the cost of federal student loansIt’s that time of year when prospective college students and their families are facing the future and making decisions about where to attend school. One of the biggest factors for students and their families to take into consideration is how to pay for college. There’s no denying that post-secondary education in the U.S. is expensive, and with tuition increasing year after year, more families are having to rely on scholarships, grants and student loans (or a combination of all three) to foot the bill for their student’s tuition, housing and other educational expenses. When it comes to federal student loans, there are a lot of things that students and their families just might not know, especially if you’re one of the first in your family to attend school or it’s been decades since anyone last went through the college financial process. To help you out, we’ve outlined what kinds of federal loans are available to students and their parents or guardians, as well as some tips for navigating (and surviving) the student loan process.

Students and parents have different loan options

By law, dependent undergraduate students are limited to the total amount they can borrow in federal student loans each year — between $5,500 and $7,500 maximum, depending on where they’re at with their schooling (graduate students have different options and limits of their own). Independent students, as well as dependent undergraduate students whose parents are unable to obtain a Parent Plus loan, can borrow higher amounts. Conversely, Parent PLUS loans, introduced by Congress in 1980, are not limited in the amount that can be borrowed. Any biological, adoptive or (in some cases) stepparent is eligible to take one for a dependent undergraduate student. They are designed to give families another option beyond grants, scholarships and loans taken by the student to afford schools and programs that would otherwise be unattainable. However, the relative ease with which people can obtain these loans has also created a lot of debt in a relatively short time frame.

Defaulting on federal loan payments has become an epidemic

Over the past decade, the number of Americans with federal student loans has increased from 14 million to 42 million. As of Jan. 1, 2017, 3.5 million families in the U.S. had Parent PLUS loans owing close to $77.5 billion. Unfortunately, since the lending criteria for these loans has not been as strict as private lenders, a significant portion of these loans is in default. According to recent statistics, as of September 2015, more than 330,000 people with Parent PLUS loans had gone a year or more without making a payment — that’s 11% of total borrowers in the U.S. — and as of May 2016, an additional 180,000 Parent PLUS loans were at least one month delinquent. This is just part of an even bigger problem, though, as Time reported that one in six people in the U.S. with federal loan debt fell behind on payments in 2016.

How can students and their families safely use federal student loans?

The biggest takeaway from all of these statistics is that student loan debt is definitely a huge problem in the U.S., and one that is sadly somewhat unavoidable for those who wish to obtain higher education but lack the resources to pay for it outright. That said, it’s possible to navigate these treacherous waters safely, so long as you keep a few things in mind. Here are some tips for students and their families to follow when considering taking student loans.

1. Exhaust all your other options first. You’d be amazed at how many scholarships and grants there are out there, as well as how many your student can qualify for. It might take some extra work and time, but often many scholarships go uncontested or unclaimed because people don’t realize they exist or take the time to satisfy the requirements for application. Students can consult their school counselors for assistance locating viable options, as well as utilize resources such as this one set up by the U.S. Department of Labor to search on their own. Working with the financial aid counselors at their high school or university can also be helpful in locating scholarships and grants to pursue. Don’t forget to fill out your Free Application to Federal Student Aid (FAFSA)! Billions in federal aid is left unclaimed each year by students and families who don’t fill theirs out. Be aware, there are scammers out there who prey on students looking for free money to pay for schooling. We wrote a guide to avoiding such scams that you can read here.

2. Understand the gravity of taking out federal loans. Unlike other forms of debt, such as credit card balances or a mortgage, student loans are unable to be discharged except under very specific circumstances. Bankruptcy is not usually an option, unless you can prove undue hardship. Loans must be repaid regardless of post-education employment or completion of your schooling; the circumstances in which you can have a federal educational loan forgiven, canceled or discharged are limited. Parents taking out loans for their students should understand that it will be them, not the student, who is ultimately responsible for paying them off when the loans come due. Therefore, you should take the same kind of considerations you’d take when cosigning for any other type of credit before agreeing to take out a Parent PLUS loan for your undergraduate student. It’s also important for students themselves to fully understand what they’re signing up for when taking on loans, especially if they’re going to be taking out the maximum allowed each year. It’s never too late to teach financial literacy, so students and their families should work together, perhaps with the guidance of a financial aid counselor or other financial professional, to ensure a full understanding of what will be owed upon graduation and how to avoid accruing too much interest.

3. Be prepared for what happens when your loans come due. While a student is in school, most federal loans will not accrue interest, but after graduation (or if you drop out or reduce your status to less-than part-time) they will begin to gather interest. It’s important for students and their families to be ready for this and have a plan of action. Some families work to make payments on student loans while their student is still in school, which can be helpful because the entire payment is going toward the actual loan balance (the principal), rather than interest. Others may need to wait until after graduation to begin paying, in which case, you should know your options. There is typically a six-month grace period post-graduation before you will have to begin making payments; during that time, your lender will be in contact with you about payment details. Federal lenders offer a number of different types of payment plans, including ones that are income-based, and if you have multiple lenders, you can also opt to consolidate all of your loans through the U.S. Department of Education. Don’t forget, if you run into trouble, you can contact your lender to discuss options to avoid going into default. Similar to what we mentioned with scholarships and grants, it’s important to watch out for loan debt forgiveness scammers — always remain suspicious if someone offers an opportunity to get rid of your debt quickly and easily.

Paying for education in the U.S. is a complicated subject, and it can be daunting to students and their families. While it isn’t possible to prepare for every possibility, taking time to understand what your federal student loans mean can help you make the best informed decision — whether you’re a student or the parent of a student. Follow our personal finance blog to keep learning about how to stay on top of money matters.