sense if you're planning to go into an industry where your pay starts lower but you can reasonably expect to be earning more in a few years.

• Income-driven plans: On these plans, you pay a percentage of your income each month. These plans can take 20 to 25 years to complete.

For private loans, since they're offered by a variety of lenders, your best bet is to ask your lender about their particular payment plan options.

12. When you're looking at repayment plans, be aware that longer terms mean you'll pay more in interest.

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Some lenders will set you up with a repayment plan that lasts about 10 years while others might give you 20 years or more to pay off your loan. And while it's always nice to have time to pay down a bill, “note that longer repayment terms, while bringing a lower monthly payment, will mean a higher total cost of borrowing because you’re paying interest for a longer period of time,” says Kevin Walker, publisher of CollegeFinance.com.

And if you realize at any time that the repayment plan you chose isn't really working for you, or if you're ever having a tough time making payments, you can get in touch with your lender to ask about switching plans or other options that can help you avoid missing payments or defaulting on your loan.

13. And if you're planning to work in certain fields, look into student loan forgiveness programs.

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If you have federal student loans, you might be eligible for public service student loan forgiveness if you go into a job with the government or a qualified nonprofit.

There are also career-based programs out there designed to help you pay down your loans like the National Health Service Corps — which is for medical health professionals — the Nurse Corps Loan Repayment Program, and the Teacher Loan Forgiveness Program. Either way, if you think you might qualify for one of these programs, it can be well worth looking into.

14. Paying your student loans on time every month can actually help build your credit score.

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After graduating from college, your credit score may not be where you want it to be and that's pretty normal. But a great way to raise your score is to make consistent monthly payments on your loans. This is because your on-time payments add positive information to your credit report and show lenders and credit card companies that you're a responsible borrower. And having a healthy credit score can help you out when you're applying for an apartment, opening up a credit card, or getting a car loan — so it's kind of a big deal.

15. Finally, there’s often a grace period before you have to start repaying your loans (thank goodness!).

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Most of us don't have a six-figure job waiting for us after graduation, but the good news is many student loans give you a little breathing room before repayment starts. For federal loans, your payments are usually deferred, which means during school and six months after graduating, you wont *have to* pay anything.

“But with the exception of subsidized federal loans, your loans will start accruing interest from day one,” says Rebecca Safier, certified student loan counselor and financial aid expert at Student Loan Hero. “When your loan enters repayment, that interest is added onto your balance.” This means you'll get hit with a bigger balance once the repayment period starts. To keep your debt down, you might want to make payments while you're in school, if you can. It doesn't have to be a lot either. Even paying small amounts every month could help chip away at the interest.

Do you have a student loan tip you learned along the way? Spread the knowledge in the comments below.

For more money tips and tricks, check out the rest of our personal finance posts.