Best Student Loans
Based on In-Depth Reviews
- 200+Hours of Research
- 25+Sources Used
- 11Companies Vetted
- 4Features Reviewed
- 7Top
Picks
- Take advantage of federal student loans first
- Private lenders always evaluate your credit history for loan approval
- A creditworthy cosigner can increase your chances of approval
- Making in-school payments can help reduce interest accrued on the loan
How we analyzed the best Student Loans
Our Top Picks: Student Loans Reviews
For many student borrowers, private student loans are the only way they can afford college. Federal aid helps, but there are limits to how much students can borrow per academic year. While private student loans can offer considerable backup, it’s important for consumers to understand what happens once they receive the disbursement. Just like federal student loans, private student loans must be paid back, the difference is that private lenders examine your credit.
Lenders make a profit by charging interest on loans. The interest rate you qualify for will depend on your credit history and can be much higher than anticipated, leading to an accrue of interest on your loan and taking more years to repay.
During our research, our team found a correlation between uninformed consumers and excessive private student loan debt. That’s why we’ve invested more than 100 hours of research, interviewed experts, and vetted several student lenders to bring you all the information you need should you choose to borrow a private student loan.
This site does not include all companies or all available offers. Companies listed below are listed in alphabetical order.
Ascent is a private student loan program geared towards helping more students with limited income or credit history qualify for loans. Ascent is administered by Goal Structured Solutions, a finance and asset management company, while its student loans are backed by Bank of Lake Mills.
Best student loans for bad credit
There aren’t many lenders out there catering to the needs of young student borrowers. Ascent, however, does just that through flexible credit requirements that help more students qualify for loan approval, with or without a cosigner.
Ascent considers more than just credit scores and income during its approval process. They also take into account several other factors, such as the school's cost of attendance and the borrower's degree program, graduation date, and major. Having a cosigner on your loan may reduce the interest rate you are offered.
Ascent has flexible credit requirements and only turns down borrowers who have previously defaulted on loans or filed for bankruptcy. This is a great feature for both young borrowers without much credit history, as well as more seasoned ones who may already have some debt or outstanding loans.
Screenshot ascentfunding.com
Transparency
Another feature that caught our eye about Ascent was its transparency. The website provides in-depth, straight-forward answers to questions on topics that other lenders typically avoid, such as eligibility requirements and hardship assistance options. The lack of disclaimers on the company's website can be seen as yet another trust indicator for student borrowers.
Ascent’s website is minimalistic and user-friendly. Our team found the content on the website to be well-organized and easy to locate.
Additional Benefits
In addition to an automatic payment discount, which is common among private lenders, Ascent promotes a seasonal $1,000 scholarship sweepstakes. The scholarship is open to any student applicant, borrowers and nonborrowers. Those applying only need to complete a survey, and there is no essay requirement.
Ascent also provides borrowers with perks such as their 1% Cashback Reward and the opportunity to earn up to $525 for each friend referred to Ascent through their Refer A Friend Program.
Ascent has a generous temporary hardship assistance program. Borrowers experiencing financial difficulty can receive loan forbearance up to 24 months, available in 3-month increments. Those accepted into a qualifying residency or internship program are also eligible for up to 48 months of loan deferment. Finally, borrowers who are on active military duty are eligible for deferment for up to 36 months.
Screenshot ascentfunding.com
Room for Improvement
As with any lender, our team has identified a few areas where Ascent could improve. For one, the company doesn't offer student loan refinancing or parent loans. This means parents looking to borrow for a child's education will have to look elsewhere.
In addition, Ascent requires all international students to have a co-signer that is a U.S. citizen or permanent resident in order to qualify for a loan. This can be an obstacle for some international students who may not have access to a U.S.-based cosigner.
Finally, Ascent doesn't offer loans to students that are attending less than "half-time," so students taking less than six credits per term will need to work with a different lender.
Established in 2014, College Ave Student Loans is an online lender offering undergraduate, graduate, career and parent student loans as well as student loan refinancing. College Ave consistently offers some of the most competitive rates and flexible repayment terms in the industry. Prospective borrowers can apply for funding in as little as three minutes and find out immediately if they qualify, making it one of the fastest and most convenient options on the market.
Best student loans for undergraduates
College Ave Student Loans is our top pick for undergraduate student loans. The company's flexible repayment options make it a great choice for students looking to manage their monthly payments. College Ave offers 5, 8, 10, and 15-year term loans, and up to 20-year term loans for graduate degree holders, giving borrowers multiple repayment options. In addition, borrowers can choose to pay interest-only and flat $25 monthly payments while in school. In-school payments reduce the interest that accrues during that period, lessening the loan amount to be repaid after graduation.
In a similar manner to federal loans, College Ave defers student loan payments until after the borrower graduates from college. College Ave borrowers benefit from a 6-month grace period for undergraduate loans and a 9-month grace period for graduate loans. Unlike some other lenders that have maximum loan amounts, College Ave provides loans up to the full cost of attendance with a minimum loan amount of $1,000. This makes it ideal for students without significant financial aid who need to cover the whole cost of their education.
