College education is extremely important and costly in this era of economical crisis. College fees have risen to an alarming level. As the governments support is no longer there, the impact of this rise is being felt more strongly. Students normally borrow money to continue their education or just quit from this field because of the absence of resources. It is truly a disaster. If anyhow, they manage to pay their expenses, they get themselves trapped in the eternal web of interest.

There are many types of loans available in the market and many students prefer to borrow such loans.

Types of loan

There are three basic types of loan, about which undergraduate students must know. Following are the details about such loans:

Federal Loans

They are directly given by the government mostly but they also include private and alternative loans from banks or other private lenders having no federal government guarantee. It has fixed interest rate. Therefore it is gold standard for borrowers, as it allows more latitude at the time of repayment. Which is, at times, calculated using the percentage of discretionary income, not the amount owed like,” STAFFORD LOANS” which are available regardless of financial needs. Government pays the interest on these “subsidized” loans for those who are actually needy, while the student studies in some college.

If he is in school, loans will accumulate interest and he himself will pay that otherwise he can also let it be added to the principal balance.

Interest on Federal Loans

• Maximum interest rate on new Perkins loans is 5 percent.
• For unsubsidized Stafford loans, the rate is 6.8 percent.
• The rate is 5.6 percent for subsidized Stafford loans; interest is paid by the government. Interest rate has got dropped to 4.5% for the year of 2010-11 and 3.4% for the year of 2011-12

(There are certain limits imposed by the government on the amount of the money to be borrowed on each loan type).

Perkins Loans

Students having worst financial state are given these loans. The students receiving the federal Pell grants are preferred. PLUS (parental loans for undergraduate students) is also available to the parents of students.

Private Loans

If the students need more money than the federal loan program offers,” private” or “alternative” loans are also available. But have higher interest rates than the federal loans which also get change over time. The rates of interest depend on the lenders and the borrowers; therefore it is better to shop around than to accept a rate that is going to make repayment difficult. They also lack some of the protections that are given by federal loans like “possibility of temporary deferment or forbearance”.

Tips and Techniques

Once you decide to borrow a loan, first of all you must know how the recommended lender (by college, or any person) was selected and what are the terms and conditions of the loans agreement offered by the lending companies.

You must approach the concerned websites which are for the guideline of future college students. Some of the sites also provide the comparison of different loan lenders for the students to decide for the best package.