There Are Some Downsides To Federal Student Loans:
- If you default on your loan by not making any payments for 270 days, then the government can garnish all of your tax refund and/or part of your wages or Social Security income.
- The amount of money you can borrow is limited. Freshmen can borrow up to $5,500 from your third year onward, the most you can borrow is $7,500.
Private Student Loan Repayment Plans
When it comes to repayment after graduation, many private student loan lenders will offer payment assistance if its needed, but the available options are more limited than federal loans. For example, private lenders typically cannot offer income-contingent repayment plans or loan forgiveness. That said, the terms of a private loan can typically be altered after signing if assistance is needed.
The sooner you begin paying down the principal and interest on a private loan the better, but circumstances do not always allow for that. Repayment options vary by lender but common plans include:
- Interest Only You make interest-only payments for the first two years of the repayment term of your loan.
- Interest Plus You make interst payments, along with a monthly amount you determine for the first two years of the repayment term.
- Full Principal and Interest You start repaying your principal plus interest right away.
Some lenders offer more repayment flexibility than others. At College Ave., in addition to offering a forgiveness policy, we work with you on repayment options, should you encounter financial hardships.
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Tips For Comparing College Loans For Parents
Your first task is to decide whether a federal or private parent loan is best for you. If you need federal loan protections, or if you have damaged credit, a PLUS loan is likely a better choice.
The federal government conducts credit checks on PLUS loan borrowers, but there are specific negative marks its looking out for. The government will consider you to have adverse credit history if you have one or more of the following on your credit report:
- Debts totaling more than $2,085 that are at least 90 or more days past due or that were in collections or charged off in the past two years
- Within the past five years, a: Default determination Wage garnishment Charge-off of a federal student aid debt
But if you learn you have an adverse credit history after you apply, you can explain the circumstances that led to it, and the government could determine that youre eligible for a PLUS loan after receiving loan counseling. Another option is to get an endorser, similar to a co-signer, that can help you qualify. Finally, your child can qualify for additional federal direct unsubsidized loans to help them pay for school if you cant get a parent PLUS loan.
If youve decided to take out a private student loan, parents generally have stronger credit than undergraduate students who havent had time to build their own credit histories. That means that in lenders eyes, theyre less risky borrowers than students, and receive interest rates to match.
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How Do I Choose A Student Loan
When choosing a student loan, start by looking at federal loans. More than 90 percent of outstanding student loans are federal, and for good reason: With low rates and many options for payment assistance and loan forgiveness, they’re the best choice for most borrowers.
If you do look for private loans, the best way to choose a loan is to compare offers from a few lenders a good rule of thumb is to get prequalified with at least three. Once you have offers in hand, you should choose the lender that gives you the lowest interest rate, the best repayment terms and the fewest fees.
Also consider whether the lender offers unique features. If a lender offers a long deferment period while you’re doing a medical residency, for instance, it may be worth it to choose that lender over one with a slightly lower interest rate.
Why You Shouldnt Get A Refund
If you’re looking for reasons to skip getting a refund on your student loan payments, the biggest one is having the belief that student loan debt will not be canceled in the near future. After all, you wouldn’t want to let the government keep that money if student loan debt will be forgiven a few years from now. Unfortunately, it seems very unlikely that student loan debt will ever be forgiven, and particularly not on a massive scale.
If you made payments during the Covid-19 relief period, you moved your payoff date up significantly farther than borrowers who didn’t. It has been a full two years since payments on federal student loans were originally paused and interest rates were set at 0%, so getting a refund now would essentially “undo” all the progress you made during that time.
Worse, you would have to begin making interest payments on debts you already paid off once.
According to Melanie Hanson, who is Editor in Chief at EDI Refinance, this is the financial equivalent to taking out a loan for the amount of the refunded payments at the rate you’re paying on your student loans.
“When you’re deciding if getting these refunds is worthwhile, this is the metric against which you should compare,” she says.
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What Makes It Hard To Get A Car Loan As A College Student
- Low or no credit scoreâMost students havenât had the time to build a good credit score through traditional means or havenât even begun.
- Unreliable incomeâMany students donât have the time available for a full-time job.
- Limited savingsâThe difficulty of maintaining employment means the chances of any significant savings are fairly slim.
How Is The Interest Rate On A Parent Loan Determined
All federal parent PLUS borrowers get the same rate, which is determined by Congress, if they qualify. PLUS loans require a credit check, but it is more limited than the check private lenders perform.
