What you need to know about student loans 


If you’re new to the world of education loans, the details can be confusing. We want to help you understand and think smart about loans so you can confidently make the right choices now and manage your education debt successfully down the road. Welcome to Loans 101, the basics on education loans and what you need to know to borrow wisely. 

Borrowing Basics

Here’s the key: Loans are borrowed money that must be paid back with interest. This means that the amount you repay will always be more than the amount you borrow. That’s why you should compare your options carefully and understand all the details before borrowing. 

Most families need help covering the costs of a college degree or training program. Personal savings and free aid like grants and scholarships (money you don’t have to pay back) can go a long way. But you may still need more financing to cover all your costs—including tuition, fees, housing, food, books, transportation, a computer, and other expenses. That’s where student loans come in.

borrowing basics

Before You Borrow

  1. It's worth repeating: Take advantage of free aid first. Apply for all available grants and scholarships. This “gift aid” doesn’t have to be paid back.
  2. Use savings and current income. Explore tuition payment plans, which spread payments out over the academic year.
  3. Accept a work-study job if it's in your financial aid offer. These part-time jobs allow you to earn money toward college expenses. Or consider a part-time job while in school. Studies show that working up to 20 hours a week may actually improve your grades, since you’ll become pretty adept at time management.
  4. Cut expenses and economize while in school. The cardinal rule? Live like a student in school so you don't have to live like one for 10 years after graduation.
  5. Understand how the interest rate and the repayment plan you choose will impact your cost of borrowing.
  6. Borrow only what you need. Your goal should be to minimize loans as much as possible. You can choose to decline a loan or borrow less than what is offered, reducing what you’ll need to pay back.

Types of Student Loans

There are 2 main loan types to choose from:

  1. Federal loans from the U.S. Department of Education:
    • Direct Subsidized loans for undergraduate students
    • Direct Unsubsidized loans for undergraduate and graduate students
    • Direct PLUS loans for parents and graduate/professional students
  2. Private loans—like VSAC’s loans for parents and students—offered by:
    • VSAC and other nonprofit state agencies
    • your college or training school
    • commercial lenders like banks and credit unions
Type of student loans

Consider Interest Rates & Fees 

Education loans are NOT created equal. Know the differences and compare.

  • Interest rates
    • Fixed interest rates stay the same over the life of the loan.
    • Variable interest rates change with the financial markets (the rate can go up!). Variable rates may seem great at first but can end up costing a lot more over the life of a loan.
    Whether a rate is fixed or variable, interest on student loans works in much the same way. Learn about how interest works. This is crucial to understanding what you’ll need to repay. 
  • Fees. Loans can have fees when the loan is made (an origination fee) or when repayment starts. And some loans may charge a fee for late payments. Look for a loan with no or low fees and ask for a full fee schedule up front.


Beware of “teaser” interest rates; few people actually qualify! Never apply without knowing what you might ultimately pay and determining all possible interest rates, costs, and fees. Learn about what to consider.

consider interest rates and fees

Consider Payment & Repayment

consider payment and repayment

Know More

  • Glossary of education loan terms. There’s a lot of lingo used to explain student loans.
  • Beware of loan scams and teaser rates. Never pay a fee for loan help. And if a loan deal sounds too good to be true, it is.
  • Minimize debt by borrowing only what you need, paying interest while you’re in school, and by paying off your loans as quickly as possible. The faster you pay down your loans, the less interest you’ll pay.