Figuring out student loans is overwhelming. People start throwing out loan lingo left and right, and all the terms start to blend together.The term “cosigner” is one popular example of this loan lingo and often becomes a point of confusion. Understanding what a student loan cosigner is and when you may want to have one is crucial in the student loan process. Let’s break it down.
What is a Cosigner?
A cosigner is someone who agrees to sign onto a loan alongside you, the borrower. By doing so, the cosigner takes legal responsibility for repaying the loan if you do not. A cosigner is often a family member or friend but can be anyone who is willing to cosign.
Private student loans, on the other hand, come from private entities and are given out based on your creditworthiness.* If the lender deems you not creditworthy enough to borrow from them, you may need a cosigner to secure the loan.
*Creditworthiness is essentially how much a lender trusts you to pay back your debts. The higher your credit score, the more creditworthy you appear to lenders.
Why Would I Need a Cosigner?
There are a variety of reasons why you may need a cosigner to get approved for a private student loan, such as:
Your credit score or income is too low
Your credit or employment history is too short
Your credit report shows a variety of other debt or a checkered history in repaying it
Your residency status requires applying with a citizen or permanent resident cosigner
From the lender’s perspective, having a creditworthy cosigner lessens the risk associated with lending to you. It assures them that there is a responsible individual able to pay the loan in full and on time.
In these instances, having someone cosign may be your only option for actually securing a loan with that specific lender. Even if you are deemed creditworthy enough to take out a loan on your own, having a creditworthy cosigner can help you qualify for and borrow loans with more attractive terms.
Is Having a Cosigner a Bad Thing?
Needing a cosigner isn’t necessarily a bad thing and is actually quite common. According to a study conducted by MeasureOne, in the 2019-2020 academic year, over 90% of undergraduate students needed a cosigner for at least one private loan they took out. Even if you don’t need a cosigner, including one on your application may have additional positive benefits.
Benefits of Having a Cosigner
If you are able to have a creditworthy cosigner on your private student loans, there are numerous benefits, such as:
The ability to secure a loan. Without a cosigner, you may not be able to secure a loan on your own.
Lower interest rates. If your cosigner has demonstrated creditworthiness, private lenders will likely give you a lower interest rate on your loans.
Less expensive over time. Lower interest rates on your loans means lower payments, which means less money spent over time.
The person cosigning can also benefit from doing so. If the primary borrower demonstrates responsibility in making their loan payments, the cosigner’s credit score can go up, too.
Can You Get a Loan Without a Cosigner?
The short answer here is yes. However, more often than not, you will need a cosigner on a private student loan, particularly if you’re an undergraduate.
You should shop around for a lender that will offer you the best interest rates and terms, but you may find that many require a cosigner for first-time, inexperienced borrowers.
If you can get a loan without a cosigner and still get the same interest rate either way, it’s best to take the loan out without the cosigner. It’s better to build your own credit over time without the cosigner being legally responsible for your debt.
What to Look For in a Cosigner
If you’re unable to get approved without a cosigner, having anyone willing to cosign will be helpful. But, if you do have a choice, here are a few things to look for in a potential cosigner:
Someone with stable income who could genuinely handle paying off your loan if you struggle to do so yourself
Someone with little to no debt themselves as it could be challenging to support your loan payments (if needed) with their own debt
Someone with a high credit score
Someone with a solid debt repayment history
Final Thoughts from the Nest
Whether you need a cosigner may be a bit out of your control. The good news is that most college students need a cosigner and ultimately benefit from having one. Understanding what they are and how to proceed if you do need one is the most important first step.
If you’re struggling to find a cosigner, don’t worry. We’ve partnered with several lenders to offer Sparrow members non-credit-based student loans that don’t require a cosigner. To see what loan options you prequalify for, fill out the Sparrow application.
The interest rate on your student loan(s) will drastically impact how much you pay over the life of the loan. Even a small increase in the interest rate could result in thousands of dollars more over your repayment term.
Finding a low interest student loan should be of utmost priority when selecting the best option for you. Here are the best student loan rates of September 2024.
Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670 Best for: Residents of, or students in, Arkansas.
Fixed Interest Rate: 4.83% to 16.16% (cosigned, undergraduate); 5.61% to 16.16% (graduate) Variable Interest Rate: 6.15% to 16.08% (cosigned, undergraduate); 6.68% to 16.08% (graduate) Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540 Best for: International and DACA students who have a lower credit score.
Fixed Interest Rate: 2.71% to 6.86% Variable Interest Rate: 5.32% to 9.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700 Best for: Residents of, or student in, Texas.
College Ave – Both undergraduate and graduate degrees
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers looking for a repayment term that matches their budget.
Custom Choice – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.43% to 14.65% Variable Interest Rate: 5.38% to 15.19% Maximum Borrowing Limit: Cost of attendance minus other aid; cannot exceed $99,999 annually or $180,000 cumulatively Minimum Credit Score: 660 for non-cosigned loans Best for: Borrowers who want a competitive interest rate and strong borrower benefits.
