How do college loans work?

I know I'll probably need to take out loans to afford college, but I'm not sure how they work. What should I be aware of when considering college loans? Any advice on managing them would be awesome.

Sure, I can shed some light on how college loans work! It's great that you're planning ahead.

There are two main kinds of college loans: federal loans and private loans. Federal loans are issued by the Federal government, while private loans are issued by private lenders, credit unions, or state loan programs.

Federal loans usually have lower interest rates and more flexible repayment options compared to private loans. They come in two types: subsidized and unsubsidized. Subsidized loans don't accrue interest while you're in school or during deferment (a period when loan payments are temporarily put off), whereas unsubsidized loans start accruing interest as soon as they're disbursed.

Private loans often require a credit check and potentially a cosigner, especially if you’re a student without an established credit history. The interest rates on private loans can be variable, and can be much higher than federal loans. Their repayment plans may not be as flexible either.

Before you take out any loans, figure out how much you will need. Use the net price calculators that many colleges provide to estimate your total cost of attendance, minus any scholarships or grants you’re receiving.

Once you have a loan, it's important to manage it well. Stay on top of your loan balance and know who your loan servicer is (this is the company that handles the billing and other services on your loan). And make sure to create a budget so you’re prepared when it comes time to start making repayments.

Remember that you’ll be required to start making payments on your student loan after you graduate, leave school, or drop below half-time enrollment. Federal loans typically have a six-month grace period before payments start.

Finally, be sure to explore all other financial aid options before turning to loans. Apply for scholarships, look for work-study opportunities, and complete the Free Application for Federal Student Aid (FAFSA) to see if you qualify for government grants. The less you have to borrow, the better.

Hopefully, this gives you a good starting point on understanding and managing college loans.