University Student Loan: Getting Started And Strategies

Getting a university education is expensive, and most students need to borrow money to pay for it. The first step in getting a student loan is to check your eligibility and the type of funding you could get. Then, you should explore free money options such as scholarships and grants. After that, you can look into federal student loans, which are provided by the government and have lower interest rates and more flexible options than private loans. If federal loans are insufficient, you can consider private student loans, which are issued by banks and other financial institutions. These usually require a credit check and a co-signer.

Federal student loans vs. private student loans

When it comes to financing your university education, there are two main types of student loans available: federal and private. Here's a detailed comparison between the two to help you make an informed decision:

Federal Student Loans:

• Offered by the federal government, generally preferred due to unique benefits and protections.
• Fixed interest rates established annually by loan type, tend to be lower than private loans.
• Standard repayment term is 10 years.
• Annual and lifetime limits set by the US Department of Education.
• Income-driven repayment plans available, allowing payments as low as 10% of discretionary income.
• Few to no credit requirements—most don't require a credit check.
• Loan forgiveness options are available, although not all federal loans qualify.
• Lower loan amounts compared to private loans.
• Three main types: Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.
• May have upfront fees, loan limits, and limited choice of servicers.

Private Student Loans:

• Offered by private lenders such as banks, credit unions, and online companies.
• May have higher interest rates that fluctuate with the market.
• No set limits, allowing borrowing up to 100% of the total cost of attendance.
• Usually require a credit check and depend on creditworthiness.
• May offer lower interest rates for graduate or professional students or parents with excellent credit.
• More flexible loan terms, ranging from 5 to 20 years.
• Lack loan forgiveness programs and income-driven repayment plans offered by federal loans.
• Often require a co-signer for approval.
• May have higher interest rates for borrowers with no credit history or a low credit score.
• Application processes vary across lenders.

Key Considerations:

• Federal loans are generally the preferred option due to their benefits, such as fixed interest rates, subsidies, and repayment programs.
• Exhaust federal loan options first before considering private loans.
• Private loans may be suitable if you've reached federal loan limits or if you're a graduate/parent with a solid credit score.
• Compare interest rates, repayment options, and borrowing costs between federal and private loans.
• Consider your financial health, the amount you need to borrow, and your repayment capabilities.

How to get a federal student loan

Federal student loans are a great option for financing your education as they are provided directly by the government and offer reliable funding. They should be your first option because of their low, fixed interest rates and borrower protections.

Submit the FAFSA

Firstly, you will need to submit the Free Application for Federal Student Aid (FAFSA). This is a crucial step as it is the only way to access free money for school that you don't have to pay back. The FAFSA can be submitted online, which is the fastest option, or by mail. You will need to provide information such as your Social Security number, driver's license, tax returns, bank statements, and other financial information. You will also need to list any schools you are interested in attending. The FAFSA will help determine your eligibility for federal student loans, as well as other financial aid such as grants and work-study programs.

Review your FAFSA Submission Summary

After submitting the FAFSA, you will receive a FAFSA Submission Summary. This document outlines your potential eligibility for federal loans and your Student Aid Index, which schools use to determine the financial support you may need.

Determine how much money to borrow

There are different types of federal student loans available, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Direct Subsidized Loans are need-based and are only available to undergraduate students. Direct Unsubsidized Loans are available to both undergraduate and graduate students and are not based on financial need. Direct PLUS Loans are unsubsidized and are available to parents of dependent students and graduate/professional students. There are limits on how much you can borrow, which depend on factors such as your year in school and dependency status.

Accept your financial aid offer

Once you have reviewed your financial aid options, contact your chosen school to accept the financial aid offer. Compare the total cost of attendance with your estimated financial aid award to determine if you need to borrow additional funds.

Explore private student loans if needed

If federal aid does not cover all your costs, you may consider private student loans. However, keep in mind that private loans usually require a credit check and often have higher interest rates than federal loans.

It is important to carefully review the terms and conditions of any loan you are considering and to only borrow what you truly need.

How to get a private student loan

Private student loans are typically issued by a bank or financial institution. They can be used to cover expenses while in school, but will eventually need to be repaid. Here is a step-by-step guide on how to get a private student loan:

Research and compare lenders

Start by researching and comparing private student loan lenders. Eligibility requirements, repayment terms and interest rates vary by lender, so it is important to shop around. Some lenders let you check your rates through prequalification and a soft credit check, which won't impact your credit score.

Prequalify for a student loan

If possible, prequalify for a student loan to get an idea of the rates and terms you might be offered. This can help you narrow down your list of lenders.