Fixed Interest Rate: 4.42% to 15.90% (undergrad); 4.42% to 14.30% (grad)* Variable Interest Rate: 5.62% to 16.20% (undergrad); 5.89% to 15.97% (grad)* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650 Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 0.25% to 23.00% Variable Interest Rate: N/A Maximum Borrowing Limit: $15,000 per academic year (plus $10,000 for summer) and $25,000 lifetime. Minimum Credit Score: N/A Best for: Borrowers who want an income-based repayment (IBR) loan.
EdvestinU – Both undergraduate and graduate degrees
Fixed Interest Rate: 7.00% to 10.57% Variable Interest Rate: 8.12% to 11.02% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675 Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 7.49% to 12.99% Variable Interest Rate: N/A Maximum Borrowing Limit: $20,000 per school year Minimum Credit Score: N/A Best for: Borrowers that were high-achieving undergraduate students.
INvestED – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.61% to 8.67% Variable Interest Rate: 7.88% to 12.34% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 670 Best for: Borrowers who are residents of or students in Indiana.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660 Best for: Borrowers that want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% (undergrad); 12.74% (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A Best for: International and DACA borrowers without a cosigner.
Nelnet Bank – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.49% to 15.47%* Variable Interest Rate: 6.29% to 15.51%* Maximum Borrowing Limit: $125,000 total for undergraduate students; $500,000 total for graduate students Minimum Credit Score: 680 individually; 640 with a qualified cosigner Best for: Borrowers who want competitive interest rates and a flexible forbearance policy.
Fixed Interest Rate: N/A Variable Interest Rate: 6.70%+ Maximum Borrowing Limit: $220,000 Minimum Credit Score: N/A Best for: International student borrowers with no cosigner.
Sallie Mae – Both undergraduate and graduate degrees
Fixed Interest Rate: 3.75% to 13.72% Variable Interest Rate: 4.00% to 14.34% Maximum Borrowing Limit: School-certified cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers who want competitive interest rates and a flexible repayment plan.
Fixed Interest Rate: 4.44% to 14.70% (undergrad); 4.99% to 14.48% (grad) Variable Interest Rate: 5.99% to 13.97% (undergrad); 5.99% to 13.97% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose Best for: Borrowers with a strong credit score or a creditworthy cosigner.
Interest rates will vary significantly based on the lender and type of loan. So, there really isn’t a specific threshold of what is considered a “good” interest rate. Generally speaking, however, an interest rate at or above 10% is considered very high, while interest rates less than 7% are on the lower end.
Across all student loans, 5.8% is the average interest rate. Use the average interest rate as a marker when determining if the interest rate offered to you is good.
Rates Are Just One Piece of the Puzzle
While the interest rate on your student loan is an incredibly important factor, it is only one piece of a much more complex puzzle. When selecting a student loan, you should also consider factors such as whether the interest rate is fixed or variable, the repayment period, and the projected monthly payment.
Fixed vs Variable Interest Rate
A fixed interest rate will remain the same throughout the life of the loan, while a variable interest rate is subject to change due to market conditions. So, if you borrowed a loan with a 5% fixed interest rate, it would remain at a 5% interest rate up until the day you pay it off. On the other hand, if you borrowed a loan with a variable interest rate starting at 5%, the rate could fluctuate up and down throughout the life of the loan.
There are pros and cons to both fixed and variable rate loans. Select the option you feel most comfortable with.
Repayment Period
Generally speaking, the longer the repayment period, the more you will pay over the life of the loan. Consider the repayment periods offered to you and how they will impact what you pay throughout repayment.
Principal Balance
$30,000
$30,000
Interest Rate
5%
5%
Repayment Period
10 years
15 years
Monthly Payment
$318
$237
Total Paid
$38,184
$42,703
With a shorter repayment period, you will have larger monthly payments. However, if you’re able to afford them, a shorter repayment period can save you quite a bit over the life of the loan.
Projected Monthly Payment
During repayment, you will be required to make at least the minimum monthly payment on your loan. As illustrated by the table above, the monthly payment will change based on the repayment period and interest rate you have.
Some private student lenders may only offer one or two repayment periods. Before agreeing to a student loan, consider the projected monthly payment amount. If the amount does not seem feasible for you given your projected monthly income after graduation, you may want to explore other student loan options.
How to Find the Best Student Loan Rate
Before agreeing to any loan, it’s important to do your research. To simplify the search process, we built Sparrow.
Rather than hopping from site to site comparing loans one by one, Sparrow allows you to compare personalized, pre-qualified student loan rates from 15+ lenders in one form. To find the best student loan rate for you, start the process with Sparrow.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Given the rising cost of college, finding affordable college financing is more important than ever. As a parent, it’s both understandable and admirable to want to support your child through the process of paying for college. It’s essential that you have the tools to pick the best college loan.
