In the current economic environment, one impact of the credit crunch is that it’s getting harder than ever to obtain loans of all kinds, including student loans. Unfortunately, millions of Americans rely on loans to pay for a college education. That’s why roughly $730 billion in federal and private student loans are outstanding, and only 40 percent of it is currently being repaid, according to FinAid.org, which tracks student loans.

If you require student loans to pay for your education – or your child’s – you need to arm yourself with information to be a smart borrower. Here are five facts you should know in order to do just that.

Fact #1: You can eliminate or reduce student loans by squeezing more free financial aid out of a school

Slash your need for student loans by getting your college to give you a better financial aid package – especially scholarships, grants or work-study awards. You may be able to do this if your family situation has changed substantially since you applied for aid (i.e. a divorce among the parents, a death of the family’s main breadwinner, serious illness, etc.).

At your request, a helpful financial aid counselor may also reconsider your initial financial aid award if you can demonstrate that the package offered is significantly less (at least $2,000 or so) than the cost of attending the school.

Fact #2: Student loan rates and terms are negotiable

Every July 1, Congress adjusts the interest rate caps charged on federal student loans. However, contrary to popular belief, Congress doesn’t “set” the rates for federal student loans. Instead, the feds impose a “maximum” interest rate that lenders can charge, then lenders set their own rates based on what the market will bear.

Therefore, if you’re willing to negotiate and ask for more favorable rates and loan terms, you can find many lenders that will agree to charge a lower rate than the federal maximum interest rate. Ask for lower interest rates based on:

a) Having payments automatically deducted from your checking/savings account.
b) Making a set number of ‘on time’ payments (24 to 48 months of on-time payments often qualifies you for a rate cut, and a few lenders will give you break even sooner).
c) Earning good grades or qualifying for any other incentive programs a lender offers.

Fact #3: If you must borrow, always seek federal loans first – not private loans

Federal student loans have better loan forgiveness, forbearance and deferment options than do private loans. They’re also much cheaper loans – and they’ll be even less costly in the near future. Right now, the federal cap on Stafford Loans, the most common type of federal student loan, is fixed at 6.8 percent for undergraduates. It’s 8.5 percent for PLUS Loans – loans awarded to graduate students or parents to pay for their kids’ education.

The good news is that any student taking out new, subsidized Stafford loans will have progressively lower interest rates now and in the future, thanks to the College Cost Reduction and Access Act of 2007. Subsidized loans are the ones where the government pays the interest on the loans while the student is in school.

For the 2010-11 school year, the interest rate on subsidized Stafford Loans gets cut to 4.5 percent. In 2011-2012, rates on subsidized federal loans drop again to just 3.4 percent. By comparison, private loans currently have variable interest rates and can average about 10 percent, depending on a student’s credit and whether or not he or she has a co-signer.

Fact #4: Your employer can help eliminate your student loans

A little-known way to get rid of college debt is to have your boss pay it off. Many employers will do so if you sign an employment incentive contract. This means that as a “bonus” or “perk” to you, your job pays your student loans. In turn, you agree to be a loyal employee and remain with the company for a given time period, say at least two to three years.

So the next time you’re up for a raise or performance appraisal, raise this subject with your boss. If you follow this advice, you may not have to pay your student loans at all – your employer will!

Fact #5: The federal government will pay up to $60,000 of your college debt

The government’s Federal Student Loan Repayment Program can be a huge windfall to anyone with federal student loans. Administered by the Office of Personnel Management, this program allows any federal agency that you work for to pay off up to $10,000 annually of your student loans, up to a maximum of $60,000.

What’s the catch? You simply have to agree to be employed by a federal government agency for a set period of time, usually at least one or two years.

For detailed advice about managing student loan debt, pick up a copy of my book ‘Zero Debt for College Grads: From Student Loans to Financial Freedom.’

Follow me on Twitter for more financial tips. Also, share with other readers your experiences with college debt. Did you take out student loans to pay for school? And how difficult (or easy) has it been to pay off those loans?