Putting a child through college can be very challenging, financially.  According to The College Board, a non-profit membership association, the average cost of sending one in-state student to a four-year, public institution in 2006 was roughly $13,000 per year including tuition, room and board, and other fees for the year.  This figure accumulates to over $50,000 over the course of four years.  The cost for out-of-state and private institutions are significantly higher.  However, there are several financial options for current students, parents, and graduates needing to pay back loans that are worth reviewing.

Types of Loans

Generally there are two categories of loans - Federal and Private - with several options for both students and parents within each.  You will typically find the best terms and interest rates from government subsidized loans, as the risk for default is guaranteed by the U.S. Department of Education either directly or through guaranteed agencies. 

The various college financing options available include:

Federal Student Loans

Federal student loans are made to students directly for limited amounts.  These loans are not required to be paid back until after the student completes school, as long as the student is enrolled part-time status. If a student drops below part-time status, the loan account will begin its 6 month grace period. By re-enrolling at least as part-time status, the loan will be deferred.  BUT if the student drops below part-time status again, there is no longer a grace period.

Federal Parent Loans

Usually Federal Parent Loans are known as PLUS loans (formerly standing for "Parent Loan for Undergraduate Students"). Typically parents can borrow much more than a student — usually enough to cover any gap in the cost of education. However, payments start immediately without a grace period.

Parents are solely responsible for repayment on these loans, not the student. The loan is taken under the parents' name, and therefore the parents credit rating is affected by repayemt. Also, keep in mind payments for year one may be manageable, but each year that amount will increase to cover funds for the current year.   The "year 4" and "year 5" payments can easily snowball without careful planning as to afordability throughout the entire college years.  What sounds like a "manageable" debt load of $200 a month in freshman year can mushroom to a much more daunting $1000 a month by the time five years have been funded through loans. Parent Loans can be expensive with taking into consideration immediate repayment and the ability to borrow substantial sums of money.

Private Loans

Private Loans are not guaranteed by a government agency, and are made to students by banks or finance companies.  Private loans usually allow higher loan limits than student federal loans, ensuring the student has enough money to cover all expenses.  Private loans generally offer a grace period, with repayment beginning six to twelve months after graduation.

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