Updated: Mar 3, 2020
One of the top topics I cover with my clients is student loans.
With student debt in the US up to a staggering $1.6 trillion, it's important to understand some of the basics of student loans so that you can make the best choices for yourself and your path to financial independence.
Not all student loans are the same, so it's good to understand the options out there.
The first group of student loans is Stafford loans.
Stafford loans are also known as Federal Direct Loans. Stafford loans are backed by the US government, which means if the student borrower defaults on the loan, then the government will pay the lender.
Stafford loans tend to have:
Lower interest rates that are fixed for the life of the loan
Six-month grace period before payment is due and no payments are due while you're in school
Flexible repayment plans
Your credit history isn't a factor to get approved
There are two types of Stafford loans:
Subsidized - the US government will pay the interest accrued while the student is actively enrolled and during the grace period. Note: Subsidized loans are not available to graduate students.
Unsubsidized - there is no obligation to pay interest while enrolled in school and during the grace period, but if you don't pay the interest then it will be added to the principal of the loan due.
The second group of student loans is PLUS loans. PLUS loans were originally called Parent Loan for Undergraduate Students, although these days PLUS loans can be used for undergraduate and graduate tuition.
There are two types of PLUS loans:
Parent PLUS - available to parents of undergraduate students
Grad PLUS - available to graduate students
The third group of student loans is private loans. Private loans allow students to fill in gaps in tuition payments if they have maxed out other loan types and still need to cover tuition costs.
These loans tend to have higher interest rates with more strict rules about repayment and your credit history will be taken into consideration when you apply.
Keep an open mind when it comes to paying for school, here are some things to think about:
Borrow only what you need
Apply for scholarships and grants to assist pay for school
Consider work-study programs if they are available at your school