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When it comes to student loans, there are several options to choose from. You can borrow money from a bank or credit union, or you can take out a private student loan. Each loan has its own pros and cons, but there is one thing that all student loans have in common: they vary in their interest rates.
Private student loans are available through banks and credit unions, as well as other financial institutions, and they generally offer lower interest rates than federal student loans. However, these rates are more expensive than the interest rates on federal direct subsidized and unsubsidized Stafford Loans. If you qualify for a federal loan, then it’s best to take advantage of this opportunity if possible because these loans have better terms than private loans do.
The amount of money that you borrow for college will also affect how much interest you pay over time on your student loan debt—the more money you borrow, the more expensive it will be when repayment begins after graduation day!
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Which Types of Student Loans Are Best?
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If you’re like millions of other students, you need to borrow money to pay for college. Generally, federal student loans are the best option for students, while private student loans can provide additional funding if you reach the federal borrowing limits. However, that’s not always the case.
The best loan may depend on your financial situation and the type of degree you’re pursuing. Here’s an overview of how you can apply for federal and private student loans and the pros and cons of each.
Your financial aid package could include money for school that you don’t need to repay, such as grants or scholarships. Additionally, you might be offered several types of federal and private student loans.
There are three types of federal student loans that can help you pay for school:
Direct subsidized loans are the best type of federal loan because the government pays the interest that accrues while you’re in school, during the six-month grace period after you leave school, and during deferment (periods of loan payment postponement). However, subsidized loans are only available to undergraduate students who have a financial need based on the school’s cost of attendance and their expected family contribution.
Direct unsubsidized loans are available to undergraduate and graduate or professional students regardless of their financial need. Unlike with subsidized loans, interest accrues during school, grace periods and deferment. You have the option to pay the loan interest during these periods, but if you don’t, that accrued interest gets added to your principal balance once you start repaying the loan. That’s why if you do take out a direct unsubsidized loan, you should try to pay back any accrued interest before you graduate.
Direct PLUS loans are available to graduate or professional students and to parents of undergraduate students. Applicants need to agree to a credit check, which looks for an adverse credit history but doesn’t consider credit scores. Applicants with an adverse credit history may need a cosigner before they can take out a PLUS loan.
Student Loan Options
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
Private Student Loans
Graduate and Professional Students
Parents of Undergraduate Students
Private Student Loans
Private student loans aren’t as uniform as federal student loans. For example, your rate, term, fees, loan amount and repayment options depend on the lender and your credit. This is why it’s important to compare lenders and offers before taking out a private student loan. Additionally, because the loan offer depends on your credit, many students need a creditworthy cosigner to qualify.
Here are three examples of private student loan companies:
SoFi offers undergraduate student loans and says it will soon offer graduate and parent loans as well. The minimum loan amount is $5,000, but there’s no origination, application, prepayment or late fee when you’re taking out or repaying the loan. SoFi also offers fixed- and variable-rate loans, and you can choose to defer your payments until after you leave school or start repaying the loan while you’re in school.
CommonBond offers undergraduate, graduate, MBA, dental and medical student loans. The rates and terms depend on the type of loan and whether you take out a fixed-rate or variable-rate student loan. CommonBond also has a “social promise” program that pays the tuition for a student in a developing country for each degree it fully funds in the U.S.
College Ave offers undergraduate, graduate and parent student loans with either fixed or variable rates. There are also career loan options for students pursuing an eligible certification program. You can choose from several repayment terms and plans, which can help you find a loan with a manageable monthly payment.
Which Student Loan Is Best?
The best way to pay for school is with grants and scholarships—financial aid that you don’t need to repay. But many students will need to borrow money as well.
Federal student loans are generally the first choice for students because you can get approved regardless of your income or credit, and they offer the same interest rate to every student. Additionally, federal student loans are eligible for repayment plans and assistance programs, such as student loan forgiveness. These benefits can make repaying federal loans easier than repaying private loans.
However, federal student loans have origination fees and (aside from PLUS loans) maximum loan limits based on your year in school rather than the cost of attendance.
Especially creditworthy students may qualify for private student loans with a lower interest rate and no origination fee, making the private route a less expensive option. A private loan may also be one of your only options if you reach the federal student loan limit and need additional money to pay for school.
which student loans are suspended
Payments are currently suspended, without interest, for most federal student loan borrowers through Aug. 31, 2022. This policy does not apply to private student loans.
Borrowers can still make payments to lower their debt during this period of suspended payments, called a forbearance. According to the latest federal data, a total of 500,000 borrowers (about 1.16% of all 42.9 million federal loan borrowers) continued making payments during the pause. Contact your servicer if you have further questions.
Make no mistake: This is a pause on payments, not forgiveness. Your debt will be waiting for you when repayment begins at the end of the forbearance, unless the policy changes again. While the Biden administration has said it plans to push for expedited $10,000 forgiveness for all federal borrowers, few observers believe such a bill could be moved through Congress quickly.
Until then, here’s how to decide what to do next.
If you want to pause payments
You don’t have to do anything to get a forbearance to stop student loan payments. Interest won’t continue to accrue, as it normally would.
A forbearance could give you breathing room to address other financial concerns.
If you are jobless or working reduced hours, a forbearance may free up cash to pay the rent and utilities or grocery bills. Even if your pay is unaffected, a forbearance could help you divert some money toward building an emergency fund or help you pay another, more pressing debt.
