Understanding Student Loans: What Parents and Students Should Know Before Borrowing

For many families, paying for college means looking beyond savings and scholarships—and that’s where student loans come in. But before signing on the dotted line, it’s important to understand how loans work, what repayment will look like, and how borrowing fits into your bigger financial picture. Whether you’re a student preparing for your first semester or a parent helping to finance your child’s education, here’s what you should know.

Types of Student Loans

There are two main categories of student loans: federal and private.

• Federal Student Loans are issued by the U.S. Department of Education and often offer lower interest rates and more flexible repayment options. These include:

  • Direct Subsidized Loans – For undergraduate students with financial need. The government pays the interest while you’re in school and during grace periods.

  • Direct Unsubsidized Loans – Available to undergraduates and graduate students, regardless of financial need. Interest begins accruing immediately.

  • PLUS Loans – For graduate students or parents of undergrads. These require a credit check and typically have higher interest rates.

• Private Student Loans are offered by banks, credit unions, or other lenders. They often depend on your credit score and may have less flexible terms. These should typically be considered only after exploring all federal loan options.

Understanding Interest Rates

Interest rates can significantly impact the total cost of your loan over time.

• Federal loans usually have fixed interest rates set by the government each year.

• Private loans may have fixed or variable rates—variable rates can rise over time, increasing the cost of your loan.

It’s important to compare rates, understand how interest is calculated, and know whether interest will accrue while the student is in school.

Repayment Options and Grace Periods

Repayment for most federal loans doesn’t begin until after graduation, typically with a six-month grace period. Federal loans also offer several repayment plans, including:

• Standard Repayment – Fixed payments over 10 years.

• Graduated Repayment – Payments start low and increase over time.

• Income-Driven Repayment – Payments based on income and family size, with possible forgiveness after 20–25 years.

Private loans often don’t offer the same flexibility, so it’s important to understand the terms before borrowing.

How Loans Fit into College Financing

Loans can be an important tool for covering college costs, but they should be used strategically:

• Start with a budget. Understand your total cost of attendance, subtract scholarships, grants, and savings, and then determine how much you need to borrow.

• Only borrow what you need. Just because you qualify for a certain amount doesn’t mean you should take it all.

• Understand who’s responsible. With Parent PLUS Loans and co-signed private loans, parents may be legally responsible for repayment, even if the student doesn’t finish college.

Managing Debt Responsibly

Taking on student loans is a serious financial decision that can affect your future. Here are a few final tips:

• Talk about the long-term impact. Students should understand what monthly payments will look like and how long repayment will take.

• Plan ahead. Start thinking about career paths and earning potential to assess how manageable the debt will be.

• Keep communication open. Families should work together to review options and make borrowing decisions that align with their financial goals.

Final Thoughts

Student loans can help make higher education possible—but it’s essential to understand them before borrowing. By knowing your options, reading the fine print, and planning ahead, you can avoid surprises and make smarter decisions that support your long-term financial well-being.