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Student loans are loans that are offered to students to help them in paying for the expenses of education—mostly higher education. Usually student loans are offered at a lower rate of interest by banks and other financial institutions. Students usually use student loans in conjunction with grants and scholarships to pay for their educational expenses.

In the US the following features characterize student loans:

• Federal student loans that are offered directly to students: Such loans are offered to the student directly and he is liable for payment of the loan. Sufficient time is allotted for repayment to begin.
• No payment is to be made while enrolled in at least half time status: Such student loans are offered to students enrolled in half time status. If they drop below that status, the student loan account would retrace back to a six month grace period. If the student in such a scenario re-enrolls for the program, then the loan can be deferred, but in case he drops below the half time again, the loan is taken back and is no longer in vogue.
• Federal student loans that are offered to parents: These loans are of much higher limit, but their payments have to begin immediately
• Private student loans that are offered to students and/or parents: These loans have higher loan limits and no payment need to be made until the student has graduated. The interest would start to accrue immediately though.

A borrower should always be careful about how much he/she is borrowing because at the end of the day, the student is solely responsible for repayment. So, before taking a student loan, one should carefully choose the lender, understand the clauses properly and quote the amount that is absolutely essential. If you’re a student, you should try to limit your student loan so that your debt repayments does not account for over 10% of your estimated monthly income after you graduate. Try to understand that you’ll pay about $12 every month for every $1,000 of student loans taken for a period of 10 years. In case you opt for a private student loan, then you’ll have to pay about $16 every month for every $1,000.

You shouldn’t borrow more than what you expect to earn during your first year after you graduate. This is the general thumb rule that a student may consider referring to before borrowing.

If you’re a parent, always try to keep all your loan payments to 35% or less of your gross monthly income. In case you try to borrow more than 40% of your gross monthly income, there is a high probability that your application will be rejected.

Whether you’re a parent or a student, you should opt for a federal loan rather than a private loan.

Higher education is a very important decision in one’s life and the finances involved should be carefully planned out and you must have a detailed payback plan laid out even before you apply for a loan. Almost all countries encourage its citizens to apply for educational loans and opt for higher education as education is the building block of every society. However, student loans must be taken from the right agencies and must be utilized judiciously.

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