Beware of going into debt; Essentials: Key things to know about a loan: interest rate, monthly payments, its duration and ultimate cost.; DOLLARS & SENSE


The benefits of a college education can last a lifetime. So, too, can student-loan payments.

There is a plethora of money available for college, from subsidized and unsubsidized government-backed loans to private lenders' money. But just because the money is there to borrow doesn't necessarily mean students should take it.

"I think our society in general is very dependent on the use of credit," said James F. Godfrey, executive vice president of Consumer Credit Counseling Service of Maryland and Delaware Inc., a nonprofit group that provides free advisory services.

"Most people can't live without credit, but most don't understand interest rates, whether it's student loans or car loans. The more people know and research and understand about loans before taking them out, the better equipped they will be to handle it when the obligation is due."

The key things borrowers should consider, Godfrey said, are interest rates, what the monthly payments will be, how many years of repayment they will face, and how much they will end up paying over the length of the loan.

For example, a $15,000 subsidized loan -- where the government picks up the interest while a student is still in school -- paid back over 10 years at 8.25 percent interest means monthly payments of $184 that eventually will total just over $22,000. An extended repayment plan for the same loan will lower monthly payments to $146, but those payments will be spread over 15 years and ultimately cost more than $26,000.

Borrowers should also investigate which lenders offer the best repayment options. For example, Sallie Mae, the nation's largest source of student loans, will reduce the loan's interest rate by 2 percentage points if the first 48 payments are made on time.

"A lot of people are only concerned about getting enrolled and getting an education now and working and paying later," Godfrey said. "When you're 17 or 18 years old, sometimes it's difficult to think five years down the road."

Before students can obtain a federally subsidized loan, they must go through an orientation, but parents and students who get private loans are not necessarily getting the same explanations.

About 80 percent of the Johns Hopkins University's undergraduates go on to get graduate degrees, but some may be taking on more debt than they will be able to handle, said Ellen Frishberg, director of Student Financial Services at the university.

"For a graduate student in philosophy getting a Ph.D., it's very important to understand that having $65,000 in debt after college is not a good idea given the market for philosophy majors," she said.

Many students do seem to be getting the message -- the student-loan default rate is the lowest since the U.S. Department of Education started keeping track in 1987. For fiscal year 1996, the latest data available, the default rate on federally backed loans was 9.6 percent -- down from a high of 22.4 percent in 1990.

The default rate has dropped because "the economy is good and people are working," said Jane Glickman, a spokeswoman for the Education Department. "Plus, we have all these tools to go after people who default -- we garnish wages, file lawsuits, they can't get new loans and their credit rating will be bad."

That's why financial-aid advisers, along with explaining different borrowing options, encourage students to pursue scholarships, grants and jobs.

Officials at the University of Maryland, College Park -- where the average debt accumulated by an undergraduate is about $14,000 -- advise students to pursue free money. The college's financial aid office offers an Internet search engine to help students find as much debt-free financing as possible.

It's likely worth the effort, especially if the alternative is swimming in debt. "You will only have so much income, and if creditors want a piece and you do not have enough to cover it, you will get collection calls, legal action, foreclosures on your mortgage and it could force you into bankruptcy, which is the least desirable of all," said Godfrey of Consumer Credit.

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