It’s no secret that education costs a fortune. The College Board reports that the average bachelor’s degree at a public university will cost you north of $80,000 after accounting for room and board. At those prices, student loans are almost unavoidable for all but the very wealthiest of students.
“The best-case scenario is to have your schooling paid for by scholarships and grants,” said Katie Ward Brewer, a certified financial planner at Your Richest Life, a financial website aimed at young consumers. “Unfortunately, even if you get a scholarship, or if you have saved up some money over time, there’s a good chance you’ll need at least a little help from loans to cover the cost of four years of college.”
So, how do you find the best student loans?
Start with federal student loans
Moon cites the protections that often come with federal student loans, including the ability to reset or extend grace periods, depending on the type of loan and the reason.
“Private loans and federal loans have different rules,” Moon said. “Plus, you have more options when it comes to default with a federal loan.”
In addition to default and grace period rules, federal loans are also eligible for income-driven repayment, in which your payments are limited to a portion of what you make each month. While some private lenders offer hardship programs, you likely won’t find your payments capped at a percentage of your income, Moon pointed out. You also won’t be eligible for Public Service Loan Forgiveness (PSLF), which discharges the remainder of your loan balance after 10 years of working in a non-profit, government, or teaching job.
Another reason to begin with federal loans is the fact that you don’t have to worry about your credit situation or having a cosigner on your loan. With federal loans, you also have more repayment options when you finish your degree, and you don’t have to worry about jumping through as many hoops to apply.
While these might be the best student loans to start with, they don’t always cover all your costs, according to Joe DePaulo, CEO and cofounder of lender College Ave Student Loans.
“There are limits to how much an undergraduate student can borrow through the federal loan program,” he said. “That’s when private loans can be the right next step for some undergraduate students and their families.”
Choosing private student loans
With most other types of debt, Brewer said, it’s common to start by comparing interest rates. But for student loans, she warned against getting hung up on the lowest rate.
“When looking at private student loans, it’s better to see what types of repayment options they have,” she said. “Also consider what happens to the debt if you die. Is your cosigner going to be stuck with it?”
Brewer pointed out that private student loan debt can turn into a big problem down the road if you run into financial hardship. With federal loans, protections are fairly easy to get — especially if you turn to income-driven repayment. But you won’t always get that almost-automatic help from private lenders.
“Also ask about the cosigner release policy,” said Brewer. “Many students, especially undergrads, don’t have the credit history to get a private student loan. That puts their parents on the hook. Find out if the lender will release cosigners with relative ease later.”
DePaulo agrees that flexible repayment options are vital when choosing a private student lender. “Look for options that help you match your monthly payments to your budget,” he said.
Best student loans for graduate students and parents
There is an exception to beginning with federal loans, though.
“If you’re a graduate student or parent thinking about a federal PLUS loan, you may want to consider your private loan options before you commit,” said DePaulo. “With a strong credit history and a proven income, you may be able to save with a private loan over a federal PLUS loan.”
For undergraduates, federal loan rates are currently set at 4.45%. However, federal PLUS loans come with a rate of 7%.
“Depending on your situation, and your lender, you might be able to get a private loan for graduate school at a rate of 4% or less,” said Brewer. “Some lenders even offer rates below 3% for very well-qualified borrowers.”
However, before deciding that the interest rate is the most pressing consideration, DePaulo suggests thinking about what type of job you’ll have when you’re done. If you know you’ll finish your graduate work and start a career that will qualify you for PSLF, you might want to hang on to your eligibility with a federal loan. A private loan won’t get you access to PSLF.
“Make sure you review the benefits unique to the federal program before you make your decision,” said DePaulo.
If you’re getting an education loan on behalf of your child, carefully consider the fact that Parent PLUS loans aren’t eligible for some of the income-driven repayment options. It’s possible to use a loophole to qualify for PSLF with a parent PLUS loan, but you’ll probably need the help of your loan servicer to make it happen.
And then, of course, you’ll still have to meet the eligibility requirements for PSLF.
Plan ahead to reduce your need for student loans
Do what you can to borrow as little as possible for college. Even the best student loans are still debt. Apply for scholarships during high school. You can even get some scholarships after you start at college, so keep looking all through your university years.
It’s also possible to take other steps to reduce the cost of college — and how much you need to borrow:
- Consider starting at a community college to save money on the first couple years of your education.
- Attend school close to home and save money on living costs by staying with your parents.
- Work part-time or start a side hustle to earn money for school.
- Use a 529 plan or some other account to save money throughout high school (and even during college).
And if you do have to turn to debt to fund your education, carefully compare your options and needs so you get the best student loan for your situation.
Need a student loan?Here are our top student loan lenders of 2018!
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2 = CollegeAve Autopay Disclaimer: All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
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|4.12% – 11.85%*3||Undergraduate and Graduate||Visit SallieMae|
|3.69% – 12.07%2||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|4.07% – 12.19%1||Undergraduate, Graduate, and Parents||Visit Citizens|
|3.83% – 12.11%||Undergraduate and Graduate||Visit Ascent|
|4.63% – 9.71%||Undergraduate and Graduate||Visit LendKey|
|3.62% – 9.79%||Undergraduate, Graduate, and Parents||Visit CommonBond|