If you’re curious about your parent loan options, you’re in the right place. Here’s what you need to know to pick the best college loan for parents.
The best parent loan for you will ultimately be the one that suits your needs best. However, having a list of options that offer competitive interest rates, flexible repayment options, and strong customer service will make the search process easier.
The following are our top picks for the best private college loans for parents.
Parent Loans vs. Traditional Private Student Loans
While parent loans and traditional private student loans are similar in nature, there are some key differences you’ll want to consider before choosing one over the other.
A parent loan allows you to borrow on behalf of your child to finance their education. While you may require your child to make payments directly to you, you are legally the sole person responsible for paying back the loan.
A traditional student loan, however, is one that your child borrows on their own behalf. If you cosign the student loan, both you and your child are legally responsible for paying back the loan.
Both federal and private lenders offer parent loans. While similar in that parents can borrow both loan types on behalf of their child, they differ in several ways.
The only federal student loan parents can borrow on behalf of their child is the Parent PLUS Loan. To receive a Parent PLUS Loan, you must:
Be the biological or adoptive parent of a dependent undergraduate student who is enrolled at least half-time at an eligible school
Not have an adverse credit history
Meet the general requirements to receive federal student aid
The interest rate for Parent PLUS Loans is fixed and set by the government each year. For Parent PLUS Loans disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 7.54%.
Like other federal student loans, Parent PLUS Loans have the opportunity to be forgiven, which is not available for private student loans. This is an important factor to consider if you plan to pursue any loan forgiveness programs.
Before borrowing a Parent PLUS Loan, you should check to see what rates you qualify for in private parent loans. You may find that some private lenders are able to offer you rates lower than the Parent PLUS Loan interest rate.
Private Parent Loans
Private parent loans are provided by private student loan lenders. Unlike federal Parent PLUS Loans, each individual private lender will offer different interest rates and terms. The eligibility criteria for private parent loans will vary, but in general, you must:
Meet income and/or credit requirements
Be borrowing on behalf of a student attending an eligible school
While it is commonly assumed that private student loans always have higher interest rates than federal student loans, that isn’t necessarily true. You should always compare both federal and private parent loan options before agreeing to one or the other.
Commonly Asked Questions About College Loans for Parents
What is the best way for parents to pay for college?
There is no single best way for parents to pay for their child’s college education. Generally speaking, however, you should begin by encouraging your child to pursue scholarship and grant opportunities. Both forms of aid do not need to be repaid.
Following that, consider what you’re able to contribute out-of-pocket. It’s important to minimize the amount you need to borrow.
After you’ve exhausted both options, consider both federal and private student loans.
Is it better to borrow a Parent PLUS Loan or a private parent loan?
One option isn’t necessarily better than the other. If you plan to pursue any loan forgiveness programs, you may prefer a Parent PLUS Loan over a private parent loan. If you are more concerned with finding a competitive interest rate, however, you may find that a private parent loan suits you better.
Do parents need good credit for student loans?
It depends on the lender. While most federal student loans do not factor your credit score into your eligibility, private student loans often do. That said, there are a variety of private student lenders that work with parent borrowers with lower credit scores.
To borrow private parent loans, see what rates you qualify for by completing the Sparrow application. In less than 3 minutes, we’ll show you which parent loans you qualify for and at what rates.
Final Thoughts from the Nest
There are a variety of parent loan options available, and while beneficial, it can make the process of picking the best option overwhelming. To simplify the process, start with Sparrow. Rather than searching endlessly for a parent loan that works for you, fill out the Sparrow application, and we’ll do the search for you. We’ll show you which parent loans you qualify for and at what rate so you can find the best option for you.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Some rates listed may include an Autopay Discount, which requires you to agree to make your monthly payments by an automatic monthly deduction (ACH) from a valid bank account. To verify whether the interest rates listed include an Autopay Discount, please read the individual lender disclosures.
The best student loan for you will always be the one that suits your individual needs best. However, it’s helpful to have a few strong options to start with so you can get a better idea of what your loan options will look like.
Whether you’re pursuing an undergraduate degree, a law degree, or a medical degree, there are loan options designed just for you. Likewise, whether you value the ability to have a non-cosigned loan, flexible repayment options, or finding the best interest rate, there’s a loan that will meet your needs.
The loan options shared are in no particular order. Interest rates shown in this article were last updated on 03/06/23. Rates listed may reflect the lender’s autopay discount. Interest rates are subject to change.
Best Student Loans for Undergraduate and Graduate Degrees
There are a wide variety of undergraduate and graduate student lenders, making the search process even more important. The following are our top picks for private student loans for undergraduate and graduate degrees.
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
Compare your personalized, pre-qualified rates from these lenders in minutes.
Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670 Best for: Residents of, or students in, Arkansas.
Fixed Interest Rate: 4.83% to 16.16% (cosigned, undergraduate); 5.61% to 16.16% (graduate) Variable Interest Rate: 6.15% to 16.08% (cosigned, undergraduate); 6.68% to 16.08% (graduate) Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540 Best for: International and DACA students who have a lower credit score.
Fixed Interest Rate: 2.71% to 6.86% Variable Interest Rate: 5.32% to 9.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700 Best for: Residents of, or student in, Texas.
College Ave – Both undergraduate and graduate degrees
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers looking for a repayment term that matches their budget.
Custom Choice – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.43% to 14.65% Variable Interest Rate: 5.38% to 15.19% Maximum Borrowing Limit: Cost of attendance minus other aid; cannot exceed $99,999 annually or $180,000 cumulatively Minimum Credit Score: 660 for non-cosigned loans Best for: Borrowers who want a competitive interest rate and strong borrower benefits.
Fixed Interest Rate: 4.42% to 15.90% (undergrad); 4.42% to 14.30% (grad)* Variable Interest Rate: 5.62% to 16.20% (undergrad); 5.89% to 15.97% (grad)* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650 Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 0.25% to 23.00% Variable Interest Rate: N/A Maximum Borrowing Limit: $15,000 per academic year (plus $10,000 for summer) and $25,000 lifetime. Minimum Credit Score: N/A Best for: Borrowers who want an income-based repayment (IBR) loan.
EDvestinU – Both undergraduate and graduate degrees
Fixed Interest Rate: 8.00% to 10.79% Variable Interest Rate: 7.47% to 10.47% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675 Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 7.49% to 12.99% Variable Interest Rate: N/A Maximum Borrowing Limit: $20,000 per school year Minimum Credit Score: N/A Best for: Borrowers that were high-achieving undergraduate students.
INvestED – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.61% to 8.67% Variable Interest Rate: 7.88% to 12.34% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 670 Best for: Borrowers who are residents of or students in Indiana.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660 Best for: Borrowers that want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% (undergrad); 12.74% (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A Best for: International and DACA borrowers without a cosigner.
Nelnet Bank – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.49% to 15.47%* Variable Interest Rate: 6.29% to 15.51%* Maximum Borrowing Limit: $125,000 total for undergraduate students; $500,000 total for graduate students Minimum Credit Score: 680 individually; 640 with a qualified cosigner Best for: Borrowers who want competitive interest rates and a flexible forbearance policy.
Fixed Interest Rate: N/A Variable Interest Rate: 6.70%+ Maximum Borrowing Limit: $220,000 Minimum Credit Score: N/A Best for: International student borrowers with no cosigner.
Fixed Interest Rate: 4.44% to 14.70% (undergrad); 4.99% to 14.48% (grad) Variable Interest Rate: 5.99% to 13.97% (undergrad); 5.99% to 13.97% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose Best for: Borrowers with a strong credit score or a creditworthy cosigner.
Best Student Loans for Law, Dental, and Medical School
Law,dental, and medical school are notoriously expensive. So, when searching for a student loan for these programs, you’ll want to pay close attention to the lender’s borrowing limits. While you don’t need to stick with one lender for the entire duration of your program, many borrowers do for easier repayment.
If you plan to stick with one lender throughout the duration of your degree, you’ll need to make sure their maximum borrowing limit covers your estimated total cost of attendance.
Fixed Interest Rate: Starts at 2.71% Variable Interest Rate: Starts at 5.32% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700
College Ave – Law, dental, and medical school loans
Fixed Interest Rate: 5.05% to 14.47% Variable Interest Rate: 5.49% to 14.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s
Best for: Borrowers looking for flexible repayment options.
Fixed Interest Rate: Starts at 4.42%* Variable Interest Rate: Starts at 5.66%* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650
Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Nelnet Bank – Law, dental, and medical school loans
Fixed Interest Rate: 4.49% to 15.47% Variable Interest Rate: 6.29% to 15.51% Maximum Borrowing Limit: $500,000 total Minimum Credit Score: 680 individually; 640 with a qualified cosigner
Best for: Borrowers who need a high borrowing limit and want competitive interest rates.
Fixed Interest Rate: 4.99% to 14.05% Variable Interest Rate: 5.99% to 13.67% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose
Many student loan options will require you to have a creditworthy cosigner in order to qualify. If you are without a cosigner, however, don’t worry. There are a variety of loan options available that do not require a cosigner.
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
Compare your personalized, pre-qualified rates from these lenders in minutes.
Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670 Best for: Residents of, or students in, Arkansas.
Fixed Interest Rate: 4.83% to 16.16% Variable Interest Rate: 6.15% to 16.08% Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540 Best for: International and DACA students who have a lower credit score.
