Don’t sacrifice your financial future to pay for an education. Borrow smart to save money.
Starting school can feel like dunking your head in ice water. Aside from culture shock, there’s adjusting to a new way of living. The last thing you need when you’re adjusting to everything is to struggle with paying tuition. Likewise, getting out of school brings a whole other set of alien experiences.
When you’ve got a fresh career and another shift in how you live, you may find that how you’ve borrowed needs an adjustment. Refinancing or consolidating are two ways that you can make those adjustments. Whether you’re starting school or post-graduation, here’s what you need to know to manage your student debt.
LendKey Student Loan Refinancing
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- Maximum amount: $300,000
- Minimum amount: $7,500
- Repayment term options: 5, 7, 10, 15 or 20 years
- Fixed and variable rate options available
- Must be a US citizen or permanent resident
- Must have an undergraduate or graduate degree
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I’m paying for school. What are my student loan options?
You’ve applied for scholarships and grants, tried to take on a work-study job but it’s just not cutting it. You still need financing. This is where student loans come in. There are two types of student loans you can take out to pay for higher education: private and federal.
Federal loans are funded by the federal government to cover education-related costs. Students usually turn to these first because they tend to have the lowest interest rates. After all your school’s tuition and expenses are paid, any remaining money typically comes to you. They give you a grace period before you’re required to begin repayment and don’t require a credit check — with the exception of direct PLUS loans. However, there are limits to how much you can borrow.
Keep up those grades. Students who drop below a 2.0 GPA — a C average — are no longer eligible for federal student loans and could lose other types of financial aid.
Private student loans
Private student loans are generally used to cover education expenses after you’ve maxed out federal loans. You can get a private student loan from a bank, a state agency, a school or even a credit union. Private student loans also can pay postgraduate expenses that federal loans won’t such as those that come with studying for the bar or residency.
Breaking down federal loans
|Federal loan||Who’s eligible?||Borrowing limits|
|Direct subsidized loans||Undergraduates who demonstrate financial need.||$5,500–$12,500 a year.|
|Direct unsubsidized loans||All undergraduate, graduate and professional students.||$5,500–$12,500 a year for undergrads, up to $20,500 a year for graduate students.|
|Direct PLUS loans||Graduate and professional students or the parents of undergraduates who do not have sufficient financial aid.||All education-related costs not covered by financial aid.|
|Federal Perkins loan program||Graduate and undergraduate students that can prove exceptional financial need.||$5,500 a year for undergrads and $8,000 a year for graduate students.|
How does paying back a federal loan work?
Once you receive your loan, the Department of Education assigns your loan to a servicer — a company that handles repayment and student loan consolidation. It will contact you after you receive your funds and again after you graduate to help you set up a repayment plan.
Direct any questions you have about repaying your loan toward your servicer — not the federal government. You should also inform your servicer if you change your name, address or phone number.
6 top private student loan options in 2017
|Lender||Loan types||What sets it apart|
|CommonBond||Student loans, refinancing||MBA students get a rate discount; CommonBond profits help pay for education resources in the developing world.|
|College Ave||Student loans, refinancing||Get a 0.25% discount on student loan rates with autopay and $250 if you refer a friend.|
|Credible||Student loans, refinancing||Credible sets you up with multiple lenders, letting you choose one that makes the most sense for you. It’s a free service so your fees are determined by which lender you choose.|
|SoFi||Refinancing||SoFi caps your APR depending on your loan term, you can defer repayments for three months if you’re unemployed and there’s no minimum credit score.|
|LendingTree||Student loans, refinancing||High borrowing limits mean you’ll likely be able to borrow as much as you need.|
|Earnest||Refinancing||You can skip repayments and could qualify for forbearance after making six months|
How to choose a private student loan
When trying to find the best student loan option for yourself, ask yourself the following questions:
- Can I qualify with my cosigner? Chances are your credit history isn’t more than a few years old — if you even have one at all. Make sure you have an idea of your credit score range and other financial details when looking for a student loan by yourself. Otherwise, take some time to look for loans together.
- How much can I borrow? Some private lenders have caps for undergraduate and graduate borrowing, just like federal loans. Others might not offer loans in the exact amount you need. It can be tempting to over borrow to have some extra cash on hand, but remember: The larger your loan amount, the more you owe in interest.
- What’s the APR? The annual percentage rate — an expression of your loan’s interest and fees as a percentage — is the best way to tell which loan is the least expensive. Just make sure you’re comparing loans with similar terms. Otherwise your comparison won’t be as accurate.
- How long can I take to pay it back? Look for something that isn’t too long — you could end up paying an enormous amount of interest. Too short is also not good — you could end up with unaffordable repayments.
- Will I be able to afford the monthly repayments? This is determined by your loan amount, APR and loan term. Try to get an estimate of how much you’ll be making after you graduate and look for a loan that offers repayment options that you think you’ll be able to comfortably afford.
- Is there a grace period? Most students don’t have much disposable cash while they’re in school. If you can, try to find a loan that allows you to hold off on repayment until after you leave school — or at least allows you to make interest-only repayments.
4 tips for getting the best deal on private student loans
You did the math and know that federal loans just aren’t going to cut it. Take these steps as soon as you can to get the most out of your private student loans.
