Student loans seem to be shrouded in more myths and misunderstandings than the first moon landing or the origins of Coca-Cola. Perhaps it’s because many people’s information comes not from official sources, but trickles down through the student-parent grapevine like a really bad game of telephone. By the time you finally hear the story of why the child of your neighbor’s uncle wasn’t able to get a student loan, the blame falls squarely on some grand conspiracy to stick it to the middle class.

First and foremost, it’s important to realize that student loans can and should be used to help meet a student’s reasonable living expenses (above and beyond tuition) while in school. The government fully expects this and encourages it. You can use these loans to help pay for room, board, books, and so on. You can even use them for things that are indirectly related (but still necessary) to a college education. While a new stereo or spring break trip would not be considered living expenses by the Department of Education, things like child care, transportation, overseas travel, and technology are all fair expenses for which to use student loan proceeds.

One of the biggest misconceptions about student loans is that it is the parents who are applying for them. In reality, even if Mom or Dad enters the information into the FAFSA form, it is the student who is truly applying for Stafford and Perkins loans. That means that it is the student who is on the hook for repaying the loans.

It also answers another concern that many parents have about student loans, especially in a rocky economy: how will their credit score affect their ability to borrow. Thankfully, when it comes to Stafford and Perkins loans, the credit history of the parents doesn’t have anything to do with a student’s ability to qualify. In fact, a student’s credit rating doesn’t matter either because Stafford and Perkins loans are available without regard to a student’s credit history, aside from previous student loan borrowing.

The one exception to both who applies for a student loan, as well as the lack of a credit check, is PLUS loans. These loans are most often taken out by parents who still need additional funds after all other financial aid has been received to meet their child’s college expenses. PLUS loans do require a credit check to ensure that the borrower does not represent an above-average risk to government-backed lenders.

Over the years, I’ve heard all kinds of bogus rules of thumb about how much a family can earn or have in the bank and still qualify for federal student loans. Often, those using these benchmarks mix up someone’s eligibility for scholarships, Pell Grants, and student loans. While Pell Grants, which are financial aid awards from Uncle Sam that do not need to be repaid, are based heavily on financial need, eligibility for student loans is far more lenient.

The reality is that virtually everyone who wants to borrow money from the government can, although the terms might be different for those who demonstrate financial need. In fact, even families with hundreds of thousands of dollars in income and liquid assets can still borrow large amounts of cash from Uncle Sam. The primary difference is that those demonstrating a financial need according to government formulas can qualify for more friendly loan programs and terms.

One important distinction with student loans, especially federal student loans, is subsidization versus no subsidization. When a federal student loan is subsidized, the government actually pays the interest on the loan while they remain in school, as well as possibly providing a lower interest rate over the life of the loan.

By contrast, when a loan is unsubsidized, the interest on the loan is usually a higher percentage and is added to what is owed each year. This can easily amount to a few thousand dollars more in loans to be repaid after graduation for a student who did not demonstrate a need.

If an independent student or the family of a dependent student demonstrates substantial financial need, they might qualify for subsidized student loans. If a student or her family does not qualify for subsidized loans because of her income, assets, or other factors, she can still likely receive unsubsidized loans up to certain annual limits. Often, students receive a mix of both subsidized and unsubsidized loans, with a portion receiving a lower interest rate and that interest being paid while they’re in school.

Whether you qualify for a subsidized or unsubsidized loan, the rates are generally excellent compared to loans offered by private lenders who aren’t partnered with the U.S. Department of Education. In fact, some rates will drop as low as 3.4 percent during the 2011-2012 school year, as shown in the following table. These rates are low enough that parents and students should not hesitate to borrow enough to meet their legitimate college costs.

Likewise, state-sponsored loan programs often offer great loan rates to parents and students, especially those studying to become teachers or other types of public servants. To learn more about the availability of these and other state-based financial aid programs, visit the website for your state’s financial aid commission, listed in Appendix D.

One of the greatest things about federal financial aid, as well as much of what you can receive from your state and school, is that there is a single “button to push” to start the ball rolling. In other words, once you complete and submit the FAFSA form, you’ve officially applied for grants, Stafford loans, Perkins loans, and many of the unique programs offered through your state and school.

Of course, the FAFSA form has a reputation for making your tax return look like a child’s coloring book, but this reputation is largely unfounded. Perhaps back before the FAFSA form was available online, it was more difficult. But now, thanks in large part to the Internet, it can be completed for the first time in 1 to 2 hours. In subsequent years, it should take no more than 30 to 60 minutes. Greatly speeding up this process starting for the 2010-2011 school year is a new feature offered through a partnership of the Department of Education and the IRS that allows the required information from your tax return to be automatically loaded into your FAFSA.

So if you are going to need financial aid in the coming school year and haven’t filled out the FAFSA form, you need to put down this book and go to fafsa.ed.gov to get started. Time is of the essence, especially considering that state financial aid deadlines are often substantially earlier than the June deadline (historically, June 30) for federal aid.