Quick Application Process
We found College Ave’s website to have a user-friendly interface and information that's very easy to read and locate. Similarly, the application process is very straightforward. The application is designed as a walk-through for borrowers, explaining the process while pointing out details like the difference between applying alone and with a cosigner. Users can get a credit check within 3 minutes and the company will inform prospective borrowers of their approval before finalizing the application, in case they decide to add a cosigner. Applicants will see their interest rate once their application is approved.
Another strong point with its application process is that potential borrowers can use College Ave’s pre-qualification tool to get an idea of whether they will be approved, as well as view the estimated interest rate and loan terms. This feature is free to use and doesn’t constitute a hard credit check, meaning it won't impact your credit score.
Screenshot collegeavestudentloans.com July 8, 2019
Customer Resources
Graduate students may know a thing or two about student loan terminology, but high school students, not so much. College Ave provides a comprehensive student loan glossary, helping soon-to-be undergrads (and parents) understand terms, abbreviations, and other industry jargon.
The website also has a resource section, offering informative how-to articles on topics such as how to apply for loans and grants and how to pay for graduate school. The FAQ section is well-organized, categorized by loan type, and very easy to follow. It even includes a search bar, enabling users to immediately locate the answers to their specific questions.
Users can also find loan calculators to help estimate accrued interest rates and analyze their individual repayment terms. One of our favorite features are College Ave’s monthly scholarship sweepstakes and contests where both students and loan applicants can enter for chances to win money and other college essentials, such as free college textbooks for a year.
Room for Improvement
One area where College Ave falls short is that co-signers cannot be released until the loan is halfway through its repayment term. As a result, co-signers are locked into the loan for a longer period of time than with other lenders. Other conditions that the borrower must meet to release the co-signer include:
- A minimum of 24 consecutive payments (not including periods of deferment or forbearance)
- Be a U.S. citizen or permanent resident
- Pass a credit review — no 30-day or greater delinquency in the last 12 months and no bankruptcy, foreclosure or repossession in the last 24 months
- A documented annual income that is at least twice the balance of outstanding loan
For more information, read our full College Ave Student Loans review.
Founded in 2012, Credible is an online marketplace that connects borrowers with a network of lenders that offer student loans, student loan refinance options, mortgages, and personal loans.
Best student loans for parents
For parents looking to take out a private student loan on behalf of their children, there is a dizzying array of loan products on the market. With so many different loan products available, it can be difficult to decide which one is the right fit. This is where Credible's vast network of lenders and helpful comparison tools come in handy.
There aren’t many private lenders out there that allow consumers to receive personalized rate options without a hard credit check. Credible is among the few lenders we've reviewed that offers their customers pre-qualified rates from multiple lenders and allows them to do side-by-side comparisons before making a decision.
Users must create a Credible profile and complete an online application to receive a pre-qualified rate in as little as three minutes. They can then view their offers on their Credible Dashboard or opt for the company to notify them about their options via email, phone, or text message.
With Credible, prospective borrowers can compare loan options from different lenders before deciding on an offer. This allows customers to analyze their options and decide whether to move forward individually or with a cosigner. For those who want to add a cosigner, Credible makes it easy to add the other person's information by sending them a separate email and form. Credible works with eight different lenders to help customers find the right solution.
Once a borrower chooses a lender and rate, they can expect a response within 1-2 business days of application and receive an alert via their Credible Dashboard and email.
Customer Support
Credible has a live chat option, which our editors took advantage of and received immediate answers to their inquiries. Credible’s Client Success team also operates via phone 7 days a week and is all in-house at the company’s San Francisco location. As for their FAQs, Credible offers thorough yet simple answers that are easy to understand. Our team also found their blog posts to be informative and helpful, covering topics such as understanding debt-to-income ratios and APRs.
Credible’s Live Chat feature. Screenshot credible.com July 8, 2019
Transparency
Unlike other private lenders, Credible is open about the lenders it does business with. They list their lending partners and post charts detailing the types of loans each lender offers, as well as their rates. We should caution you that loan rates change all the time and the information posted at Credible on partner offerings may not be up-to-the minute accurate at all times. In addition, the company’s advertiser disclosures are accessible on the website.
We appreciate that Credible provides straightforward answers to common questions that don't rely on hypothetical examples.
Detailed explanations in Credible’s FAQs Screenshot credible.com July 8, 2019.
Credible Disclaimer: Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Lenders will conduct a hard credit pull when you submit your application. Hard credit pulls will have an impact on your credit score. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.
Once a rapidly-growing startup with sights set on disrupting the industry through a "modern financial approach," Earnest is now owned by the student loan giant Navient Corporation. While this might not sound initially promising, it could be considered an additional selling point for student borrowers looking to fund their loans through a financially stable institution. Not only is Navient the largest student loan servicer in the nation, but they have also stated their intentions of keeping Earnest as a separate brand, still offering the same innovative loan products but now with additional financial backing.