Fixed Interest Rate: 2.71% to 6.86% Variable Interest Rate: 5.32% to 9.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700 Best for: Residents of, or student in, Texas.
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers looking for a repayment term that matches their budget.
Fixed Interest Rate: 4.43% to 14.65% Variable Interest Rate: 5.38% to 15.19% Maximum Borrowing Limit: Cost of attendance minus other aid; cannot exceed $99,999 annually or $180,000 cumulatively Minimum Credit Score: 625 for non-cosigned loans Best for: Borrowers who want a competitive interest rate and strong borrower benefits.
Fixed Interest Rate: 4.42% to 15.90% (undergrad); 4.42% to 14.30% (grad)* Variable Interest Rate: 5.62% to 16.20% (undergrad); 5.89% to 15.97% (grad)* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650 Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 0.25% to 23.00% Variable Interest Rate: N/A Maximum Borrowing Limit: $15,000 per academic year (plus $10,000 for summer) and $25,000 lifetime. Minimum Credit Score: N/A Best for: Borrowers who want an income-based repayment (IBR) loan.
Fixed Interest Rate: 8.00% to 10.79% Variable Interest Rate: 7.47% to 10.47% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675 Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 7.49% to 12.99% Variable Interest Rate: N/A Maximum Borrowing Limit: $20,000 per school year Minimum Credit Score: N/A Best for: Borrowers that were high-achieving undergraduate students.
Fixed Interest Rate: 4.61% to 8.67% Variable Interest Rate: 7.88% to 12.34% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 670 Best for: Borrowers who are residents of or students in Indiana.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660 Best for: Borrowers that want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% (undergrad); 12.74% (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A Best for: International and DACA borrowers without a cosigner.
Fixed Interest Rate: 4.49% to 15.47%* Variable Interest Rate: 6.29% to 15.51%* Maximum Borrowing Limit: $125,000 total for undergraduate students; $500,000 total for graduate students Minimum Credit Score: 680 individually; 640 with a qualified cosigner Best for: Borrowers who want competitive interest rates and a flexible forbearance policy.
Fixed Interest Rate: N/A Variable Interest Rate: 6.70%+ Maximum Borrowing Limit: $220,000 Minimum Credit Score: N/A Best for: International student borrowers with no cosigner.
Fixed Interest Rate: 4.44% to 14.70% (undergrad); 4.99% to 14.48% (grad) Variable Interest Rate: 5.99% to 13.97% (undergrad); 5.99% to 13.97% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose Best for: Borrowers with a strong credit score or a creditworthy cosigner.
As an international student, there are a few factors you will want to consider when looking for a student loan:
Does it require a cosigner?Some private student loans will require you to have a U.S. citizen or permanent resident cosigner. However, as an international student, you may not have access to one. If you don’t, look for a student loan that does not require a cosigner.
What is the borrowing limit?As an international student, you will not have access to the federal aid that U.S. citizen students have. So, the cost of your education may be higher. If so, make sure the lender you choose allows you to borrow enough to cover the amount you need.
What is the interest rate? When borrowing a student loan without a cosigner, the interest rate will typically be higher. Always verify the interest rate before borrowing to make sure it is reasonable and something you’re comfortable with.
Are payments required while in school? Some international student loans may require you to make payments while in school. If this is not feasible for you, consider looking for a student loan option that allows you to defer payments until after graduation.
The following are our top picks for international student loans that dorequire a cosigner.
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
Compare your personalized, pre-qualified rates from these lenders in minutes.
Fixed Interest Rate: 4.83% to 16.16% (cosigned, undergraduate); 5.61% to 16.16% (graduate) Variable Interest Rate: 6.15% to 16.08% (cosigned, undergraduate); 6.68% to 16.08% (graduate) Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540
Best for: International and DACA students who have a lower credit score.
College Ave – Both undergraduate and graduate degrees
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s
Best for: Borrowers looking for a repayment term that matches their budget.
Fixed Interest Rate: 4.42% to 15.90%* (Undergrad); 4.42% to 14.30%* (Grad) Variable Interest Rate: 5.62% to 16.20%* (Undergrad); 5.89% – 15.97%* (Grad) Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650
Best for: Borrowers who want a competitive interest rate and flexible repayment options.
*Rates include a 0.25% AutoPay discount.
EDvestinU – Both undergraduate and graduate degrees
Fixed Interest Rate: 8.00% to 10.79% Variable Interest Rate: 7.47% to 10.47% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675
Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 13.74% maximum (undergrad); 12.74% maximum (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A
Best for: International and DACA borrowers without a cosigner.
Best for: International student borrowers with no cosigner.
Best Student Loans for Bad Credit
Most private student loans will require you to have a solid credit score or a creditworthy cosigner with one. If you do not have a solid credit score, there are options. There are private student loans with lower credit score requirements.
