Lana Oconnell
Students can apply for loans to help cover the costs of college or graduate school. Sallie Mae, for example, offers loans that can cover up to 100% of college or graduate school costs across over 4,000 eligible schools. Students should only borrow what they can afford to pay back and consider federal loans before private loans. Private student loans are credit-based, requiring a credit check and a potentially creditworthy cosigner.
| Characteristics | Values |
|---|---|
| Loan provider | Sallie Mae |
| Loan type | Federal loans, private student loans |
| Interest rate type | Variable interest rate |
| Loan application | No cost to apply |
| Application information | Basic personal and financial information, type of interest rate and repayment plan, cosigner's financial information |
| Loan amount | Up to 100% of school-certified costs |
| Repayment | Full amount borrowed plus interest |
| Repayment plan | Monthly payments |
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What You'll Learn
Borrowing only what you can afford
It is also worth noting that federal student loans have borrowing limits, and if you've reached your limit, there are other options to consider. For example, you could attend a community college or in-state school, which tend to be less expensive than out-of-state or four-year universities. Enrolling in an online program could also reduce housing and transportation costs. Additionally, picking up a part-time job can help cover some expenses, and if you've maxed out your federal financial aid, a private student loan could be an option, although these typically have higher interest rates.
When deciding how much to borrow, it's crucial to consider your future earnings and try not to accumulate more debt than you expect to earn. This is a personal decision that should take into account your individual circumstances, and it may be helpful to discuss it with family or financial advisors. Maintaining your own records of loan documents and transactions is also important for staying informed about your total loan balance.
In summary, borrowing only what you can afford involves careful consideration of your expenses, income, and future earnings. By being mindful of these factors and exploring alternative options, you can minimise your student debt and make informed financial decisions. Remember that borrowing should be a thoughtful and considered process, tailored to your personal situation and needs.
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Federal loans
There are different types of federal student loans, and considerations to take when applying. Students can search online for scholarships or ask a school guidance counsellor for help. Students should be cautious about paying a company for help finding financial aid.
The FSA has also launched an enhanced Income-Driven Repayment (IDR) process, simplifying the time it takes for borrowers to enrol in IDR plans and removing the need to recertify their income annually. The FSA will also provide borrowers with resources and support to assist them in selecting the best repayment plan.
Nelnet is a student loan servicing company that provides customer service for Federal Direct Loan Programs and Federal Family Education Loan (FFEL) Programs owned by the US Department of Education. Students can log in to Nelnet.studentaid.gov to access their accounts.
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Private student loans
It is important to note that private student loans should be considered only after exploring other options such as savings, grants, scholarships, and federal student loans. Federal loans typically have lower interest rates and offer more flexible repayment options, including income-based plans and loan forgiveness benefits. Additionally, federal loans are available to students regardless of their income.
Interest rates on private student loans can be either fixed or variable. Fixed rates remain the same over the loan's lifetime, while variable rates start low and increase over time. The interest rate offered to a borrower depends on their credit history; borrowers with bad credit may receive rates that are significantly higher than advertised figures. It is recommended to use tools like Finaid's Loan Payment Calculator to understand the repayment amount, including the full borrowed amount plus interest.
To increase the chances of approval and obtain a better interest rate, it is advisable to apply with a creditworthy cosigner. International students studying in the US, for instance, can apply for private student loans with a cosigner who is a US citizen or permanent resident. Before applying for any private student loan, individuals should thoroughly research the available options and compare loan limits, interest rates, fees, and loan terms to make an informed decision.
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Variable interest rates
When considering a variable-rate student loan, it's important to be aware of the risks involved. While variable rates can save money if interest rates fall, they can also increase, leading to higher monthly payments. It's challenging to anticipate when student loan interest rates will change and in which direction they will move. Therefore, variable-rate loans are generally considered riskier than fixed-rate loans, which offer stable and predictable monthly payments.
However, there may be scenarios where choosing a variable-rate loan can be beneficial. During periods when interest rates are expected to remain flat or decrease, variable-rate loans can offer potential savings. Additionally, if the Federal Reserve lowers its benchmark rate, lenders might also lower their minimum advertised rates, positively impacting borrowers with variable-rate loans.
On the other hand, if the Federal Reserve decides to increase its benchmark rate, lenders are likely to increase their interest rates as well. This can lead to higher monthly payments for borrowers with variable-rate loans. It's important to carefully consider your financial situation and risk tolerance before opting for a variable-rate student loan.
When deciding between a fixed or variable interest rate for student loans, it's essential to weigh the pros and cons of each option. Variable-rate loans may be suitable for those seeking potential savings and who are comfortable with the risk of fluctuating interest rates. On the other hand, fixed-rate loans provide stability and predictability, making budgeting easier. Ultimately, the decision should be based on individual preferences, financial circumstances, and expectations of future market conditions.
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Cosigning a loan
Many students applying for private student loans require a cosigner—a creditworthy adult who agrees to repay the loan if the student defaults. This is because most college-bound students have not yet established a credit history and are likely to only be working part-time, if at all. A cosigner with a good credit record can help students qualify for a lower interest rate on their loan.
Lenders will check the credit history of both the borrower and the cosigner before approving a loan. Cosigners can be relatives, guardians, friends, or spouses, but only one person can cosign a loan. Cosigners should be aware that they are legally obligated to repay the loan if the student cannot. Missed payments will negatively impact the credit report of both the student and the cosigner.
If the loan goes into default, private lenders may hire collection agencies to get the cosigner to repay. The cosigner could also be sued by a debt collector or lender. However, some lenders allow the student to apply for cosigner release after they have made a certain number of on-time payments and met credit requirements. For example, for Sallie Mae loans, a student can apply to release a cosigner after making 12 on-time principal and interest payments and meeting certain credit requirements.
Before asking someone to cosign a loan, students should consider the obligations and risks involved. Cosigning a loan can help students start building their credit history, which can be beneficial when they need loans, credit cards, or other forms of credit in the future. It can also help them develop good financial habits and learn to manage their debt.
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Frequently asked questions
You can apply for a student loan on the lender's website.
You will need to provide basic personal and financial information, and choose the type of interest rate and repayment plan you want for your loan. If you are applying with a cosigner, they will also need to provide their financial information.
You can use your student loan to cover any of your school costs included in your school's cost of attendance (COA) for the year.
Your repayment amount includes the full amount you borrowed, plus interest. For Sallie Mae loans, you can pay back your loan through a monthly payment system.