Best student loans for international students
International students come across an additional hurdle when it comes to taking out student loans. Not only do they need to find a lender that offers loan products specifically designed for them, but they also typically need to have a co-signer that is a U.S. citizen or permanent resident in order to qualify for the loan.
Earnest is one of the few lenders that does offer student loans to international students while also featuring very flexible repayment options. With a 9-month grace period, up to 12 months of forbearance and the ability to skip one payment per year, international borrowers can find a repayment plan that works best for their situation. In addition, the company doesn't charge any extra fees on top of the interest rate for borrowers, meaning no late fees, application fees or origination fees. It even provides a 0.25% interest rate discount for borrowers who sign up for automatic payments.
International students looking to borrow from Earnest will need to have a co-signer that is a U.S. citizen or permanent resident, has a Social Security Number or individual taxpayer identification number (ITIN) and retains a physical address in the United States.
Flexible Repayment Options
Earnest continues to provide private student loans and refinancing options as well as personal loans, a newer product. Their two major selling points also remain unchanged, which are their flexible repayment terms and unique underwriting guidelines. Student borrowers who do business with the company can customize their loan terms by choosing their preferred payment plan. In addition, and unlike other online lenders, Earnest mainly caters to "financially responsible" borrowers who meet their distinctive underwriting criteria.
Screenshot of Earnest.com's flexible repayment options. August 20, 2019.
Competitive Loans for Responsible Borrowers
You may be wondering what exactly constitutes a responsible borrower. Well, for Earnest, responsible borrowers are those who have enough in savings to cover at least two months' worth of expenses, spend less than they earn, don't have large amounts of debt, have a good credit and repayment history, and/or are studying for a career with "strong earning potential." That also entails having at least a 650 credit score, three years of credit history, an annual income of at least $35,000, no bankruptcies on their credit report, and no credit accounts in collection.
While these factors severely limit the pool of applicants who may qualify for loans through Earnest, it also makes it easier for borrowers who do qualify to obtain streamlined financing through a full-service lender offering additional perks like:
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Quick application and approval times
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No origination, disbursement, prepayment, or late payment fees
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A 0.25% discount for enrolling in automatic payments
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The ability to skip a payment once per year
Screenshot of Earnest.com's benefits. August 20, 2019.
Earnest loans can also cover up to 100% of the school's cost of attendance and have a nine-month grace period, which is higher than what most online lenders typically offer. Those interested in these benefits but worried about their eligibility should also know that, unlike some online reviews point out, the company allows cosigners as long as they are also financially responsible.
Like many other student lenders, the company does require applicants to be full-time students pursuing a Bachelor's or Graduate degree from a Title IV-qualified, not-for-profit four-year college.
Educational Resources
Earnest has a resources page with relevant articles, guides, and calculators. Topics range from the most fundamental aspects of student loans to the difference between fixed and variable rates and consolidation vs. refinance. Their guides provide hands-on tips about decision making, how to pay for graduate school, and how to refinance a student loan.
Screenshot of Earnest.com's resources section. August 20, 2019.
One cool detail about Earnest's resources and articles is that they state how long it will take you to read them, so you can pick a topic that interests you and also have the time to finish. Lastly, the company also offers a student loan consolidation calculator and a refinance calculator, both pretty useful for students looking to make better-informed financial decisions.
Drawbacks
The biggest drawback about Earnest is what sets them apart from other lenders: their unique qualification requirements. Only applicants with strong financials or the prospect of high income in the future can get approved for a loan through Earnest, and even those who apply with a cosigner are held to the same standards. Other drawbacks have to do with their student loan refinance options, mainly that refinance isn't available in every state and that they only refinance Parent Plus Loans for student borrowers (not parents).
Formerly known as the Student Loan Marketing (SLM) Association, Sallie Mae is a consumer banking company that originates, services, and collects student loans. Founded in 1973, the company initially functioned as a federally guaranteed student loan issuer, and later transitioned strictly to private student loans in 2014 after transferring its remaining federal loan portfolio to Navient, a separate entity.
Best student loans for graduate school
While many other lenders only offer four or five specialized graduate school loans, Sallie Mae provides nine loan options tailored to different types of graduate students. This diversity in loans seeks to take into account the varying needs of graduate students and their respective programs. Their graduate loan offerings include:
- General graduate school loan
- MBA loan
- Medical school loan
- Medical residency loan
- Health professions loan (e.g. nursing, pharmacy and other graduate-level health programs)
- Dental school loan
- Dental residency loan
- Law school loan
- Bar study loan
Not many lenders offer loans for medical and dental residencies, which can be a turnoff for some prospective borrowers. Since medical residents aren’t fully licensed, most residency programs pay low salaries and require residents to relocate to different states, in which residents may need additional financial assistance to afford that area’s cost of living. Sallie Mae addresses this need, offering medical and dental residency loans that operate just as a school loan regarding grace period and deferment.