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Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670
Fixed Interest Rate: 4.83% to 16.16% (undergraduate); 5.61% to 16.16% (graduate) Variable Interest Rate: 6.15% to 16.08% (undergraduate); 6.68% to 16.08% (graduate) Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540
Best for: International and DACA students who have a lower credit score.
College Ave – Both undergraduate and graduate degrees
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s
Best for: Borrowers looking for a repayment term that matches their budget.
Fixed Interest Rate: 4.42% to 15.90%* (Undergrad); 4.42% to 14.30%* (Grad) Variable Interest Rate: 5.62% to 16.20%* (Undergrad); 5.89% to 15.97%* (Grad) Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650
Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660
Best for: Borrowers who want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% maximum (undergrad); 12.74% maximum (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A
Best for: International and DACA borrowers without a cosigner.
Best for: International student borrowers with no cosigner.
What to Look for in a Student Loan
With any student loan, it’s important to consider a variety of factors before borrowing the loan:
Interest rate. The interest rate you get on a loan will directly affect how much you pay over the life of the loan. Typically, the lower the interest rate the better.
Credit requirements. Most private student loans will require you to have a certain credit score in order to qualify. If you are concerned about your credit score’s impact on your student loan eligibility, it may be beneficial to look for lenders with lower credit score requirements.
Repayment options. Each lender will offer a different selection of repayment options. While some may require you to begin repayment immediately after the loan is disbursed, others may allow you to defer payments until after graduation. Make sure the lender has a repayment option that suits your needs before borrowing the loan.
Cosigner vs. no cosigner. Many private student loans will require you to have a cosigner in order to qualify. If you do not have a cosigner, you will want to explore no-cosigner loan options.
Borrower benefits. Most private student lenders offer borrower benefits, from autopay discounts to free career training and everything in between. Consider a lender’s borrower benefits if they are an important factor to you.
Final Thoughts from the Nest
The best student loan for you will always be the loan that suits your needs and desires best. To find the loan that does that, use Sparrow. Sparrow allows you to compare personalized loan options from 17+ premier lenders side-by-side.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
“Can I get a student loan even though I have bad credit?”
The simple answer: yes. The more complicated answer: welllll, yes, but it’s going to be trickier.
While most federal student loans don’t require you to have a good credit score, or any credit at all, most private student loans, on the other hand, do. If you’re worried about your poor credit score preventing you from being able to pay for college, don’t fret. While it may be more difficult, it isn’t entirely impossible.
Here’s what you can do to get a student loan with bad credit.
Generally speaking, you will need a credit score of at least 670 or higher to qualify with most private lenders. That said, what each individual lender considers “bad” credit will vary. And, there are several lenders that work with borrowers with lower credit scores.
It’s important to note that most private lenders use the FICO credit scoring model. The FICO scale uses a range of 300-850 to measure creditworthiness, so the closer you are to 850 the better.
First, here’s is a list of the top 5 student loans for bad credit. Rather than searching for lenders one-by-one, we recommend starting the process with an automated student loan search tool. After you complete the free Sparrow application, we’ll show you the rates and terms you’d qualify for with 17+ premier lenders.
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The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA has a minimum credit score requirement of 670. ASLA is a great option for Arkansas students.
Ascent is an online lender that offers educational funding for students. They offer three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection for those who do not have a cosigner available, are international or DACA students, or have lower credit scores. Ascent’s minimum credit requirement varies based on the loan.
Brazos is a non-profit lender offering educational funding through private student loans available only to Texas Residents. They offer a wide range of loan options, covering undergraduate, graduate, MBA, law, medical, dental, veterinary, and doctoral degree programs. Brazos does not disclose their minimum credit requirement. Brazos is a great option if you live in Texas and want competitive interest rates.
College Ave Student Loans offers educational funding for undergraduate, graduate, professional, and career school students, and parents of students. To qualify for a student loan with College Ave, you will need a credit score in the mid-600s. College Ave is a great option if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest’s student loans provide funding to undergraduate, graduate, and professional students. Earnest has a minimum credit score requirement of 650. They’re a great option if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
Edly Income-Based Repayment (IBR) Student Loans, originated by Edly’s partner FinWise Bank, provide an alternative loan option for students. Students who are approved for an Edly student loan will not have to make payments while in school. Instead, borrowers make payments after graduation based on their income. Due to the structure of IBR loans, borrowers have a variety of benefits when it comes to repayment. An Edly IBR loan is best if you are seeking a loan option with no cosigner, competitive repayment terms, and flexible repayment options.
Funding U is an online lender that focuses exclusively on undergraduate students with no cosigner. Rather than looking at your credit score or income, Funding U looks at non-traditional metrics such as your school, major, GPA and estimated future earnings to assess your creditworthiness. Funding U’s student loan is best if you are a high-achieving undergraduate student with limited credit history and no access to a creditworthy cosigner.
