You better be saving up some serious bucks, because *this is where you cue the music*: student loans are ever-increasing, and it’s not getting any better.

According to Nitro College, the average debt of a bachelor’s degree graduate in the United States sits at $37,172. You think that is a lot? The current amount of all student loan debt totals up to $1.53 trillion dollars. Wow.

Taking out student loans is inevitable in the U.S.

Repaying the borrowed money, however, should be your first priority. The key advice here is to fully educate yourself on the different types of student loans, to know what the interest rates are, and to keep track of the monthly payment amounts so you don’t have the police coming after you for unpaid loans. Let’s start from the beginning.

Federal loans vs. private loans

Before applying for a student loan know, you should know that you have two options: federal loans or private loans.

  • Federal loans are provided by the government whereas private loans are provided by your bank or credit union. It’s as simple as that.

Types of federal loans

The three types of federal loans are: Direct Subsidized, Direct Unsubsidized, and Direct PLUS.

  • Direct Subsidized is when the government covers for your interest as you are either still in school or go into forbearance or deferment—meaning, you’ve paused your payments due to unemployment or another reason.
  • Direct Unsubsidized is where the government does not cover for your interest rates.
  • Direct PLUS has a fixed interest rate which is good to avoid future high potential rates, but just know that the interest will accrue while you are still enrolled in school.

Paying back: the terms & rules

Once you graduate, there is typically a grace period to pay back the loan. Usually, the grace period starts from the time you are finished with school and ends after six to however months (depends) until it is repayment time. During this period, you have quite a bit of time on your hands to save up by working or thinking of ways to pay back the loan(s).

If you find yourself struggling with unemployment or other financial issues that are setting you back once your grace period ends, you have the options of deferment and forbearance. Yes, those two again.

  • The difference is that deferment will not hold you accountable for the accrued interest nobody wants whereas forbearance holds you accountable to pay for the interest. Normally, deferment is chosen by those who struggle to find employment and are experiencing huge hardship.
  • Forbearance is for those who do not qualify for deferment but are financially struggling temporarily. With both options, your payments are paused until a later date to give you some time to save up some serious cash.
  • Another repayment option is income-based which adjusts your monthly payment to what seems appropriate and reasonable based on your monthly paycheck and other living situation factors. Note that the income-based repayment option is available for federal loans only and hardly applicable for private loans.