Sallie Mae also offers a generous deferment option. Medical and dental students have a 3-year grace period after graduating. Similarly, all borrowers with graduate degrees have a 48-month loan deferment (taken in 12 month increments) as long as they’re in a medical or dental residency, or an internship program.
Excellent Resources for Borrowers
Sallie Mae has an exceptionally well-structured, user-friendly website that highlights key factors in large print and darker font. The disclaimers are moderately sized and located directly at the bottom of each page. Finding resources on the site was also a breeze.
Users who choose to register with Sallie Mae have access to numerous tools and resources. One in particular, the college planning calculator, helps students analyze the total cost of college attendance based on their own situation and helps them build a customized payment plan. The calculator uses realistic factors such as grants, scholarships, and savings, and enables users to revise and update the plan as they see fit.
Sallie Mae also assists in scholarship search and provides tips on applying and writing essays, as well as free access to FICO scores.
Screenshot salliemae.com January 27, 2023
Transparency
Wording is an essential element for us when researching and comparing companies, especially when it comes to student lenders. It’s important that borrowers know what they're getting into so they can plan appropriately and avoid being saddled with debt for longer than they need to.
Salie Mae lists its full APR range for every type of loan, explains the benefit of borrowing with a cosigner, and has a live chat for immediate answers from customer representatives. We also noticed that Sallie Mae is diligent in responding to customer concerns online, promptly answering negative consumer feedback on social media and the Better Business Bureau.
Room for Improvement
Sallie Mae is honest about its lending process, where credit is checked and analyzed for loan approval. Since Sallie Mae caters to a diverse group of borrowers, we believe the company should consider offering pre-approved rates during the application process. Borrowers are automatically subject to having a hard credit pull for loan approval, which can affect their score without having any certainty that they will actually qualify for funding.
Also, considering undergraduates whose first jobs out of college may not have competitive salaries, Sallie Mae’s six month grace period may not be realistic. For this reason, we believe loan deferment should be extended to twelve months.
SoFi is the second largest marketplace lender around today, providing student loans, student loan refinancing, mortgages, and personal loans. With over $14 billion in loans issued to date, SoFi extends undergraduate, graduate, and parent loans with competitive rates, particularly for autopay users. Special rates are also available for MBA and Law students. SoFi ensures comprehensive coverage of educational expenses, including living costs and books, with a fully digital application process that expedites approval. With a click, students can add cosigners and receive approval within minutes, accompanied by a flexible array of repayment options.
SoFi offers loans starting at $1,000. Repayment options include deferred, immediate, partial interest, and interest-only plans, catering to varying financial circumstances and preferences. Eligibility criteria are standard, requiring applicants to be U.S. citizens or permanent residents, enrolled either full or half-time. While a cosigner is not mandatory, it can be advantageous for applicants with limited or poor credit history.
SoFi provides a swift online rate quote process, accompanied by a user-friendly interface and a student loan calculator for informed decision-making. Enrolling in autopay garners a 0.25% interest rate reduction, with additional savings for existing SoFi members or cosigners. Overall, SoFi delivers a streamlined and customer-centric experience, enhancing accessibility and affordability for borrowers seeking student loans.
More insight into our methodology
Student loan debt is an issue that millions of people across the United States can relate to, including members of our own team. Our generations were determined to graduate college by any means necessary, oblivious to the financial realities of our times and overly hopeful about our future job prospects. Now, while many Gen-X and millennial borrowers are seeking federal loan forgiveness programs and student loan refinancing options, Gen-Z individuals are more hesitant about incurring debt.
According to the National Center for Education Statistics, average tuition prices have more than doubled at U.S. colleges and universities over the past three decades. If students aren’t granted enough federal aid, and neither the students nor their parents can afford to contribute to college expenses, are private student loans a wise alternative? This is the question our team dedicated over 100 hours of research to answer.
From consumer statistics and surveys to in-depth interviews with personal finance and lending experts, we analyzed every alternative to fund higher education. In order for consumers to make the best decision, they must understand the ins and outs of higher education costs as well as the loan borrowing process, including credit checks, term lengths, cosigning, interest rates, and defaults.
We came to the conclusion that private student loans can benefit borrowers who fully understand the terms of their loan. The lending industry can be a tricky one to navigate, especially given the fact that not all lenders are invested in helping borrowers make informed financial decisions by explaining exactly what they're getting into.
To help consumers find the best private student lenders, we compared nearly a dozen of the top nationwide lenders by looking into the loans options, eligibility requirements, benefits, and user experience. This allowed us to create a list that truly showcased the best student loans available.
Loan Details
When comparing private lenders, look at the types of loans they offer as well as the details of each loan. Loan amounts, term lengths, fees, and requirements differ from one loan product to another, so you'll have to do a bit of homework to determine which one is right for you.
Loan Types
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Undergraduate Loans - Intended to finance higher education studies at a degree-granting institution. Includes associate and bachelor degrees.
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Graduate Loans - Designed for financing tuition expenses for medical, dental, law, masters, and doctorate degrees, as well as medical residencies.
