A college education is expensive. It’s very rare for someone to graduate without amassing significant debt. According to the College Board, seven out of 10 college graduates have loans, owing an average of $28,000 in 2012. Families spend about $19,000 a year on tuition, room and board, and fees at public four-year colleges. For private schools, this figure is closer to $42,000.

Some future college students apply for loans when they’re still in high school, a time when they are quite young to understand finance and how to make an informed decision. When looking for student loans, it’s important to understand how they work.

Here are some things about student loans that every student and their family should know.

Federal vs Private

Avoid private loans as much as possible. Based on results from the Student Debt Impact Survey, only about 20 percent of student debt is financed through private lenders, which is good because their interest rates are much higher than federal loans. They also do not have the same amount of flexibility for repayment. Still, private loans are necessary for students who have hit the cap on federal borrowing and have no other options.

Federal loans are either subsidized or unsubsidized. Subsidized are generally better because they don’t accrue interest while the student is in school or the loan is deferred. Unsubsidized loans do, which is added to the principal amount, significantly increasing the balance over time.

Payment Options

Student loans have a standard 10-year repayment schedule, but there are other options and protections for students with federal loans. Note that some of these programs do not apply to private lenders.

Loan Forgiveness

If you work in the public sector, the balance of your loan can be forgiven after 10 years or 120 payments. That means that, if you work in nonprofits or certain sectors, you may not have to pay back the total amount of the loan as long as you make payments for 10 years or 120 payments. If you start payments when you’re still in school, you can be four years into repayment before you graduate.

Income-Driven Repayment

If you work in a field that doesn’t pay well, you may be eligible for income-based repayment. This is a pay-as-you-earn plan that caps your payments at a percentage of what the government determines is discretionary income.

But just because you qualify for this type of repayment plan doesn’t mean you should do it. While it does lower the payment, it also extends the life of the loan so you end up paying over a much longer period.

Deferments

If you have financial problems, deferments let you put your loans on hold. You can also ask for a deferment if you go back to school to pursue a graduate degree. Most federal loans allow you to defer for up to three years.

Forbearance

This is what happens when you can’t pay your monthly loan payment but you do not qualify for a deferral. It suspends your payments or allows for reduced payments for as long as 12 months.

Consolidation and Refinancing

Every spring, the interest rates for federal student loans get reset, so you may have four loans (one for each year) with four different interest rates. In this case, consider consolidating. This averages the interest rates and bumps it up to the next eighth of a percent. Consolidating may not save you money, but it makes it easier to track your loans and repayments.

A good strategy is to try to pay off the loans with the highest interest rate before consolidating. This way, it won’t be included in the calculation for the new interest rate.

Note that interest rates from private lenders are significantly higher than federal loans, as much as twice as much. That’s because the loan is based on the financial history of the applicant and most students do not have an established credit history.

Refinancing becomes an option when you’re working and your financial situation improves. If you have a good credit history, you can often refinance student loans for substantially lower interest rates, often as low as three percent, but you have to go through a private lender.

Learn As Much as You Can, as Early as You Can

There are so many different options for repaying student loans, and it helps to learn as much as you can about them as soon as possible. You’ll be more careful about what loans you take and have a better understanding of what will be expected of you when you graduate.

Opinions expressed are those of the author and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.