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If you’re worried about how you’re going to pay for college, you are not alone. The cost of a college education continues to rise each year, and the vast majority of students are expected to receive some type of Federal aid in order to help pay for their college expenses.

While most types of financial aid don’t have to be paid back, college loans (which are often part of the financial aid package) must be paid back. Unfortunately, many students find they need to take out a college loan to supplement any other aid they might have received.

If you’ve never taken out a loan before, the process can be extremely intimidating. There are various types of loans, and if you take out more than one, you can even consolidate your loans to lower your monthly payment rates. It all sounds confusing, doesn’t it?

The following guide will attempt to explain the differences between the various college loans, what loans pay for, and that scary little word called “consolidation.” However, before you apply for a college loan you need to figure out how much money you’ll need to borrow.

Obviously, your tuition and books are vital parts of your college education. However, what about other expenses? Room and board and school supplies are necessary, and make your college experience that much easier if you have the money to pay for them.

Figure out how much the school you are planning on attending costs per year. Multiply that by four years, and add any additional expenses into the equation. That will give you a rough idea of how much you’ll need to borrow in college loans (minus any other financial aid you’ve received.)
Now, on to the fun part!
There are various types of college loans available to both students and parents. As a first-time loan borrower, the different types can be confusing.

Federal Student Loans

These types of loans can be subsidized or unsubsidized. By far the most common type of student loan, Federal student loans usually offer the best interest rates and most attractive payment plans. With a subsidized loan, the government will pay the interest charges that accrue while you’re in school. These types of loans are mostly awarded to students with exceptional financial need.

Unsubsidized loans aren’t need-based, and the student must pay the interest that accrues while they are in school. While subsidized loans may seem more attractive because of this, there are limitations to the amount of money you can borrow with a subsidized loan. That’s why many people choose to supplement their tuition expenses with an unsubsidized loan.

Private Loans for Students

If you didn’t qualify for a federal loan, or you need to borrow additional money to supplement your federal loans, private lenders are another option you can look into. Keep in mind that there are a variety of private lenders who offer college loans, but interest rates are generally higher with private loans vs. federal loans.
Make sure to exhaust your federal loan options completely before turning to a private lender.

Parent Loans

Parent loans are a great option for students if you don’t have a decent credit score in order to qualify for a loan yourself. There are several types of parent loans. Like student loans, parent loans can be obtained from the government or private lenders.
The federal Parent Loan for Undergraduate Students (commonly referred to as the PLUS Loan) is by far the most common type of parent loan available. Since it’s a federal loan, the interest rates are usually much lower – plus, parents can borrow up to the full cost of tuition for their child’s school (minus any other financial aid received.)

Unfortunately, PLUS loans are not subsidized, meaning your parents are responsible for paying the accumulated interest charges while you’re attending school. Additionally, repayment on a PLUS loan begins 60 days after the child is enrolled in school, but you can take up to 10 years to pay the entire loan back.

Private Loans for Parents

Just as with students, parents can also search around for private lenders to help contribute towards their child’s education expenses. It’s recommended that parents apply for a federal PLUS loan before considering a private loan, because interest rates are higher if you borrow from a private lender.
Rather than being based on financial need, private loans are based on the parents’ ability to repay the loan in a timely and consistent manner. In other words, parents must have a good credit score in order to be eligible for a private college loan.

What Does It Mean to Consolidate My Loans?

You’ve learned about the various type of student and parent loans available to help pay for your college expenses. But what does it mean to consolidate your loans? Also called refinancing, when you consolidate your student loans you are doing so in order to lower your monthly payments and possibly lower your interest rate as well.

Keep in mind that student loans and parent loans cannot be consolidated together. However, if you have several student loans and would like to combine them into one payment, consolidating your loans might be the right choice for you.
Generally, you can only consolidate your student loans if you are already out of school or if you drop below half-time attendance at the school you are attending. Additionally, you must already be repaying your loans on a consistent basis or be within the grace period allowed on your student loans.
If you do plan to consolidate your student loans, you need to check with your individual lenders to see what programs they offer for loan consolidation. While consolidating student loans isn’t for everybody, it can be a viable option for students who have several loans and want to reduce their monthly payment and interest rates.

While this may seem like a lot of information to take in at one time, now that you are aware of the various college loan options available to you and what it means to consolidate your loans, you are more prepared for the process. As long as you keep the above guidelines in mind and research your loan options thoroughly, you should be well on your way to obtaining a quality college education.