It used to be enough to have a high school diploma in order to get a good job. These days, a college degree is almost mandatory for any sort of high-paying job. Unfortunately, college is very expensive. Even when you go to a state school with discounted in-state tuition, college costs often exceed those of cars and homes. While most families do not have the means to pay cash for a multi-year college education, help is available in the form of a school loan.

The school loan comes in two different flavors. The need-based school loan is for borrowers who require assistance with paying for an education and are designed to meet some of the educational costs. The non-need based school loan helps to pay a portion of the family contribution when cash is scarce.

For both graduate and undergraduate students, the Federal Stafford Loan offers a simple-interest, collateral-free, government guaranteed school loan. While the student is still in school, interest accumulates at a lower rate. The interest rate is fixed and does not adjust up or down during this time. When the Stafford school loan is taken out, there is an interest rate cap that is imposed. At no time during the life of the loan can the interest rate rise above this cap. When the student leaves school or graduates, they are given a six-month grace period before they need to begin repayment of the loan.

The Federal PLUS school loan, or Parent Loan for Undergraduate Students, is similar to the Stafford loan. It is non-need based, and is also no-collateral, simple interest, and government guaranteed. PLUS loans allow parents of undergraduate students to borrow up to the full amount of college costs, less any financial aid, grants, or scholarships. PLUS loans are up to 10 years in length and there is no penalty to prepay the loan in full. Parents can begin payment while the student is still enrolled in school.

These loan options sometimes do not cover every penny of all college expenses. When a gap exists between loans and actual costs, alternative loans can be sought. Many lenders offer private student loans that are similar to the government student loans. They have low rates, no fees, deferred payment, and multiple repayment options. Another option is for parents to borrow against their home equity to finance a college education. While this option offers income tax advantages, a home equity loan does not have the same kind of flexibility as federal student loans. For example, when financial hardship arises, federal student loans can be placed in forbearance. Home equity loans cannot. As well, loans can be consolidated into one student school loan that has flexible repayment options. Home equity loans generally only have one repayment option.

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