BEFORE YOU APPLY FOR A STUDENT LOAN.

The cost of going to college is getting more expensive each year and many young adults are taking out student loans to pay for their education.  Before you sign any papers for a student loan, here are some quick tips to keep in mind Federal student loans are made directly to the students. They are given to supplement the student’s personal and family resources. A federal student loan can be subsidized or unsubsidized depending on the financial need of the students. Both subsidized and unsubsidized loans are guaranteed by the United States Department of Education either directly or through guarantee agencies. Nearly all students are eligible for federal student loans which have grace period of six months. Subsidized federal student loans are given to students who have to prove their financial need for the loans. While in an unsubsidized student loan, the government does not pay the interest amount on the loan. The interest is allowed to accrue during the college and the student must pay after completion of studies.

Most people's first major loan is their student loan and they usually have little or no credit established yet.  This means that the rates you would get for the loan are higher than for a person with a good credit rating.  One way to get a better rate on your student loan is to find a cosigner with a good credit rating (such as a parent or close relative).  A cosigner shares responsibility for the loan with you, and both of your credit histories will be impacted.  Please keep in mind that your cosigner is responsible to pay the debt if you fail to pay the loan.

Shop around and compare loan features.  
If you need to take out a private loan, compare agreements offered by lenders to see which one best fits your needs.  Questions to ask include:

• What is the interest rate?
• How often will the interest rate change?
• When do repayments begin?

Congress sets the maximum interest that a lender can charge on federal loans, and most lenders do charge the maximum. Currently the maximum interest rate on new Perkins loans is 5 percent; on Stafford loans, it is 6.8 percent (but 6 percent for subsidized Stafford loans, on which the government pays the interest); and on PLUS loans, borrowers pay 7.9 percent if they borrow through the direct loan program and up to 8.5 percent if they borrow from a bank or other, non-governmental lender. Students should check these rates because they do change. The Education Department currently posts the maximum rates.

The government also imposes limits on how much money students may borrow under each type of loan program. As of July 1, 2008, the typical dependent Stafford borrower can take out $5,500 in the first year of college, $6,500 the second year and $7,500 in later years. The maximum amount an undergraduate can borrow through the Stafford loan program is $31,000.

In the wake of all the negative attention to financial aid offices this year, students might well be nervous about relying on advice they get from their colleges or about borrowing from a company on a college's list of "preferred" or "recommended" lenders.

While it is certainly the case that this year investigators for Congress and various state attorneys general uncovered questionable relationships between lenders and both colleges and individual financial aid administrators, students should still start with their financial aid offices. Many of these arrangements have since ended.