The grants didn’t work out. The scholarships didn’t either. That job at Burger Buddy barely pays enough for your gas to get there, and when you showed up at the hospital, asking for a little somethin’-somethin’ for your perfectly good kidney, they tried to call the cops on you. The nerve!

But you desperately want to go to college, maybe for some high quality education spiced up with social shenanigans.  So what’s a body to do? *Cue dark, scary theme music* Get some loans…über scary.

Nothing short of Chinese water torture inflicts more fear than stacks of papers with daunting instructions and pages and pages of fine print. That’s right, stacks, meaning multiple because not only do you have to fill out the paperwork, but you have to find a loan that’s a reasonably good deal, if you don’t want to become Bank of Borristown’s indentured servant. *Insert groans of heart wrenching pain and dread*

Luckily, we are here to help you out of this mess and well…break it down!

With a loan, an individual borrows money with specific, pre-determined conditions and agrees to pay it back over a certain amount of time, almost always with interest. There’s more to it than that. There are three main types of loans: federal loans, state loans, and private loans.

How it works

Most lenders calculate interest on the remaining balance for every month the loan is not paid off. Interest is a percentage of the amount they lent you that gets added onto to the balance if the interest is not paid. That means that next month, a person with the loan accumulates interest on both the original balance plus the interest added to the previous month’s balance (this is called compounding). REMEMBER, lenders fork out a large sum of money because that interest makes them money, A LOT of money.

For example, Jimmy found a university that he absolutely loves. Whenever they mention the name of his school, he falls into a dreamy state, drooling and sighing in such excitement that his friends find it rather disturbing. But *sad face*, Jimmy has no money, honey. His parents can’t help a brotha…errr, a son out, and although his school gave him some assistance, he needed to take out loans. Jimmy completed his college education with $40,000 in debt, not too bad if you think of it as only $10,000 a year.

Assuming he has an interest rate that’s fixed (meaning it doesn’t change), let’s say 10%, and let’s say he takes 15 years to pay off the money. (Hey, $40,000 is a big chunk of change.) If he pays the loan off steadily, no payments missed, no additional principal paid, the interest would be $37,371.94. That means the total amount that poor Jimmy paid to his lender is $77,371.94. Ouch.

And the truly sad part is that this is actually not an uncommon loan. Just think what you could be paying if you had an even higher interest rate with a longer payment period. Now, there’s no reason to approach lenders as if they were ninja assassins with laser beams for eyes and razor blades for hands (I’m actually bankin’ on soul-sucking robots) but realize that they want money, your money, in their pocket.

Now don’t fret your little head though, my brave lil’ borrower. A college graduate statistically yields a better salary than those with a high school education, so hopefully you will have the money to pay off any loans you take. Just be smart about it. If you have to choose a loan, if you have exhausted every single other option, choose your loan wisely, young grasshoppa’.