What Every Student Should Know About Student Loans - Money Tip Tuesday

Are you thinking about going to college and not exactly sure how you are going to pay? In this tip we talk about student loans and the many options you have available to finance your college costs.

• Check out this Nerdwallet Article for more information about student loans 
• Check out studentaid.gov for more information about college funding options
• Listen to our other Money Tip Tuesday about Using a Home Equity Line of Credit to Cover College Costs

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Transcript:

Welcome to Money Tip Tuesday from the Making Money Personal. 

Student loans are loans designed to assist students in paying for college or university. This means that student loans can only be used for academic related expenses, such as tuition, textbooks, and housing. 

The first thing you need to know about student loans is that there are two different kinds: federal and private. Federal loans are preferable over private loans for students for a variety of reasons. For instance, federal loans have income-based repayment plans, forgiveness, and don’t require credit history. This may not always be the case with private loans. It’s also important to consider what type of federal loans are being offered. Subsidized loans don’t acquire interest while in school, while unsubsidized loans do. Federal loans usually offer lower interest rates than private loans.  

However, there is a cap on the amount of money you can borrow in a year, which depends on what year of school you are in and whether you are a dependent or an independent student. For purposes of student loans, a dependent student means you are under 24 years old, not married, don’t have any dependents yourself, not currently serving in active duty or a veteran and you have a parent or guardian. If you have dependent student status, you have to report your information and your parents' information on the FAFSA. Independent students only have to report their own information and their spouse’s info, if married. 

With the exception of subsidized federal loans, you will be acquiring interest on the money you borrow while you’re in school.  This interest is added to the amount of money you have to pay back for the federal or private loans. Also, unless you get a fixed rate, the percentage of interest could go up or down on your loan. 

Another thing to keep in mind about student loans is that you should only borrow what you need and what you can eventually repay. The amount you borrow should keep your payments at 10% percent of your projected monthly income, after taxes. 

Once you leave college, there is a six-month grace period before you need to pay your first bill. You can also refinance your student loans, which will save you money by replacing the previous loan with a newer low-cost loan through a private lender. This may reduce your monthly payment. To qualify to refinance your student loans, you will need a credit score at least in the 600 range (or higher) and a steady income. If you don’t have either of these, you may need someone who does qualify to co-sign with you. 

You can learn more about federal loans at studentaid.gov. Nerdwallet.com has plenty of resources to see which private loan is best for you. 

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Thanks for listening to today’s Money Tip Tuesday and be sure to check out our other tips and episodes on the Making Money Personal podcast.  

Have a great day!