- Apply for a student credit card first. Getting a credit card a year or so before applying for a loan can help build your credit and increase your chances of being approved.
- Talk to your school’s financial aid office. Chances are there are other students who’ve been in the same boat as you. Your financial aid office should be able to direct you toward trustworthy lenders that have worked well for other students in the past.
- Find a cosigner. Even with a year of paying off credit card debt, getting a cosigner with a more substantial, positive credit history can work in your favor.
- Don’t put off applying. It might take some time for your loan to go through. You don’t want to end up with late payments at your school because you didn’t apply until the last minute.
Can I use a personal loan to cover extra costs at school?
If you’re having a hard time qualifying for a federal loan — or your federal loan has run out — you may want to consider taking out a personal loan. Personal loan amounts can range from $1,000 to $100,000 based on your eligibility and creditworthiness. A private student loan may not cover all of the expenses you have while in school, because they’re limited to education costs (with the possible exception of housing). By getting a personal loan, you would be able to use the funds as you need.
Benefits and drawbacks of using personal loans for education expenses
- Loans of up to $100,000 are available for qualified applicants.
- Interest rates are comparable to private student loans.
- You can use the funds for any legitimate purpose.
- No grace period before payments start.
- A better credit history may be required.
How do federal, private and personal loans compare?
|Federal student loan||Private student loan||Personal loan|
|Purpose||Education-related expenses||Education costs, includes postgraduate expenses||Any legitimate costs|
|Funds disbursement||Sent to the school; any remaining funds are sent to you later||Sent to the school; any remaining funds are sent to you later||Sent directly to you|
|Interest rates||3.76% to 6.31% fixed APR, depending on loan and borrower type||Varies, but can reach over 12%, depending on the lender||Varies, but can go up to 36%, depending on the lender|
|Repayment||Deferred for six months after leaving school.||Could start while you’re in school or have interest-only or even deferment options.||Starts after your money is disbursed.|
What’s a cosigner? Do I need one?
A cosigner is an adult with good credit that takes on a legal responsibility for paying back your student loan by signing for it with you. Late payments or default therefore affect your cosigner’s credit score in addition to your own.
The point of a cosigner is to ensure that someone with verifiable credit history is backing your loan — most college freshmen don’t have credit yet. With private lenders, having a cosigner can increase your chances of approval and even land you with a lower interest rate.
Since federal student loans don’t require a credit check, you generally don’t need a cosigner to qualify. The one exception is students wishing to apply for a Direct PLUS loan that have a bad (or no) credit history. It’s more common to find private student loans requiring cosigners — though not all do.
5 common student loan mistakes
- Being afraid to borrow. Constant media talk about the student debt crisis makes borrowing terrifying, especially if you’ve never been in debt before. But debt can be a good thing as long as you handle it responsibly — that’s how you build your credit score.
- Taking out more than you need. Just because your school or private lender says you’re eligible to borrow a certain amount of money doesn’t mean you should. Only borrow what you need to avoid having to pay more in interest.
- Going for private loans first. Aside from the potentially lower interest rates and no credit check, federal loans come with perks like grace periods, income-driven payments and even loan forgiveness for certain professions.
- Not reading the fine print. Federal loans are pretty straightforward, but private loans can be all over the place. Make sure you understand everything you sign to avoid being unpleasantly surprised later.
- Letting your parents do it for you. Understanding how much your education costs can have a real impact on your academic standing — for the better. It also won’t be as much of a shock to find out you’re $40,000 in debt after graduation if you applied for your loans yourself.
Refinancing loans for a lower interest rate
Student loan refinancing involves replacing student loan debt with another loan that has better rates and payment terms. You can also use refinancing to group together multiple loans to simplify repayment.
It’s a great way for students with multiple loans at different interest rates to stay on top of their payments and it can potentially help any student save on the overall cost of their loans. However, students with federal loans stand to lose some benefits that could save them even more money than refinancing.
Pros and cons of student loan refinancing
- Potentially lower your monthly payments.
- Reduce the number of debts you have to manage.
- Possibly benefit from a reduced interest rate.
- A higher credit score may be necessary.
- You won’t be eligible for federal repayment or forgiveness programs.
- You may pay fees associated with refinancing.
Consolidating multiple federal loans
Not everyone is lucky enough to get out of school with just one loan, much less no loans. If you’ve got multiple federal loans you’re trying to pay off from various agencies, you may have a hard time keeping track of all of them. Consolidation is the process of taking one or more of your federal loans and combining them into one. You can apply for a direct consolidation loan through the Federal Student Aid (FSA) website. The application requires you to sign in with an FSA user name or email address.
Pros and cons of student loan consolidation
- Repayment plans are available, including income-based plans.
- You have a 60-day window before your first repayment due date is set.
- You can be approved for lower monthly payments and potentially extend your repayment term.
- An extended loan term could result in paying more interest over time, increasing the overall cost of your loan.
- Benefits from your initial funding — such as discounts or rebates — may be cancelled.
No matter where you are in your education, there’s a loan to fit your needs. Federal loans are usually your best bet for those who qualify — or until your run out. Otherwise, personal loans and private student loans may be valid options.
Your schooling is in your hands. Before making any big financial decisions, consider your specific personal and financial situation. Go over all of your options, compare loans, seek advice and research anything that’s not perfectly clear.