College is Expensive
Not only is there the tuition to worry about, but there are room and board fees if you are living on campus, fees for using campus resources, extra fees for certain classes, and of course, the dreaded cost of textbooks.
For many, college is a worthwhile investment that allows them to work invigorating, well-paying jobs, learn from experts in their subjects, and network with students and faculty. But like any investment, you need capital to get started.
That’s where student loans come in.
When done right, student loans help cover the cost of your education before you have any wealth to your name. Then, after you graduate and your earning potential increases, you are able to pay the loans back. These loans come in all shapes and sizes.
Before we go any further, however, let’s define some key terms you’ll see when you start looking at student loans.
- Application and Origination: This is where you apply for the loan and the lender sets up the loan respectively.
- In-School Period: Students are enrolled half-time (at least 6 credits) in school.
- Grace Period: A period after graduation or leaving school (usually 6 months) where the borrower does not have to make payments.
- Repayment Period: The period of time (usually 10 years) where the borrower makes regular monthly payments on the loan.
- Deferment: A temporary postponement of payments under specific conditions.
- Default: Failure to make payment on the loan as agreed.
- Loan Consolidation: Combining multiple loans into one set of monthly payments.
- Interest: This is how the lender makes money on the loan. Interest is the extra money you pay in addition to the actual amount you borrowed.
What Student Loans Are Out There?
There are many places to look for student loans, and it can be overwhelming at first. The best place to start is by understanding what types of loans you’ll find.
Federal Loans
Federal student loans come from the U.S. Department of Education to help cover the cost of college.
A key feature of federal loans is that the interest rate is fixed for the entirety of the loan, and the rate is often lower than other types of loans as well. These loans are also more flexible, usually don’t require a credit check, and have some deferment or forgiveness options down the road.
There are a few main types of federal loans.
- Direct Subsidized Loans: These are for undergraduate students who demonstrate financial need. A major benefit of this type of loan is that the government pays the interest during the in-school period, grace period, and any deferment period.
- Direct Unsubsidized Loans: These loans are available to any student – no demonstrated need required. The limits are also higher than subsidized loans. However, interest is going to accrue during all periods of the loan, including while you’re in school or in the grace period.
- Direct PLUS Loans: These loans are available to graduate or professional students, as well as parents of dependent undergraduate students. The benefit of these loans is that you can borrow up to the cost of tuition (minus financial aid), but there is a stricter credit check and interest accrues from the moment the loan is disbursed.
Private Student Loans
Private loans are offered by banks, credit unions, online lenders, and other private institutions. Because there are so many places that offer student loans, the terms will vary from place to place.
If you’re applying for a private loan, you can expect the following to be part of the process:
- A credit check, to assess how you’ve paid back debt in the past. If you have a good credit score, you can secure better interest rates on your loans.
- A cosigner, usually your parent or guardian, is often required to qualify. Their credit score may affect the terms of the loan.
- An application process, where a student applies to the lender and provides proof of enrollment, financial information, and other required documents.
A major benefit, and also a potential danger, of a private loan is that you can secure a much larger loan than you usually can from the government. Private student loans can also be much more flexible than government ones, depending on the lender. However, there aren’t federal loan benefits and almost no borrower protection.
If you’re going to get a private student loan, make sure to do your research and compare interest rates and terms across multiple lenders.
Institutional Loans
This type of loan is offered by the college itself. Usually these are given out to students with demonstrated financial need, but other factors like merit might come into play as well.
If you want to apply for this type of loan, it will go directly through the college’s financial aid office. Part of the process is filling out the Free Application for Federal Student Aid (FAFSA), a document that most colleges will require you to fill out before giving you any sort of financial aid, whether that be scholarships or loans.
It should be noted that institutional loans are usually not for as much money, since the amount is limited to how much the college has to give out in the first place. In terms of interest rates, repayment plans, and other nuts and bolts of the loans, there is a high level of variance across colleges.
In general, however, you can usually find more favorable terms with institutional loans.
State-Sponsored Loans
State-sponsored student loans are meant to supplement other types of loans, and they are given by states to residents or students going to college within the state. This more specific type of loan is competitive with federal loans and will sometimes offer lower interest rates.
