What to Know About College Debt Before Going to College

November 19, 2020

With the rising cost of college education more students are finding it necessary to take out loans to help them reach their academic and career aspirations. There are many types of educational loans available to students, however, the loan amounts, interest rates, and terms vary. Many consider educational debt to be "˜good' debt, since it's an investment in your future increased earning potential, however, as with anything involving money, you want to take an eyes wide open approach and continually reflect on the big picture (i.e., how much of that first "˜real world' paycheck will be going to pay back that borrowed money).

What is debt?

Debt is money that is owed or due, most commonly the result of taking out a loan (a sum of money which is borrowed and expected to be paid back with interest). Think student loans, car loans, credit cards, and mortgages. For college students the most common types of debt are student loans. The current (2019) U.S. Student Loan Debt totals roughly 1.6 trillion dollars with the 4-year college student graduate averaging approximately $29,000 in student loans.

Understanding Federal Student Loan Types

Federal student loans are awarded by schools and the U.S. Department of Education is considered to be your lender. Federal loans are often considered advantageous because interest rates are fixed, no credit check is needed, and repayment doesn't begin until after you leave college or drop below half-time.

  • Direct Subsidized Stafford Loans are made to eligible undergraduate students who demonstrate financial need to assist with the costs of higher education.
  • Direct Unsubsidized Stafford loans are made to eligible undergraduate, graduate, and professional students, but eligibility is NOT based on financial need.
  • Direct PLUS Loans are made to graduate professional students or parents of dependent undergraduate students to assist with education costs not covered by other financial aid. Eligibility is NOT based on financial need, but a credit check is required and additional requirements must be met to qualify.

Understanding Federal Loan Repayment

You're required to repay your loans, so it is important to understand your options and responsibilities. Several different federal loan repayment options are currently offered, including the standard repayment plan, graduate repayment plan, extended repayment plan, revised pay as you earn plan, income based repayment plan, income-contingent repayment plan, and income-sensitive repayment plan.

If you need help making decisions about your student loans, you can use the Loan Simulator to estimate your monthly repayment.