How Student Loans Work: Student Loans For College 101

It can be very tempting to simply rush through the student loan process without taking the time to understand how it works. However, by taking the time to learn about ALL of your college financing options, you could save yourself some serious cash. has put together a mini tutorial to get you started on learning about the student loan process. Please utilize all of the other information about student loans on to learn about all of the options you DO have for financing a college education.

#1 Explore How to Reduce the Amount of Student Loans You Borrow

Student loans work in much of the same way as any other loan that you borrow. You will have to pay back the amount of money you borrow in student loans, and most of the time with interest. So first ask yourself the following questions:

1. Can I lower my monthly expenses to not have to borrow so much in student loans?
2. Is working more during my college school years an option for me?
3. Are there scholarships or grants I qualify for, and have I exhausted all of these options?

So the equation is simple, the more money you can reduce, bring in, or get by free money for college sources, the less you will have to borrow in student loans, and thus the less you will have to pay back.

#2 Exhaust Federal Loan Options First

If you do need to borrow student loans, which most likely you will, apply for the least expensive student loans first. These are generally the student loans with the lowest interest rates, and the lower the interest rate, the lower the total cost you will have to pay back after graduation. For nearly all students, the lowest cost student loans will be federal loans. You can get started applying for federal student loans by completing a FAFSA online for free at It should be noted that if you have access to a special student loan source which some members of the US Military may, the terms of those student loans can be just as good as the Federal Perkins or Subsidized Stafford.

#3 Only Use Private Student Loans If You Absolutely Need Them

Private student loans do serve a purpose in covering the costs of a college education, however they should only be utilized after all other financing options have been exhausted, and only if you absolutely need them. The reason that private student loans should be utilized as a last resort is because private student loans are typically the most expensive way to finance your college education. Privately funded student loans often have the highest interest rates and least flexible repayment terms, which is why borrowers should be ultra conservative and responsible when it comes to using this type of student loan. Unlike federal student loans obtained by completing a FAFSA, private student loans will be based upon the borrower’s credit, so individuals with poor credit or no credit may have a difficult time securing this type of loan.

#4 Never Borrow More Then You Absolutely Need

Student loans can be tempting to over-use, since student loans are fairly easy to apply for and don’t require payments while you’re in school. For many students these are the first loans in your life that you are applying for, so it can be tempting to borrow the maximum amount (even though you do not need that much). You are NEVER required to borrow the entire amount shown in your award letter, and should not borrow anymore in student loans then you absolutely need for your education costs. Remember that ALL of the money that you borrow in student loans will have to be paid back with interest, so if you borrow more than you need and spend that money on non-education items, you will have just gained an interest charge on that TV, concert tickets, pizza, and drinks.

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