Student loans

Tips, tricks and budgeting for student loans and grants

If there’s an affordability gap, NerdWallet’s Cecilia Clark suggests borrowing federal loans first.

INDIANAPOLIS — If any of your children have applied to college, they likely received or will receive a letter outlining the cost of their education. This letter is called an award letter. It is divided into two main categories: the cost of participation and the amount of financial assistance you receive.

Cecilia Clark of NerdWallet said if you see a grant or scholarship, it’s free money.

“Work-study is money that you don’t have to pay back, but you have to work for that money. If you see a student loan or a loan in any capacity, it’s not free money,” Clark said.

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Clark added that schools can list federal loans as part of financial aid, so understand the money has to be repaid.

Next, determine your personal expenses.

“Take that equity cost that you’ll see there, that big number, and subtract every line item that’s not a loan. That’ll let you know how much you have to pay back,” Clark said.

If there is an affordability gap, Clark suggests borrowing federal loans first.

“Federal loans have protections that private student loans don’t, they offer repayment based on income, you may have the ability to forgive government loans,” she said.

Federal loans do not require a co-signer or credit.

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If that’s still not enough money, enter private loans.

“If you feel you have a strong enough credit score, go ahead and get pre-qualified. Many lenders will let you know your terms and interest rate with a soft credit check.”

The higher the signer’s credit, the better the interest rate.

To make sure your student understands how much money is involved, create a mock budget after graduation.

Let’s say they expect to earn $60,000 per year or $5,000 per month.

Subtract from this amount taxes, rent and utilities, car payment and insurance, groceries, savings, restaurant meals and loan payment with interest.

“What at first seemed like a reasonable amount to borrow for your education, can eventually turn into a monthly payment of $700 or more,” Clark said.