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Career Training Loans - Offered to cover education expenses of professional training programs and certifications at non-degree-granting institutions.
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K-12 Loans - Offered to help parents cover the tuition costs for children enrolled in a private school, from kindergarten to twelfth grade.
Loan Amount
You can take out a private student loan for as little as $1,000, but maximum loan amounts will vary between lenders. Some lenders determine the loan limit by the borrower's degree or area of study, while others base it on their credit history.
Loan Term
Another factor we take into account is the loan term, which is the length of time the borrower is given to pay back their loan in full. Private loans generally span between 5 and 20 years. We searched for lenders offering multiple term lengths, extended grace periods, cosigner release, and different repayment options, such as interest-only payments and in-school payments. Lenders that allow borrowers to choose between variable and fixed interest rates are also a plus.
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Fixed Interest Rate - The total amount the borrower will pay for borrowing from a lender, which is expressed as a percentage of the principal loan amount and added to each monthly payment. Fixed rates will remain the same for the life of the loan.
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Variable Interest Rate - Interest rates that can change over the life of the loan. The borrower may pay more or less per month on the loan, depending on market fluctuations.
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Grace Period - The period between the borrowing student’s graduation date and the date of the first scheduled payment. On average, both Federal and private lenders offer a six-month grace period.
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Cosigner Release - A cosigner is someone who endorses a borrower that doesn’t have sufficient income or credit history to qualify for a loan on their own. The cosigner is responsible for paying back the loan if the borrower cannot. When a lender offers a cosigner release, the cosigner is eligible to be removed from the loan agreement and any associated responsibilities. That typically takes place once the borrower has paid off a percentage of the loan and met specific eligibility requirements.
Eligibility Criteria
Unlike federal loans, private student loans require borrowers to meet certain eligibility criteria. Why? Because private lenders want to ensure they’re lending to students who can pay back their loans.
Typical qualification requirements include:
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Proof of U.S. citizenship or permanent residency
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Proof of school enrollment
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Credit score and history
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Proof of sufficient income
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Satisfactory loan borrowing status (not in default)
If the borrower doesn't have sufficient income or credit history, they may qualify by applying with a cosigner. While reviewing companies, we leaned toward lenders that encouraged borrowers to have a cosigner but didn’t make it a requirement.
Customer Experience
A good private lender should be transparent with its customers, particularly about the details of their loans and their repayment options. For this reason, we looked for companies offering clear, jargon-free information, online quotes, and tools or resources like educational articles, blog posts, and loan calculators.
We also took into account customer service response times via live chat and over the phone, as well as the company's social media engagement.
Last, but not least, our team used two major customer review platforms, the FTC and CFPB. Since customer reviews can give prospective borrowers an idea of what to expect once a client, we regard the FTC and CFPB as reputable sources for customer feedback on products and services.
Additional Benefits
Many private lenders offer discounts on interest rates to borrowers who sign up for automatic payments. While that is beneficial, it’s very common and almost expected. As a borrower, you want to get the most bang for your buck. That's why we chose to focus on private lenders that also offered scholarships and awards, financial hardship assistance, and extended loan deferment.
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Deferment - A period of time in which lenders allow borrowers to temporarily suspend loan repayments. This is usually granted to borrowers who are in school, in a residency program, or on active duty military service. It can also be granted as a form of financial hardship assistance.
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Forbearance - Similar to a deferment, this is a period in which lenders allow borrowers to postpone loan payments and agree to reduce the monthly repayment amounts. Forbearance is generally granted as a financial hardship assistance option. Unlike deferment, interest still accrues on the student loan while in forbearance, increasing the total amount owed by the student.
Helpful information about Student Loans
College tuition costs are increasing every year, and that doesn't include living or ancillary academic expenses. More loans mean more debt, and after learning that most of our parents, older siblings, friends, and neighbors are still paying off their student loans, the ultimate question is, “are private student loans really worth it?”
But before we get to that, let’s go over a few misconceptions about student loans:
Loans are not free money
You read that correctly. Just like credit cards, lenders agree to give you money upfront if you agree to pay it back by a certain timeframe. Problems tend to happen when borrowers forget that interest is accumulating on their loans while they're still in school and not making payments. Those who have had negative experiences with loans—private student loans in this case—may not have understood how interest rates accumulate, or how making or failing to make payments can impact their credit, both positively and negatively.
By the time borrowers realize that they’ll have to pay back a lot more money than they originally borrowed, they've accumulated so much debt they can't see themselves ever paying it off. Over the course of our research, we've realized the real issue in the student loan industry isn't misinformation, but lack of education. From figuring out the answer to queries like how much should you borrow for college to understanding how student loans and interest rates work, borrowers must take it on themselves to do their research and become educated about the loan process.
Loans aren’t the only option
College is a wonderful aspiration, and yes, statistics show that college degree-holders earn significantly more than individuals with only a high school education. In that sense, going to college can be seen as an investment. With that said, if the cost of enrollment is more than what you or your family can afford out of pocket, know there are alternative ways to fund your college education. Taking out loans isn’t your only option, but we’ll cover more on this topic further into the reading.