Most private lenders tie your interest rate to your credit history and income. Parents often have stronger credit than their undergraduate children, so they may qualify for lower interest rates on private loans as the primary loan borrowerbut not always.
Its best to compare interest rates across not only parent PLUS loans and private parent loans, but also with federal direct subsidized and unsubsidized student loans. In 2020-21, federal student loan interest rates are at record lows, and if your child borrows on their own behalf, you wont be responsible for payments in the future. Make sure your child maxes out their own federal loans first before you consider taking out a parent loan.
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Repaying Federal And Private Student Loans
- Federal student loans: Following a six-month grace period, you generally begin to make payments.
- Private student loans: Youll generally have a six-month grace period. If you elected to make in-school fixed or interest payments with our , youll continue to make those payments during your grace period. After that, youll begin to make principal and interest payments.
Best Interest Rate: College Ave
When youre applying for a student loan, you can often choose between variable and fixed interest rates. While fixed-rate loans have the same interest rate for the duration of the repayment term, the interest rate on variable-rate loans can fluctuate over time. If you want to pay off your debt quickly, opting for a variable-rate loan can allow you to take advantage of the lower initial rate.
College Ave offers some of the lowest rates on undergraduate student loans:
- Variable Rate: As low as 0.94%
- Fixed Rate: As low as 2.94% .
With College Ave, you can borrow up to the total cost of attendance . There are 4 different repayment options to choose from, along with 4 different term lengths, and you can defer your payments until after graduation or opt to make in-school payments.
College Ave offers the following repayment options:
- Full Principal and Interest Payment: Start repaying principal plus interest right away to save the most over the life of your loan
- Interest-Only Payment: Make payments to cover the interest only while in school
- Flat Payment: Make $25 payments while in school to reduce accrued interest
- Deferred Payment: Pay nothing while in school, but interest will still accrue
Read the full review:College Ave Student Loans
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Federal Vs Private Student Loans
Federal student loans are offered by the U.S. Department of Education, while private student loans are offered by banks, credit unions and private lenders. It’s almost always best to start your search with federal student loans, though private student loans also offer some unique perks.
The biggest difference between federal and private loans is in the rates and eligibility requirements. Private lenders base your rates on your credit score, with a poor credit score leading to higher rates. Federal student loans, on the other hand, offer every borrower the same rate for each type of loan. The average interest rate on a private student loan can range from 0.99 percent to 12.99 percent, while federal loans charge 3.73 percent, 5.28 percent or 6.28 percent, depending on the loan type.
Some federal loans do have borrowing limits, so borrowers will often turn to private lenders to finance their remaining academic costs. However, while private loans can often finance up to the total cost of attendance, they don’t offer as many ways to customize your repayment plan.
|Income-driven repayment plans, robust deferment and forbearance, no minimum credit score||Low interest rates for good-credit borrowers, often zero fees, lender-specific perks|
|Drawbacks||Potentially higher interest rates than private loans for borrowers with good credit, loan amount caps for undergraduate borrowers|
Do I Need A Cosigner For A Student Loan
This depends on the type of student loan you want to get as well as on your credit.
- Federal student loans: Most federal student loans including both Direct and Unsubsidized Loans dont require a credit check or a cosigner. PLUS Loans, on the other hand, do. If you have any sort of adverse credit history, you might need an endorser to apply with you.
- Private student loans: Youll need good to excellent credit as well as verifiable income to qualify for a private loan. If you arent eligible on your own, applying with a cosigner could improve your chances. In fact, most private loans are cosigned. Additionally, having a cosigner could get you a lower interest rate than youd get on your own.
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Are Private Student Loans Right For You
It can be hard to know if private student loans are right for you. Honestly… there is no right answer. Some people swear off private student loans. Other people have found them to be a helpful way to pay for college while saving money in interest.
It’s important to remember that Federal student loans come with a lot of options, and they usually have a very good interest rate. With Federal student loans, you get access to income-driven repayment plans, student loan forgiveness options, and more. You don’t get many benefits with private student loans.
However, private student loans typically give you the best student loan rates possible.
You might also consider an income-sharing agreement as an alternative to a private loan. Income-sharing agreements are where you get money for school in exchange for paying back a portion of your income after graduation. These plans are typically structured in a way that means you only pay back if you see a positive return on your education. Check out our guide to income-sharing agreements here.
