The Lowdown on Loans

Know your financial obligations

By Crystal Conde

You've filled out the FAFSA, determined how much money your family should contribute to your education, and begun looking into financial aid options. If you're considering taking out a loan, be sure you know your financial obligations. Borrowing money carries with it a great responsibility. The following information, compiled from the Federal Student Aid Web site, will help you determine whether taking out a loan is right for you.

Once you've committed to taking out a loan, you'll be required to sign a promissory note. The promissory note is a written promise that you will pay, at a fixed or determinable future time, a sum of money to a specified bearer. In the case of student loans, the note will outline that you must repay the loan, except in cases of cancellation of the loan. Keep in mind that you have to pay off the loan even if you don't complete your education. You're taking a big step, so be sure you understand all the terms of the promissory note. Keep a copy of it in a secure place because you'll refer to the promissory note if any questions about your obligations arise.

The entity that will service your loan depends on the type of loan you have. When borrowing a Perkins Loan, the school that lends you the money or an agency employed by the school will service the loan. The Direct Loan Servicing Center will handle a Direct Loan, and your lender or its servicing agent will service a Federal Family Education Loan (FFEL).

Borrowing a Direct Stafford Loan or an FFEL will require you undergo entrance and exit counseling. You must participate in an entrance counseling session before you receive your first loan disbursement. You'll receive information about the importance of repaying your loan and the rights you possess as a borrower. In the exit session, you'll be presented with the available loan repayment options.

When you do begin repaying your loan, you must make the full payments (agreed to in the promissory note) on time. Partial or late payments may cause you to go into default, which could have serious financial repercussions. In addition, don't wait for a bill to come before you make a payment. You're required to remit payment regardless of whether a reminder arrives in the mail.

Crystal Conde, a 2001 graduate of the University of Missouri-Columbia School of Journalism, is senior editor at Hobsons in Cincinnati, Ohio. She is the lead content editor on all four editions of The Hobsons U.S. Education Guide.