LendKey is an institution that offers educational funding to undergraduate and graduate students. By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey has a minimum credit requirement of 660. It’s best for students who want generous cosigner release and forbearance policies.
MPOWER is an online lender that offers educational funding to international, domestic, and DACA students. They offer non-cosigned undergraduate and graduate student loans. It is best for international students and DACA students who don’t have a credit history and can’t access a qualified cosigner.
Can You Get Federal Student Loans with Bad Credit?
Most federal student loans don’t require you to have a good credit score (or any credit at all). They also tend to have lower interest rates and better terms and conditions. These qualities make them a great place to start when thinking about financing your college education.
There are four main types of federal student loans, three of which do not require a credit check or a high credit score to qualify.
Federal Loans that Don’t Require a Credit Check
Direct Subsidized Loans
Direct Subsidized Loans are available only to undergraduate students who demonstrate financial need. This means that you may not qualify for Direct Subsidized Loans.
If you do, the government will pay the interest on your Direct Subsidized Loans while you are in school. Once you graduate, you’ll be in charge of paying them back, interest included.
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to both undergraduate and graduate students, and you do not need to prove financial need to qualify. However, while in school, the government does not pay interest on these loans. So, while you’re hitting the books, interest will be accumulating in the meantime.
Direct Consolidation Loans
Direct Consolidation Loans allow you to combine more than one federal loan into one. So, if you have several federal loans and want to simplify your payments, you can combine them into one singular loan, and thus, one singular payment. When you consolidate, your new interest rate is the average of your previous loans’ interest rates.
Federal Loans That Do Require a Credit Check
Direct PLUS Loans
Direct PLUS Loans are available to graduate/professional students and parents of students. Like Unsubsidized Loans, you will be responsible for any interest that accrues, even while in school. However, unlike all other federal loan types, Direct PLUS Loansdo require an adverse credit check.
While the credit check process could be a bummer if you have bad credit, there is hope if you don’t pass it. Adding a creditworthy endorser to the loan may allow you to qualify.
How to Get Federal Loans with Bad Credit
In order to get federal aid, you need to fill out the Free Application for Federal Student Aid (FAFSA). This form will ask you to provide information regarding you and your family’s financial situation to determine your eligibility for aid, but it will not run a credit check as part of that evaluation.
It’s important to note that you don’t have to accept all the federal aid that you qualify for. You should always consider the terms and conditions and think about what makes most sense for you and your educational journey.
While federal loans do tend to be a better choice in comparison to private student loans, they won’t always be best. There’s a variety of different financial aid options for students, so make sure you understand what they all are and what they all mean before agreeing to one.
The goal of student loan refinancing is typically to score a lower interest rate or monthly payment, saving you money in the long run. If you have a bad credit score, it may be challenging to secure a lower rate than what you currently have.
Here is a list of the top refinance loan companies for bad credit. In just three minutes, you can compare real and personalized student loan refinancing rates from 17+ lenders – for free – by using the Sparrow application.
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The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides student loan refinancing for Arkansas residents. ASLA has a minimum credit score requirement of 670.
College Ave offers student loan refinancing with competitive rates, flexible repayment terms, and strong customer service. Their student loan refinance offering is best if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget. To qualify for a refinance loan with College Ave, you will need a credit score in the mid-600s.
LendKey is an institution that offers educational funding to undergraduate and graduate students. By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey has a minimum credit requirement of 660. It’s best for students who want generous cosigner release and forbearance policies.
Earnest’s student loans provide funding to undergraduate, graduate, and professional students. Earnest has a minimum credit score requirement of 650. They’re a great option if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
ISL is a nonprofit lender that offers both private student loans and student loan refinancing. ISL’s student loan refinancing is best if you haven’t graduated and want generous forbearance policies. ISL has a minimum credit score of 670.
SoFi is one of the largest student loan refinance companies in the industry. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit for borrowers with an associate’s degree or higher or borrowers with a high income. SoFi has a minimum credit score of 650.
What to Do if You Were Denied a Student Loan Due to Bad Credit
If you were initially denied a private student loan due to poor credit, your best bet is to look for a creditworthy cosigner. A cosigner is someone who agrees to sign onto the loan. In doing so, they agree that if the borrower fails to repay the loan, the cosigner will take responsibility for paying it back.
Having a cosigner is valuable because their credit score will be factored into the lender’s decision to work with you, which can also help you secure a better interest rate and terms. So, if your credit score isn’t up to par but theirs is, you may be in luck.
Make sure you don’t pick just anyone to cosign unless you really, really have to. Make sure to find someone that is creditworthy and has a history of managing their finances effectively. Additionally, always make sure to have open conversations with whoever you choose before they agree to cosign. Explain the pros and cons of being a cosigner and what impact it could have for them. Discussing expectations around repaying the loan is also important so your cosigner knows what to expect.
Improving your credit score won’t happen overnight, but it is worthwhile to take any steps you can throughout the loan process to boost your credit.
