What Student Loans Are Best?

What Student Loans Are Best?

9 min read


The average student loan debt per borrower currently stands at $27,000, according to Sallie Mae’s 2018 Financial Aid Trends Report. But how much money should students expect to borrow? And what types of loans are best suited for them? We spoke with financial aid experts about their advice.

Student Loan Types & Amounts

There’s no right answer to the amount of student loans you should take out, said Kristin Brown, director of federal programs at Sallie Mae: “It really comes down to personal factors,” she told NBC News BETTER. “How much do you want to borrow? How long are you going to need that loan for? What’s your credit score going to look like after taking out a loan?”

In general, if you have any kind of good credit, then you don’t need a lot of student loan debt, said John Kelly, chief executive officer of Education Finance Partners, a nonprofit organization focused on helping college students pay off their student loans. If you’re graduating with lots of debt already, though, you might consider consolidating your loans.

You should start thinking about debt repayment before graduation as well, he added. “If you look at the numbers, you should probably be looking at something around 20 percent in terms of your monthly payments over 30 years,” he said.

That means you could end up paying between $600 and $700 a month — even factoring in any income-based repayment options. That may not sound ideal, but it beats defaulting on student loans, which will put you behind on your payments and possibly affect your credit rating. (Plus, Kelly says, you’ll get a tax break.)

Kelly recommends using the Free Application for Federal Student Aid, or FAFSA, to figure out your total estimated family contribution, or EFC, which includes federal, state and institutional grants and scholarships. Then make sure to apply for Stafford Loans, Pell Grants, Direct Subsidized Loans and Direct Unsubsidized Loans. You still have to fill out the FAFSA, but only once for each type of loan, he said, and you won’t need to complete it again when applying for additional loans.

Also, he said, it’s smart to think ahead about whether you’d rather take out a private loan or a subsidized government loan. Private loans tend to cost less than subsidized ones, but they require a co-signer who puts their own money at risk if you fail to repay. On the flip side, you might not qualify for a subsidized loan, but you’ll likely get a lower interest rate.

Lastly, it makes sense to choose your school based on its reputation for strong financial aid offerings. Most schools have some sort of financial aid package, but don’t forget to shop around, he said. There are plenty of colleges and universities that offer outstanding financial aid packages, but you shouldn’t feel obligated to go to one just because it offers great financial aid.

Don’t Take All Out

Brown points out that financial aid isn’t free money, however. You’re giving up a portion of your future earnings for now, and it’s never worth borrowing more than you absolutely need. She adds that even if you don’t have any loans, it’s still a good idea to save enough money to cover the costs of tuition and books. Otherwise, you won’t always know exactly what you’ll owe when you graduate.

Once you’ve determined what you need to borrow, you have to decide where to borrow it from. Your choices range from online lenders like Lending Club and SoFi to brick-and-mortar banks like Wells Fargo and Bank of America.

Brown recommends checking out different programs offered by different lenders, since there are many different ways to structure a loan. For instance, some lenders will give you a set amount of money to spend on tuition, while others let you use the funds to pay for anything related to schooling — including room and board and books.

And remember: Don’t rush to borrow everything you can. �If you borrow too much, it’s harder to manage your finances and you have fewer opportunities to earn extra money,� Brown said.

What Student Loans Are Best?

Student loans are among the biggest factors affecting college students’ debt loads. But what exactly are student loans? And how do they affect you as a college graduate?

How Do Student Loans Work?

When you attend school, you borrow money to cover tuition costs. In return for this loan (called a “federal financial aid award”), the U.S. government grants you certain rights and protections. When you graduate, you have to pay back these loans — and any additional interest that accrues while you’re still enrolled. If you take out a private college loan, you may end up paying even more than the federal government when you make payments.

Types Of Federal Loans Available To College Students

In addition to federal loans, many colleges offer their own student loans. These are often called “private” student loans because they are not guaranteed by the federal government. You’ll get similar terms and conditions to those offered by the feds, but some private loans have higher interest rates.

Federal and Private Loan Options

If you want to take out a loan, you need to know about three things:

What type of loan you want: There are four types of federally subsidized student loans: direct PLUS, direct Unsubsidized, direct Consolidation, and Parent PLUS. Direct PLUS loans require no credit check; you just fill out a simple application. However, you generally won’t receive the maximum amount you’re eligible for unless you meet certain criteria. Direct Unsubsidized loans don’t require a credit check, but they carry high interest rates. Direct Consolidation loans combine your federal and private loans to create a single monthly payment. You’ll likely need good credit to qualify. Finally, Parent PLUS loans require a credit check and are only available to parents who co-sign for their children’s education.

How much you can borrow: Most federal loans cap the total size of your borrowing at $23,000 per year. Your maximum annual federal loan limit depends on your family income — if you earn less than $50,000, you can borrow $3,500; between $50,001 and $100,000, you can afford $4,500; and if your household makes over $100,000, your borrowing limit rises to $5,950. After subtracting the federal government’s contribution, you’ll owe the rest on your loans.

