Suze Orman: These are the 'only student loans that you want to take out'

Suze Orman
Suze Orman

If you need to take out a private student loan to pay for your education, then you may want to consider a more affordable college, says Suze Orman, financial expert, bestselling author of "Women & Money," and host of the "Women & Money podcast.

"The only student loans, truthfully, that you want to take out are Stafford loans," she says. "If you're going to a school where you have to take out more than the maximum that the Stafford loans allow you to take out, I'm here to tell you that you're going to too expensive of a school."

Orman shares with Grow the two key rules she thinks both college students and their parents should follow when it comes to student loans.

Students: Steer clear of private loans

Approximately 44 million Americans are shouldering the burden of student debt. But depending on the type of loan you have, your debt may be harder, and more costly, to pay back.

The two most common types of student loans are federal and private. Federal, or Stafford loans, are provided by the government, with terms and conditions that are set by law. They include benefits such as fixed interest rates and income-driven repayment plans.

Suze Orman's 2 rules for borrowing student loans

Private student loans, however, are made by providers such as banks, credit unions, and state-based organizations, and the terms and conditions set by the lender, which means interest rates vary and can climb as high as 14%.

Federal and private loans also differ in terms of repayment structure. While college graduates typically have a six-to-eight month grace period before they must start repaying their loans, private student loans often require borrowers to make payments while still in school. Regardless, Orman advises parents and students to stay away from them.

That's in part because even if you can't pay back those loans later in life, you're still on the hook for them. "What you have to understand about student loans is that they're not dischargeable in bankruptcy" most of the time, Orman says, "so do not take out more than you can pay back."

'Parents, put your financial oxygen mask on first'

Many parents share the burden of student loan debt with their children — in particular, when they take out private loans in their name to help their child attend their dream school. But, Orman says, taking out private loans to cover the gap between the price of tuition and what federal loans will cover may cost students — and their parents — in the long run.

If you're a parent funding all or part of your child's education, Orman say to follow one rule of thumb: Do not borrow more than your annual salary to cover educational costs for all of your children.

"Put yourself first," says Orman. "Put the financial oxygen mask on your face first before the kids."

Nearly 9% of parents who began repayment in 2014 owed more than $100,000, and at least 3.4 million people hold Parent PLUS Loans and owe a total of nearly $90 billion, according to a report by the Brookings Institution, a public policy research group.

Parents who want to teach their kids to be financially responsible, Orman says, can lead by example. "If you want to raise smart money kids, show them what it means to be a powerful parent," she says. "Don't just tell them what to do, show them what to do."

More from Grow:

acorns+cnbcacorns cnbc

Join Acorns


About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2021 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.