As with everything related to paying for college, we recommend you follow the Proper Order Of Operations To Pay For College. Make sure you’ve exhausted your other aid, Federal student loans, and working before diving into private student loans. If you’re at that point already, then make sure you’re shopping around for the best student loan rates and terms.
Federal Student Loan Repayment Plans
Every loan comes with terms for how and when you will be required to repay it. The repayment term usually refers to the amount of time you are given to repay your loan. Paying the loan back sooner will result in a lower overall cost but will result in larger monthly payments. Repayment terms can also refer to different options for repayment.
In the case of federal student loans, the Department of Education sets out all terms for repayment. If circumstances make monthly payments difficult to meet, the DOE has programs that can lower or erase your monthly payments, and/or extend your repayment duration.
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Are Student Loans Worth The Cost
Student loans can be expensive, with application fees and making monthly principal and interest payments. They can get especially expensive if you choose to go to grad, medical or law school in addition to a 4-year college. If you have an alternative way to pay for college, then its great to explore that first. Otherwise, student loans are generally worth the cost because youre investing in yourself and your education, which should help you land a higher paying job or acquire the knowledge and skills to start your own business.
Who Should Choose A Private Parent Loan
If you wont need access to federal repayment programs, you can qualify for a low interest rate, or youll be able to pay off the loan fast and avoid high interest charges, a private parent loan could be a good option. Just make sure to understand your lenders policies in case you experience an unforeseen financial hardship in the future.
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How To Borrow Responsibly For College
When youre borrowing money for college, its important to . We recommend these three steps:
Other tips for borrowing responsibly: Consider what your salary will be after you leave school, remember that youll have to pay back your loans with interest, and dont borrow more than youll need for school costs.
Student Loan Cancellation Helps Current Borrowers But Hurts Future Borrowers
Student loan cancellation for current student loan borrowers would be welcomed with open arms by those who hold student debt. The idea of cancelling all your student loans is a path to financial freedom. . The major proposals for student loan cancellation all include one-time student loan forgiveness. This means that if you have student loan debt on the day student loans hypothetically get cancelled, you win. If you borrow student loans the next day, youre out of luck. Whats the solution for tomorrows student loan borrowers? Will student loan cancellation only be one time? Will there be student loan cancellation annually? Supporters of student loan cancellation havent answered these questions. However, if the goal is to help address growing student loan debt, its essential to consider the full picture. Some will argue that cancelling student loans today is not a perfect solution, but at least it will provide immediate financial relief to current student loan borrowers. Thats true. Equally important are tomorrows student loan borrowers, and they deserve a solution too.
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Can I Get A Student Loan With A 600 Credit Score
If you have less-than-perfect credit, you might still qualify for either a federal or private student loan:
- Federal student loans: Most federal loans dont require a credit check, which could make them a good option if you have poor credit. While youll have to undergo a credit check to get a federal Direct PLUS Loan, this is only to make sure you dont have an adverse credit history no specific minimum credit score is necessary to qualify.
- Private student loans: Youll generally need good to excellent credit to get approved for a private loan. However, there are several private lenders that offer student loans for bad credit though keep in mind that these loans typically come with higher interest rates compared to good credit loans. You could also consider applying with a cosigner to improve your chances of getting approved.
Know The Rules And Numbers
As with most things, once you take out student loans, there’s no going back.
The best place to start is familiarizing yourself with the rules of your specific student loans, said Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida.
“Now that you have school loans and you’ve got to deal with them, it’s important to understand what types of loans you have,” McClanahan said. “There are federal loans and then there’s private loans, which are very different.”
If you take out federal loans through your university or college, make sure to be familiar with the loan provider and access their website to track how much you owe while you’re in school same for your private loans.
With your federal loans, McClanahan said familiarize yourself with the types of loans you have which can include direct subsidized loans, direct unsubsidized loans, parent PLUS loans and graduate PLUS loans.
Subsidized loans are for undergraduate students only and are based on financial need, according to the Federal Student Aid office. They are beneficial to the borrowers because the federal government pays the interest for you while you’re in school at least part time and for the first six months after you graduate.
Unsubsidized loans are for undergraduate and graduate students, and they are not based on any financial need, according to FSA. But the borrower is responsible for paying back interest on the loans.
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