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 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 2/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.23% – 13.23%1||Undergraduate and Graduate|
|4.20% – 11.44%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 10.11%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|5.85% – 6.99%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|