Usually forbearance is granted at the discretion of the servicer and interest will continue to build. In this case, the Education Department instructed all servicers to automatically place all loans into a forbearance without interest.
If you’re behind on your student loan payments (or get behind)
Federal loans with delinquent payments or defaulted loans will return to “good standing” status when payments start again on Sept. 1, 2022.
Default on federal loans happens when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, garnished wages and seized tax refunds.
All collection activities are suspended through Aug. 31, 2022. You can get a refund for any forced student loan payments made since March 13, 2020. If your tax refund was seized before March 13, 2020, it will not be returned.
If your loans were already in forbearance, any interest that already accrued will still be added to your loan principal when your repayment begins, but during the current waiver no new interest will be calculated.
If you are seeking Public Service Loan Forgiveness
The automatic forbearance won’t undo your progress toward Public Service Loan Forgiveness, or PSLF. As long as you are still working with a qualifying employer, months spent in forbearance will count toward PSLF.
Making payments during the automatic forbearance won’t get you ahead on payments. You’re in the same boat whether you pay or not.
Under normal circumstances only full payments count. You also won’t lose credit for the payments you already made.
If you want to continue making payments
Borrowers might want to continue making payments on federal loans if they want to pay down their debt faster.
If you do continue making payments, you won’t pay any new interest on your loans during the forbearance. This 0% interest rate will save you money overall, even though your payment won’t be lower.
The full amount of your payment will be applied to the principal balance of your loan once all interest accrued prior to March 13 is paid.
Deciding whether or not to make a payment during this time will depend on your original repayment strategy:
Those sticking to a standard repayment timeline (typically 10 years) could consider making payments. You likely won’t have much outstanding interest and additional payments can help you chip away at your principal during the break. To preserve your flexibility, we suggest opening a savings account and banking those monthly payments, then making a lump-sum payment against your highest-interest loan when repayment begins.
Borrowers enrolled in income-driven repayment or planning to do so shouldn’t bother making payments now if the ultimate plan is to pay until the loans are forgiven — usually 20 or 25 years. If you want to pay off your loans sooner, then paying now could help you lower the total interest you owe on top of your principal.
Borrowers seeking Public Service Loan Forgiveness do not need to make payments until at least Sept. 1, 2022. The months of automatic forbearance will count toward the 120 payments needed for forgiveness.
Contact your loan servicer with any questions about continuing or restarting payments during the forbearance period.
If your income has changed
If you experience a change in income and still want to keep your payments going, the best way to lower your payment to something more affordable is to apply for income-driven repayment. You’ll get a new payment that is based on your family size and a percentage of discretionary income, and it will be in effect even after relief has expired. You can apply online at studentaid.gov.
If you are already enrolled in an income-driven plan, make sure to update your income if it has changed due to the economic downturn.
If you were supposed to recertify your plan before Aug. 31, 2022, you’ll now have an additional time to do so. IDR recertification dates have been extended until at least March 2023. Borrowers will be notified when it is time to recertify. Temporarily, borrowers with direct loans can self-report their income when applying for or recertifying an IDR plan. That means you own’t have to submit tax documentation, but you will need to select “I’ll report my own income information” in Step 2 (Income Information) of the IDR application. This option ends Feb. 28.2023.
If you have FFEL Loans
If you have Federal Family Education Loans (FFEL), you are entitled to receive the no-interest forbearance only if the government owns the loans. This won’t be most FFEL borrowers — most of the loans from the now-defunct program are commercially held.
You can find out who owns your loans by logging in to studentaid.gov using your FSA ID.
The only way to get the forbearance for commercially held FFEL loans is to consolidate your debt into a new direct loan. But there are downsides to consolidation:
Your repayment term will be extended.
Your interest rate will increase slightly.
Any unpaid interest will capitalize and be added to the total amount you owe.
Temporary interest-free payments may not be worth those additional long-term costs.
Plus, if you’re already making payments on an income based repayment (IBR) plan, those previous payments will no longer count toward forgiveness. You’ll have to start all over.
Consolidation can make sense if you have FFEL loans and want to qualify for Public Service Loan Forgiveness. Otherwise, stick with your current loans.
If you’ve experienced a change in income, you can enroll in IBR or recertify early, if you’re already on this plan. IBR will still take into account your spouse’s income. Your loans are also eligible for unemployment deferment, which may make sense if you’ve lost your job but expect to start working again soon.
How to work with your servicer
If you want to restart payments during the automatic forbearance, contact your student loan servicer — it’s the private company that manages payment of your federal loans. But you don’t have to do anything to get the forbearance or the 0% interest rate.
To find out which loan servicer is yours, log in to studentaid.gov with your FSA ID.
You can get in touch with all of the loan servicer contact centers by calling 1-800-4-FED-AID.
For additional information visit studentaid.gov/coronavirus for forthcoming details.
The best student loans are the ones you can pay off quickly, without having to worry about interest or fees.
If you’re a parent of a college student, you want to make sure they can get a good education—but you also want them to avoid taking on debt that’ll be hard to pay off. The good news is that there are plenty of affordable options out there for students who don’t have access to scholarships, grants, or other financial aid.
But even if your kid is lucky enough to have some kind of scholarship or grant money available, it’s still important for them to understand how much debt they’ll have after graduation—and how much it’ll cost them.
That’s why we’ve put together this guide: so you can make sure your family knows exactly which loans are the best ones for their situation!