Other aspects of the loan vary from state to state, so it’s important to do your homework on the terms of the loan. Some state-sponsored loans have forgiveness programs where the remainder of the loan is forgiven after a certain amount of time if you are working in a specific field the state is hoping to encourage, like helping an underserved community for example.
Be on the lookout for state-specific incentives like those when considering whether to take a state-sponsored student loan.
Health Profession Loans
Trying to enter the health profession is a long and expensive road. Luckily, there are specific loans designed to help students with exactly that. Here are a couple to keep an eye on:
- Health Professions Student Loans (HPSL): These are for students entering health fields who have demonstrated financial need. They have fixed interest rates, usually lower than direct unsubsidized loans. The current interest rate is 5%. Usually there is a 12 month grace period after graduation as well.
- Primary Care Loans (PCL): These are for students who are committed to primary care fields, like family medicine, internal medicine, or pediatrics. Financial need is required. You get the fixed 5% interest rate and 12 month grace period with these as well, but you are committed to serving in primary care until the loan is repaid.
- Loans for Disadvantaged Students (LDS): You don’t need to work in a specific health field to qualify for this loan, but you do need to be from a disadvantaged background, have financial need, and be pursuing a healthcare profession. There is a fixed 5% interest rate, a 12 month grace period, and possible deferment options during further training or hardship.
- Nurse Faculty Loan Program (NFLP): This loan is for students looking to get an advanced degree in nursing education to become nurse faculty. There are a lot of benefits to these loans: low interest rates and partial loan forgiveness. As much as 85% of the loan can be forgiven over four years of full-time employment as a nurse faculty member.
Best Student Loan Lenders
While it’s usually best to exhaust your federal student loan options before turning to private loans, there is a time and place to find private lenders. We’ve compiled some of the top student loan lenders to consider.
All of the five companies below offer loans covering up to 100% of school-certified costs and have competitive interest rates, whether that is variable or fixed. You can expect to have interest rates ranging from 4-16%, depending on the lender, your credit score, and other factors.
Discover
Repayment Terms: 10-20 years
Benefits: There are no fees (including late fees). Discover also has a multiple year approval option, meaning that students can pre-qualify for loans for multiple years of school with one application.
Why Choose Discover: Their loans offer a 1% cash reward for good grades. If you earn at least a 3.0 GPA (or equivalent), then you earn a 1% cash reward on each new loan.
Sallie Mae
Repayment Terms: 5-15 years
Benefits: Sallie Mae has no origination or prepayment fees, and you can choose from multiple repayment options.
Why Choose Sallie Mae: They are flexible with how you pay back your loan, so you can choose whatever best suits your financial situation. Whether that’s deferring repayment, doing fixed monthly payments, or doing interest repayment plans, they have an option for you.
SoFi
Repayment Terms: 5, 7, 10, or 15 years
Benefits: SoFi has unemployment protection, allowing temporary pausing of payments when you’re out of work.
Why Choose SoFi: In addition to their loans, SoFi also provides career coaching, networking, and financial advice. This can provide you a support system for getting on your feet in the world.
Earnest
Repayment Terms: 5-20 years, with customizable terms
Benefits: There are no fees, and their precision pricing allows you to choose an exact monthly payment to fit your budget.
Why Choose Earnest: Earnest allows you to skip one monthly payment every 12 months without penalty, giving you flexibility and cushion in case of financial difficulty.
College Avenue
Repayment Terms: 5, 8, 10, or 15 years
Benefits: College Avenue has a quick application process, an instant credit decision, and no origination fees or prepayment penalties.
Why Choose College Avenue: They have flexible repayment terms and various monthly payment options. You may also have access to an additional grace period past the usual 6 month grace period after leaving school.
Be Wise!
Student loans can be a great tool to get a quality education and further your career, but they also can become a millstone around your neck later in life if you aren’t careful. Make sure to think carefully before taking on a student loan for college. Hopefully this article can help you make an informed decision.
Grantford also provides information and financial aid resources to students. Our website is your hub for making smart decisions about your educational future.