Paying off loans is possible
For those of you knee-deep in student loan debt, there is a light at the end of the tunnel. It may seem hard, and far-fetched, but you can pay off your federal and private student loans. It requires a clear strategy and a great deal of determination. One of our very own team members successfully paid off his private student loans within seven years after graduating college. We spoke with him, as well as interviewed a personal finance expert, and will reveal the ways you can pay off federal and private student loans as you continue reading.
Private vs. Federal Student Loans
Now that you’re aware of some common misconceptions about loans, let’s go over the differences between federal and private student loans. In general, student loans are funds borrowed to finance a student’s post-secondary education, which includes tuition costs, room and board, books and other ancillary costs, and additional living expenses like food and transportation.
In the United States, students who attend qualifying post-secondary schools can request loans sponsored by the federal government, which are federal student loans guaranteed by the U.S. Department of Education. Federal loans are automatically deferred while students are in school, meaning they’re not required to make payments on them. Parents may also request federal loans for their children’s college expenses through the Direct PLUS Loan Program.
The main reason federal loans are recommended as the first option to fund college is that the student borrower's credit history and score do not factor into the loan approval process. Also, federal student loans have multiple repayment assistance options, including deferment, income-based plans, and loan forgiveness programs, to help borrowers who have trouble making payments after graduation.
Private student loans, on the other hand, are offered through banks, credit unions, and other independent lenders or financial institutions. Private student lenders look at the borrower’s credit score, income, and other requirements during the loan approval process. The benefit is that, unlike federal student loans, private student loans can usually cover as much as the student borrower needs for college.
Some private student loans work similarly to federal ones, where private lenders allow loan deferment while the student borrower is still enrolled in school. Also, there are private lenders that have forbearance programs to help borrowers experiencing financial hardship. Keep these things in mind as you shop around comparing private student lenders and their respective repayment plans, interest rates, and benefits.
Student loan alternatives to consider
Before taking out a student loan—whether it's federal or private—be sure to only borrow as much as you need. Finding a good job after graduation is every student’s wish, but it may not be a reality. Student loan debt in America has reached nearly $1.6 trillion, and about 40% of adults under the age of 30 have outstanding student loan debt. With that said, finding other sources of funding for college can help lower the amount you have to borrow and repay.
Scholarships
There are millions of scholarships available to students through thousands of different programs. Scholarships are designed to aid students of various backgrounds and financial situations, including minorities, athletes, and low-income families. While researching, we encountered several private lenders that offered scholarship searches on their websites and even a few that offered their own scholarships.
College Savings Plan
A college savings account is only a viable option for parents whose children will attend college in the future, but it's an alternative worth mentioning. The 529 Plan, in particular, is a tax-advantaged college savings plan that offers individuals several investment options to choose from. Also known as “qualified tuition programs,” 529 Plans are available in almost every state.
Attend Community College First
On average, community college tuition is $3,440 per year, while four-year college tuition costs are around $9,410 per year. Also, thanks to President Obama’s 2015 State of the Union address suggesting free community college opportunities, several states nationwide now offer high school graduates two years of tuition-free community college. Attending community college first can help students save a significant amount of money while gaining valuable life experiences, and they always have the option to transfer to a four-year college down the road.
The disadvantages of private student loans
As we mentioned earlier, it’s beneficial to understand every aspect of the lending process in order to choose the best private student loan. There are a few details about private student loans that borrowers should know before applying for one.
Interest rates on private student loans tend to be higher than those on federal loans, which are state-regulated. Unlike federal student loans which have in-school deferment, interest on private loans begins to accrue as soon as the borrower receives the loan disbursement. While parents or other eligible individuals with good credit can cosign to help the borrower get approved for a low interest rate, not all private lenders offer cosigner release.
Private student loans also tend to have more stringent qualification requirements than federal loans. Private lenders generally require applicants to have a minimum 680 credit score, a low debt-to-income ratio, proof of sufficient income, and proof of U.S. citizenship. This can make loan approval difficult for borrowers who’ve recently graduated high school, as teenagers typically haven’t developed enough credit history or income. Also, it may be challenging for permanent residents to find private student loans, as many private lenders only offer them to citizens.
Lastly, in contrast to federal student loans, most private loans don't provide hardship or repayment assistance programs. Many private lenders have forbearance programs, which postpone payments for borrowers, but this option may be disadvantageous in the long run, since interest rates continue accruing for as long as there is any outstanding debt, increasing the total amount due. Fortunately, during our hunt for the best private student loans, we found private lenders that offer in-school deferment, cosigner release, and some forms of hardship assistance.
How To Get a Student Loan
The process of getting a student loan varies by lender, but there are certain steps that all borrowers must take. Before applying for a loan, be sure to research the lender and read any loan terms carefully.
