How Can Students Maximize Federal and Free Financial Aid?
Before you consider private student loans, try to make the most of federal and free financial aid, including private scholarships. You may be eligible for federal Direct Unsubsidized Loans, but there are limits on how much you can borrow each academic year and overall. Limits range from $5,500 for dependent undergraduate students to $20,500 for graduate or professional students. “Your first step in financing your education is to submit a Free Application for Federal Student Aid, commonly called a FAFSA,” says Jay S. Fleischman, a lawyer who advises student loan borrowers on effective repayment strategies. Even if you don’t think you’ll need financial assistance, or think you won’t qualify, submit a FAFSA, which is the key to most financial aid. It’s a requirement for the student financial assistance programs authorized under Title IV of the Higher Education Act, including federal loans, grants and work-study programs. These do not have income or GPA cutoffs, which are common myths. Although it’s primarily used for federal aid, the FAFSA is often necessary for other forms of assistance. “Many states and colleges use your FAFSA information to determine your eligibility for state and school aid,” Fleischman says.
How Do Private Student Loans Work?
Unlike federal student loans, private student loans do not offer standard options and interest rates. Your credit, and that of a co-signer if you have one, will affect what types of loans you qualify for and the student loan interest rate you’ll receive.
Loan Types
Private lenders may offer different types of loans depending on the degree you’re pursuing. The loan type can affect your loan amount, interest rate and repayment terms.
- Community college or technical training.
- Some lenders provide loans to students who are pursuing two-year degrees, attending nontraditional schools or going to career-training programs.
- Undergraduate school loans.
- You can take out undergraduate loans to pay for expenses while you pursue a bachelor’s degree. Undergraduate loans may have lower interest rates and higher loan limits than community college loans.
- Graduate or professional school loans.
- Graduate school loans tend to have higher maximum loan amounts than undergraduate loans, reflecting the higher cost of attending school for a master’s degree or doctorate. Some lenders have special loan programs for business, law or medical school.
- Parent loans.
- Parent loans are offered by lenders to parents of students. Some families have an informal agreement that the child will make loan payments after graduating, but the legal responsibility to repay the loan falls on the parent.
Loan Terms
The loan term is the length of the loan’s repayment period, which could range from five to 20 years for private student loans. Typically, shorter loans have higher monthly payments, lower interest rates and lower total costs. Longer loans have lower monthly payments but higher interest rates and higher total costs.
Loan Limits minimums:
Most lenders have minimum amounts you can borrow, which may vary based on your state. Because the minimum could be as low as $1,000, a private student loan may not be the best option if you only need a few hundred dollars for, say, books.
Loan maximums:
Lenders can have several limits that affect how much you can borrow. There could be a maximum annual amount you can borrow. Or there could be a maximum combined private and federal student loan amount you must be under to qualify for a loan.You may also be limited to borrowing up to your school’s certified cost of attendance. The maximum loan limits may be higher if you’re going to graduate, professional or medical school, reflecting potentially higher costs compared with undergraduate programs.
Interest Rate Types
Lenders offer student loans with either fixed or adjustable interest rates. You may not be able to switch your interest rate type after taking out a loan, so carefully consider your options before deciding.When you’re comparing student loans from different lenders, look at the annual percentage rate, or APR, rather than the inteest rate. The APR is your total cost of borrowing each year.
Fixed-rate loans.
With a fixed-rate private student loan, your interest rate is set when you take out the loan, and it won’t change. The rate you lock in can depend on market rates, as well as your lender, your credit and your loan’s terms.”In general, a fixed-rate loan is a better long-term option for financing your education,” Fleischman says. “You are able to plan for future payments without worrying that interest rates may increase payments faster than your income increases.
Variable-rate loans.
The same factors that may determine your interest rate with a fixed-rate private student loan can affect your initial interest rate when you take out a variable-rate loan. But with a variable-rate loan, your interest rate may rise or fall over the life of the loan.Interest rates for variable-rate loans are tied to an index, such as the prime rate. The lender adds a margin to the index to determine your total interest rate. There may be a limit to how high or low your interest rate can go.Variable-rate student loans tend to start with a lower initial interest rate than fixed-rate loans and could remain lower. However, you’re taking on risk because the loan’s interest rate could rise, causing your monthly payment and total cost of borrowing to increase.A variable-rate loan may be best for those who can quickly repay the loan, which will limit your risk, or for those who can afford higher monthly payments if the interest rate increases.
How Are Student Loan Interest Rates Determined?
Several factors determine a private student loan interest rate. If you have a low credit score or no established credit history, you may be offered a higher interest rate or require a co-signer. Whether you’re pursuing career training, a bachelor’s degree or a master’s degree, and whether it is a fixed- or variable-rate student loan all factor in to your private student loan interest rate.
HERE ARE SOME PRIVATE AVENUES YOU CAN BE ASKING FOR LOANS:
PCN BANK
PNC Bank was established in 1845 and operates in all 50 states. The bank is engaged in a number of community efforts, including its Grow Up Great program in conjunction with Sesame Workshop and various financial literacy efforts.
COMMONBOND
Founded in 2011, CommonBond has funded more than $2 billion in student loans. The lender offers undergraduate, graduate, medical, dental and Master of Business Administration loans, along with student loan refinancing.
LENDKEYS
LendKey’s digital platform connects borrowers who need private student loans or student loan refinancing with credit unions and community banks. Since 2009, LendKey has helped more than 120,000 people by funding $4.1 billion in loans.
CITIZENS BANK
Citizens Bank was founded in the 1800s in Rhode Island. Today, it’s one of the largest commercial banks in the U.S., with branches in 12 states in New England, the mid-Atlantic and the Midwest. U.S. citizens and permanent residents can apply for Citizens Bank student loans, as can non-citizens with creditworthy citizen or permanent resident co-signers.
COLLAGE AVE
College Ave exclusively offers student loans. Founded in 2014 and based in Wilmington, Delaware, College Ave offers undergraduate, graduate and parent loans for students enrolled at schools affiliated with College Ave in all 50 states and the District of Columbia.
EARNERS
Earnest is an online lender offering private student loans to current college and graduate students and student loan refinancing to graduates. The company was founded in 2013.
EDUCATION LOAN FINANCE
Education Loan Finance, also known as ELFI, is a student loan refinancing program offered by SouthEast Bank. Options are available in all 50 states to refinance private and federal student loans, including undergraduate, graduate, parent and MBA loans, as well as loans for law, dental and medical school.
SALLIE MAE
Sallie Mae is a publicly traded consumer bank that offers private student loans to pay for undergraduate, graduate and specialty degrees. The company started in 1973 as a government entity.
ASCENT LOAN
Ascent Funding is an online lender offering undergraduate and graduate student loans at more than 2,200 eligible schools nationwide. U.S. citizens and permanent residents can apply
SOFI
SoFi is an online lender founded by Stanford business school students in 2011. Originally focused on student loan refinancing, the company added private student loans in 2019.
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