Determine the loan amount and gather financial information

Work out how much you need to borrow and gather the necessary financial information. Lenders will typically ask for your address, Social Security number, income, employment information and details about any co-signer.

Fill out applications

Fill out applications for a few different lenders – between three and five is a good number. This will allow you to compare multiple offers and choose the best one for your needs.

Compare offers

Once you have received offers from the lenders, compare them to determine which is best for you. Consider factors such as interest rates, repayment terms, fees and eligibility requirements.

Choose an offer and apply

Once you have found an offer that suits your needs, submit a full application. You can usually apply online and may need to provide additional documentation, such as W-2s, tax returns, ID and proof of address.

Sign the loan agreement

If your application is approved, the final step is to carefully read through and sign the loan agreement. Make sure you understand the rates, terms and conditions of the loan, as well as when your first payment is due.

Student loan repayment options

There are several options available to repay your student loan. The best option for you will depend on your personal circumstances and goals. Here are some of the most common repayment options:

Standard Repayment Plan

The standard repayment plan is a good option if you want to pay less interest over time. With this plan, you make equal monthly payments for 10 years. This is the default plan that you will be placed on when you enter repayment.

Income-Driven Repayment (IDR) Plan

The income-driven repayment plan is ideal if you are having difficulty meeting your monthly payments and need a more manageable option. There are four types of IDR plans: income-based repayment, income-contingent repayment, Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE). Your monthly payments are set between 10% and 20% of your discretionary income and can be as low as $0 if you are unemployed. The term of the loan is extended to 20 or 25 years, and at the end of the term, any remaining debt is forgiven.

Graduated Repayment Plan

The graduated repayment plan may be suitable if you have a high income but want lower payments initially. This plan starts with lower payments, potentially as low as the interest accruing on your loan, and then increases them every two years, with repayment completed in 10 years.

Extended Repayment Plan

The extended repayment plan is an option if you want lower payments by stretching out your repayment period for up to 25 years. You must owe more than $30,000 in federal student loans to qualify for this plan. You can choose between fixed payments, which are the same each month, or graduated payments, which increase over time. Unlike the income-driven repayment plan, the extended repayment plan does not offer loan forgiveness.

Prepayment

If you want to get rid of your debt faster, you can prepay your loans. This option will save you interest, especially under the standard repayment plan.

Deferment or Forbearance

In some cases, you may be able to temporarily postpone repayment altogether with deferment or forbearance. However, your loans will continue to accrue interest during this time, increasing the total amount you owe.

It is important to carefully consider your situation and goals when choosing a repayment plan. Additionally, remember that you can change your repayment plan if your circumstances change.

Student loan refinancing

However, if you refinance federal student loans into a private loan, you’ll no longer have access to federal benefits and protections, such as student loan forgiveness programs and federal forbearance options.

When to refinance your student loans

Consider refinancing if:

• You’re financially secure and have a reliable income.
• You qualify for a lower rate.
• You want to adjust your repayment term.

Rethink refinancing if:

• You’re not financially secure.
• You qualify for a federal forgiveness program.
• You rely on federal protections, such as income-driven repayment.

How to refinance your student loans

• Find prequalified rates: With some lenders, you can prequalify for a refinanced loan with only a soft credit check. This can help you better understand what each lender can offer.
• Research and compare lenders: Compare the prequalified rates from lenders to find the right loan for you. Consider not only interest rates but also repayment terms and monthly payments.
• Pick your loan option: After you’ve compared lenders, choose the loan option that best suits your needs. Also, consider whether or not you will need a cosigner to include on the application.
• Complete the application: Once you’ve picked a lender, fill out a full application and submit any required documentation, such as tax returns or pay stubs.
• Manage your payments: If you’re approved, continue making payments on your old loans while the refinance is processed. Afterward, you’ll start making payments on your new loan.

Benefits of refinancing a student loan

• Might get a lower interest rate: Depending on your credit, you could lower your student loan interest rate through refinancing.
• Could reduce your monthly payments: If you choose a longer repayment term, you could reduce your monthly payments. Just remember that doing so means you’ll pay more in interest over time.
• Can combine multiple loans: If you refinance your student loans, you’ll be left with just one loan and payment to worry about.
• Can remove cosigners: If you’d like to remove a cosigner from your student loan, you can do so through refinancing as you’ll be paying off the old loan.

Downsides to refinancing a student loan

• Fewer options for bad credit: If you have poor or fair credit, it could be harder for you to get approved for refinancing.
• Loss of federal benefits: If you refinance federal student loans into a private loan, you’ll no longer have access to federal benefits and protections.
• Lack of repayment options: Private student loan repayment options are generally much more limited compared to federal loans.

Frequently asked questions