What rate of interest you’ll pay: Interest rates vary widely depending on when you start repayment. A portion of your federal loan is paid off early each month, and the remainder comes due when you finish school. After graduation, your monthly payment is fixed until you begin making payments on the loan. Once you begin repaying your loan, you’ll pay interest based on your lender’s current prime rate. The higher the APR, the larger the price tag on your loan. Currently, the average federal student loan interest rate is 6.21 percent. Private lenders charge variable rates, though the rate increases as the loan becomes closer to its original maturity date.

The Bottom Line

The key to avoiding unmanageable student loan debt is to choose the right loan program for your situation. You should focus first on getting a clear understanding of the terms and conditions of the options available to you. Then, look closely at how the various programs work — for example, how long you’ll have to repay your loan, whether your borrowing limits rise after graduation, and how your eligibility will change if you switch schools. Compare your options using a loan calculator, and pick the best choice for your budget and time frame.

What Student Loans Are Best?

Student loans have become a huge problem in today’s society. There are many people who are struggling just to pay their student loans back, and some even end up losing their homes due to them not being able to make their payments. If you are wondering what student loan options are best for you, then this video should answer all of your questions.

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What Student Loans Are Best?

Student loans have become much easier to obtain. However, what exactly is the best type of student loan? Is it a private student loan? Do you need them at all? What does it really matter? Let’s look a little deeper.

There are two types of student loans: Federal Direct Loans (FDL) and Private Student Loans (PSL). FDL’s are backed by the government and pay back their principal plus interest over 4 years. PSL’s are generally not federally backed, they often carry higher rates, and are paid back over 10 years or even 20 years.

If you plan to go to school for longer than four years, then it might make sense to consider a PSL instead of a FDL. If you only want to take classes for one year or less, then it probably won’t make sense to pursue a PSL. In addition, if you are going to graduate school after college, then a PSL may make sense because many schools require students to sign contracts promising that they will repay their debt upon graduation. On the other hand, FDL’s don’t necessarily have these restrictions.

A FDL is not always the easiest option for someone who wants to attend college right away. Because of the federal government backing of the loans, it means that anyone who uses a FDL pays taxes on their earnings while enrolled. Another disadvantage is that the interest rate charged by a FDL can be quite high. While the interest rate on a FDL is fixed throughout your time at college, the amount you owe increases each semester. This means that each semester, you get a bigger bill. Also, since FDL’s are not federally backed, the federal government sets the interest rate that banks charge lenders. This means that some banks will give lower interest rates to borrowers than others. Since the federal government doesn’t regulate bank policies, this creates some disparity between lenders.

As you can see, the choice between a FDL and a PSL comes down to personal preference. I would recommend doing your research before deciding which one makes more sense for you.

What Student Loans Are Best?

Federal Student Loan Program

The federal student loan program is run by the U.S. Department of Education. These loans offer numerous benefits and can help students pay for their college education without having to borrow money directly from banks. Undergraduate students can use these types of loans to cover tuition costs, room and board, books, supplies, and other school-related expenses. Students who want to graduate can apply for Pell Grants and Perkins Loans. Graduates can then use their Pell Grant and Perkins Loan funds to cover any additional financial aid they need to pay for post-school expenses. In addition to those programs, parents can also use their own money to pay for their children’s college educations. Parents can have their own student loans taken out and use them to pay for their child’s education at an accredited school. This would allow both parent and child to benefit financially from attending school.

Private Student Loan Programs

Private student loan companies often provide lower interest rates than government-backed student loans. However, private lenders may charge higher fees. If you choose to take out a private loan, make sure you compare interest rates offered by different companies before choosing one.

Subsidized Stafford Loans

If you meet certain criteria, you may qualify for subsidized Stafford Loans. To get subsidies, you must fill out the Free Application for Federal Student Aid (FAFSA), and show proof that you receive no income above the poverty line. You must also maintain a 2.0 GPA while enrolled in college. Once approved, you’ll receive a monthly amount of federal assistance called Direct Unsubsidized PLUS Loans.

Parent PLUS Loans

Parents can sometimes use their own personal income to help pay for their children’s tuition. However, parents don’t always qualify for this type of loan. Most states require parents to have a high enough household income to qualify. If you’re not eligible for private student loans, you might be able to get a Parent PLUS Loan. You’ll need to submit a FAFSA application and then request a state PLUS Loan. After approval, the state will issue you a monthly amount of cash you can use to cover tuition costs.

State School Loans

Some states offer low-interest loans for residents who attend public schools. These are known as school consolidation loans. You should check if your state offers this loan option. If so, you’ll be given a fixed interest rate that won’t change over time. Interest rates aren’t as competitive as a private loan, but they do offer a steady stream of payments.

Other Options

Other options include a 529 Plan, Coverdell ESA, and Guaranteed Student Loan. There are a lot of other programs available to students depending on what kind of school they’re going to attend. Make sure you know which loans and scholarships work best for your situation.

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