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The burden of student loan debt is one of the main road blocks to financial independence and a top reason why men and women delay important life decisions, including home ownership. Whether you’re trying to pay for your own education or your child’s, it’s important to make smart borrowing decisions. Carefully consider your budget and loan amount so you won’t be tempted to over-borrow to fund your lifestyle, in addition to your education. The options can be overwhelming, so let’s break it down…

student_shutterstock_258100976Federal Student Loans
Federal student loans are offered by the U.S. Department of Education and have extremely generous forgiveness, repayment, and postponement options. The first step to apply for federal student loans is to complete the Free Application for Federal Student Aid (FAFSA). This will determine which of the following types of federal loans you’re eligible for. Unless you’re in default on a federal student loan, or committed another serious loan no-no, you should be eligible for one, if not both, of the first two loan types:

Subsidized Stafford loans are for undergraduate students who have financial need. Interest that accrues on these loans is covered while you’re in school at least half time, in deferment, during most grace periods, and during some periods of income-driven repayment. They have fixed interest rates, and the amount you may borrow is dependent upon your year in school.

Unsubsidized Stafford loans are for both graduate and undergraduate students. You’re responsible for all of the interest that accrues on these loans. Their interest rates are fixed, and the amount you may borrow is dependent upon your year in school as well. Certain students may become eligible to borrow larger amounts.

Graduate PLUS Loans help graduate and professional students cover their cost of attendance. Interest rates are fixed, and you’re responsible for all of the accruing interest. These require a separate application and basic credit check, but your debt-to-income ratio is not considered.

Parent PLUS Loans allow parents of dependent, undergraduate students to borrow a federal student loan to help cover the child’s remaining cost of attendance after other student aid. Interest rates are fixed, and you (the parent) are responsible for the accruing interest and repayment. These also require a separate application and basic credit check, but the latter is usually easier to pass than credit checks for private loans, and your debt-to-income ratio is not considered.

Private Loans
Private student loans come in all shapes and sizes from all different sources. You may receive these loans from banks, credit unions, states, colleges and universities, and about any other lending establishment (even friends and family, if they’re generous).

Be careful to ensure that you understand all of the terms and conditions of the loan. Many lenders will advertise “rates as low as…,” but only the most credit-worthy among us qualify for that rate. The rate you qualify for will be disclosed to you after you apply.

Don’t Forget Free Money First
Never borrow money before looking for free money. If you haven’t already searched for scholarships, check out SALT’s scholarship search (you’ll need to register, but it’s completely FREE).

If you have any specific questions about student loans or student aid in general, email Ashley Norwood at anorwood.slg@gmail.com. If you need help evaluating your options for home ownership, contact a loan advisor near you.

Start a conversation with an RPM Loan Advisor Today.