Last year the New York Times claimed that a “master’s degree is the new bachelor’s degree“. More and more as qualified graduates look for placement in the career they want, they are halted by a locked gate at the door that says “bachelor’s required, master’s preferred.”

by Alla G via Flickr

Secondary education has always been an important financial decision, but now that it takes an extra two years of schooling to be considered competitive, students practically have to be finance wizards to make ends meet.

The Project on Student Debt reported that the average college graduate today lugs around $24,000 in loans along with their degree — and that number very may well increase if companies keep inflating credential requirements.

For most students, loans are strange machines that buzz and chirp without their understanding how. To give those students who are about to enter college (for the first or second time) here is a brief guide to the different kinds of loan options available, as well as some important information about how they work.

For the completely uninitiated, loans are money borrowed from an institution that has to be paid back over a period of time, plus a percentage more for borrowing it, called interest. Interest rates (the percentage of interest you pay each statement) are one of the key aspects of a loan to consider when deciding between options. Basically, there are three kinds of loans: Federal, State, and Private.


These are loans issued and serviced by the federal government, namely:

Direct PLUS

These loans have different eligibility requirements and repayment options, so students should research which suits them best. Stafford loans are widely available, but some may or may not be subsidized — meaning that students won’t pay interest on the loan until have they graduate — depending on financial need. Perkins loans are given to low-income students and have very low interest rates, while Direct PLUS loans are loans that parents of students can take out on the student’s behalf.


State loans are more or less straightforward and have reasonable interest rates, but are sometimes difficult to find, as the names are usually different in every state. For a comprehensive list of state loans, visit Student Aid on the Web.

Generally, students will apply for state loans through their school.


Private loans can get tricky, and often have deceptive interest rates. While it might be easier to get approved for a private loan, the interest rates are often extremely high, or variable, and students will end up paying much more over time than they have to.
Also private loans will never be subsidized, so students will be charged interested for the time they are in school as well as after they graduate. There are hundreds of private loan lenders and there are no application deadlines to worry about, so if a student must have an immediate loan, a private loan is sometimes a good solution.

In general follow these tips when applying or looking for loans:

• Federal over private, unless you have no other option
• Scholarships over loans, unless you have no other option
• ALWAYS, ALWAYS, ALWAYS pay loans back on time.

This is a guest post by Eliza Morgan who is a full time blogger. She specializes in writing about business credit cards. You can reach her at: elizamorgan856 at gmail dot com.

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