The first step is to fill out an application. This typically includes submitting personal information, such as your name, address, social security number and income. Once the application is submitted, the lender will review the information to determine if you're eligible for a loan. If you are approved, the next step is to sign a promissory note that outlines the terms of the loan and the repayment schedule. After that, the lender will disburse the money, usually directly to your school. It’s important to note that the school must certify enrollment before the loan is disbursed.
Once you receive your loan, it’s important to keep track of your payments and repayment schedule. Most lenders have online portals that allow borrowers to view their loan balances, payment due dates and more. It’s also wise to make payments on time, as late or missed payments may result in fees and could lead to loan default. Lastly, if you find yourself having difficulty making payments, reach out to your lender as soon as possible. Some lenders have hardship programs that can help.
How To Pay Off Student Loans
As promised, we’re going to explain effective strategies that can help you pay off private student loans, should you decide to borrow.
In-school payments
In-school deferment is a great benefit, so if your private lender offers it, take advantage of making early payments during that time. Eric, one of our web designers, testifies to this strategy. Eric told us he took out a private loan to help with the remaining tuition costs that his federal student loans didn’t cover. After comparing the interest rates with his federal loans, Eric realized that his monthly payment would multiply if he waited to pay back his private loans after graduation. Eric decided to buckle down on his payments early, for which he got a job that worked with his class schedule and minimized his living costs by finding a roommate. By doing these things Eric kept down the interest on his loan and was able to pay it off faster after graduating.
Scholarships & Grants
Scholarships and grants aren’t restricted to college-bound high school students. We interviewed Farran Powell, Investing Editor at U.S. News & World Report, who advises that students continue looking and applying for grants and scholarships. Many students don’t know they can still apply for this type of financial aid while in college and often miss out on many awards accessible to them.
Debt Snowball Method
This method takes determination and discipline, but it's among the most effective for minimizing and eventually eliminating debt. Popularized by personal finance author and radio show host Dave Ramsey, the debt snowball method is a debt reduction strategy where a person lists their debt from smallest to largest and makes the minimum payments on each one except the smallest debt, to which they apply any extra income. Once the smallest debt is paid off, the person moves on to the second smallest debt, and so on. The method is designed to help individuals stay motivated and prioritize payments to get out of debt faster.
LOAN REFINANCING
In some cases, it can be a good idea to consider refinancing student loans. This is when you take out a new loan with better terms, such as lower interest rates or more manageable repayment options. For more information, take a look at our guide on the best student loan refinance companies.
Things To Be Aware of When Borrowing From Private Student Loan Lenders
Our nation’s student loan debt crisis may be enough to caution consumers about the risks involved in borrowing, but there are a few trends in the private lending industry that we feel should be addressed. We went through dozens of online customer reviews from private loan borrowers and noticed a common denominator among their complaints: misleading information.
The FTC is cracking down on lenders that do not supply readers with sufficient, digestible information, especially when explaining rates and payment plans. But there are still companies out there using hypothetical examples and small-print disclosures to their advantage.
Predatory Lending Practices in the Student Loan Industry
Our team sat down and spoke with Cheye-Ann Corona, Senior Policy Associate with the Center for Responsible Lending (CRL), to have her shed some light on common issues in the student loan industry. The CRL is part of the Self-Help Credit Union, a member-owned credit union, non-profit loan fund, and policy advocacy organization that works to help low-income families strengthen their economic opportunities.
“People who have large student debts are not able to access the mortgage market because of how significant their debt to income ratio is. That’s also part of what has informed our involvement in the student loan advocacy work.”
—Cheye-Ann Corona, Senior Policy Associate with the Center for Responsible Lending
Corona also informed us of predatory lending practices her organization has identified over the years. “Instead of offering borrowers education on payment options, student loan servicers will push people into forbearance rather than making sure that they are in the right program for repayment or making sure that they don’t default,” she said. Corona strongly encourages borrowers to do their research, naming the CFPB and Student Loan Borrower Assistance as reputable online resources to help guide their decisions.
No Hardship Assistance
We can’t stress this enough, but we really want you to keep in mind that most private lenders don't offer hardship assistance or other repayment benefits. Life happens, and consumers should consider their options in the event of a medical emergency or unemployment. If you believe that at some point you may have difficulty making payments on your loan, we highly recommend that you discuss your concerns with your lender.
Falling behind on your loan payments, or avoiding them altogether, can lower your credit score and affect your chances of approval for credit or other debt instruments.
Student loan terms and conditions
Last, but not least, be sure to read and review the terms and conditions listed on your lender's website, checking for exclusions and any disclaimers. We’ve seen many complaints from borrowers stating their lender charged them hidden fees and denied them discounts, only to discover that the borrower did not read the lender’s disclaimers or eligibility exclusions.
Our team reached out to Robert Farrington, founder of TheCollegeInvestor.com, for advice on what borrowers should look out for when comparing student loans. “One of the biggest caution points about private loans is whether they are dischargeable upon the borrower's death or disability. Some lenders offer this, others do not,” he stated.
Farrington, who is also a contributing finance writer for Forbes and The Huffington Post, explained that since about 90% of private loans require a cosigner, borrowers should consider a supplemental insurance policy to cover the loan balance in case their private loan isn’t dischargeable upon death or disability.
FAQs about Student Loans
What happens if you don't pay student loans?
We strongly encourage you to keep your student loans in good standing by making your payments on time and in full. Missing payments can negatively impact your credit score and, if consistent, can reach default status and be sent to collections.
If you have federal loans that fall into default status, the government can garnish your wages, take your tax refund, or deny you government benefits. Private lenders, on the other hand, have varying definitions of “delinquent” and “default” status, so it’s also important to check your loan agreement.
For example, your private loan could go into default status after missing only one payment. If that happens, your credit score will take a huge hit and the default could remain on your credit history for up to seven years. If you have a cosigner on your private loan, that person may also suffer similar consequences. Additionally, the credit hit could cause you to pay higher interest rates on any existing credit cards and increase your auto or homeowners insurance.
If you are experiencing or believe you may experience financial hardship in the near future, we highly recommend that you talk to your lender right away about alternative payment options. Like federal loans, some private lenders also offer temporary hardship assistance, such as forbearance and loan deferment. Keep in mind, interest continues to accrue during loan forbearance periods, which will increase your outstanding loan amount.
Is there a penalty for paying off student loans early?
Federal and many private student loans have no prepayment penalties. Borrowers should know, however, that the Higher Education Opportunity Act of 2008 made it illegal for lenders to charge prepayment penalties on all education loans. If you are a borrower and are charged for paying off your loan early, we encourage you to report the matter to the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC).
If you choose to pay over your monthly repayment amount, contact your lender to make sure if that additional sum will go toward your principal loan balance or be applied as an early payment on next month’s bill. Also, if your lender offers private student loan discounts and you're considering paying off your loan ahead of time, be sure to check your loan agreement, as there may be a clause or fee that revokes any earlier discounts you’ve received.
Do you need a cosigner for a student loan?
Since private lenders require the prospective borrowers to undergo a credit check and most college-bound teenagers do not have a credit history or sufficient income, many private lenders highly suggest that borrowers apply with a cosigner.
Having a cosigner with sufficient credit history and excellent credit can increase the borrower’s chances of securing a private student loan with a lower interest rate.
Some private lenders offer a cosigner release option, which allows you to remove your cosigner from the loan after meeting specific requirements, such as maintaining a good repayment record for at least 24 months. If you are a borrower who already has a significant amount of income and sufficient credit history, you may be able to qualify for a loan without a cosigner.
Keep in mind that, if you choose to move forward with a private student loan and get behind on payments or default, you (and your cosigner if you have one) will take a major credit hit, which is something you probably want to avoid.
Are student loans fixed or variable?
Fixed interest rates remain the same for the life of the loan. A variable rate can change several times throughout the life of the loan, meaning you could pay more or less depending on market fluctuations.
Both types of rates have their pros or cons. For example, if you were approved for a loan with a high interest rate, a variable rate might lower your monthly payments for a period of time. On the other hand, borrowers have no control over market fluctuations and could end up paying more than expected should rates increase. It’s best to consult with your lender to understand which rate option, variable or fixed, will work best for you.
What is student loan forgiveness?
Student loan forgiveness is a program designed to help borrowers struggling to pay off their student loans. Depending on the type of loan, the borrower’s occupation and other factors, borrowers may qualify to have their remaining loan balance waived.
In the U.S., some federal loans are eligible for forgiveness programs. For example, the Public Service Loan Forgiveness Program (PSLF) allows borrowers who work in public service to have their loans forgiven after making 120 qualifying payments. To qualify for this program, borrowers must be employed full time at a qualifying public service organization and make their payments via an income-driven repayment plan.
It’s important to research and understand the requirements for loan forgiveness programs since eligibility requirements vary based on the type of loan you have. Depending on your situation, you may also want to consider pursuing consolidation or refinancing options if you’re unable to qualify for loan forgiveness.
How long does it take to pay off student loans?
The length of time it takes to pay off your student loans depends on several factors, including the amount borrowed, interest rate and repayment term. Generally speaking, the longer the repayment term, the lower your monthly payments will be, but the more you’ll pay in interest over time. The standard repayment term for federal student loans is 10 years, while private lenders typically offer repayment terms ranging from five to 20 years.
What can student loans be used for?
Student loans can be used to cover a variety of educational expenses, including tuition and fees, room and board, books and supplies, transportation costs, living costs and other education-related expenses. By and large, student loans should only be used for educational costs and not for any sort of unnecessary personal expenses (e.g. vacations or luxury items).
Our Student Loans Review Summed Up
Company Name | Best for |
---|---|
College Ave Student Loans | Undergraduates |
Sallie Mae Student Loans | Graduate school |
Ascent Student Loans | Bad credit |
Earnest Student Loans | International students |
Credible Student Loans | Parents |