Here’s a few tips to help get your credit score in check.
Stay Aware of How Much Debt You’re Taking On
Your credit score is calculated based on a variety of factors, one being your payment history. In fact, your payment history is the most important part of your credit score, making up 35% of the calculation.
When you take on debt, such as student loans, you are doing so with the understanding that that money will be paid back and paid on time. If you make consistent, on-time payments, it’s good for your credit, as it demonstrates an ability to pay back debts successfully. If you pay late or miss payments, it could hurt your credit, as it demonstrates an inability to pay back debts successfully.
While this may sound like a no-brainer, you’ll want to be aware of how much debt you’re taking on. If you take on too much, it could make you more likely to miss a payment or go into loan default.
Remember to be realistic about how much you will be able to afford in monthly payments. Utilizing a student loan calculator to estimate your monthly loan payments after graduation is a great way to get real about whether the loan will be feasible when repayment starts. Let’s use an example here.
Let’s say you’re studying to be a public school teacher, and you land a job making $50,000 a year after graduation. This would land you around $4,200 per month (if we round up) to budget with. (For the ease of this example, we aren’t factoring in taxes.)
Now, let’s say your monthly expenses are as follows:
You’re left with $1,950 each month. This example is simple and doesn’t factor in taxes or other expenses such as savings, car maintenance, pet costs, entertainment, and more.
If you’re debating a $30,000 student loan at a 9% interest rate and a 15-year repayment term, you’d be looking at a $304 minimum monthly payment. Now remember, this is for one loan. If you took out four of these loans, one for each year you’re in school, you’re looking at an even heftier monthly payment.
So, before taking out a student loan, consider whether the estimated monthly payments would be affordable for you given your future income potential. Being realistic about what you may be able to afford could prevent you from missing a payment down the line.
The length of your credit history is another important factor in determining your credit score. The longer you have had open lines of credit, the better your credit score will typically be. Having, and properly managing, your credit for a long time shows lenders that you’re responsible.
While it may sound counterintuitive, closing any open lines of credit you currently have could hurt your credit score because it shortens the length of your credit history. Unless you absolutely need to, stay away from closing any current accounts.
Don’t Open New Lines of Credit
Opening new lines of credit will cause what’s called a hard inquiry. A hard inquiry occurs when a financial institution checks your credit report before making a lending decision. When lenders do a hard inquiry, they’re attempting to assess how you’ve handled your credit in the past.
Just like you’d only lend money to someone you trust, lenders want to make sure you’re a sound investment for them before dishing out the cash. A hard inquiry, though, can temporarily hurt your credit. So, if you’re looking to take out a student loan anytime soon, we recommend holding off on opening any new lines of credit.
Check Your Credit Report
If you have bad credit but aren’t totally sure why, you may want to check your credit report. Your credit report is important to look over for many reasons, but especially to check for errors, fraud, or identity theft. Even a small error on your credit report can significantly hurt your credit score, so we recommend checking fairly often.
There are many financial institutions, such as banks and credit card companies, that offer free credit reports. If yours don’t, utilize the free Annual Credit Report website. You are, by law, entitled to these reports yearly.
Final Thoughts from the Nest
So, yes. You can get a student loan with bad credit. However, it might make the process a bit more challenging. Start thinking ahead about where your credit is at, and if it’s not ideal, start taking small steps to build it. To find a private student loan for students with bad/no credit, complete the Sparrow application today.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
While an important piece in determining your eligibility for financial aid, Expected Family Contribution, or EFC, is often misunderstood.
Here’s what you need to know about Expected Family Contribution for FAFSA purposes.
What is Expected Family Contribution?
Expected Family Contribution, or EFC, is a number used to determine how much financial aid you are eligible to receive, including grants and federal student loans.
EFC is calculated using a formula established by law. The formula uses information such as:
Your/Your family’s income
Your/Your family’s assets
Your/Your family’s benefits
The number of family members in college during the same year
This information is then used to estimate the amount of money you and your family would be able to contribute to one year of college costs. By doing so, financial aid programs are able to estimate what your financial need may be when it comes to paying for college.
Note that this number does not indicate how much you will receive in financial aid or how much you willhave to contribute, but rather, how much you are eligible to receive and how much you could contribute.
Your EFC is important because it contributes to how you are evaluated for financial aid overall, including federal student aid.
Expected Family Contribution and Federal Student Aid
When calculating your overall federal student aid eligibility, the federal government uses a formula that takes into account several factors such as:
Your EFC
Student enrollment status (full-time, part-time, etc)
Your year in school
The cost of attendance each respective school
Federal student aid haslimits, and thus, your overall federal student aid eligibility helps determine how much of each type of aid you are eligible for.
How Does My Expected Family Contribution Impact My Federal Aid?
Your EFC will help determine how much aid you will be eligible for. If your EFC is $0, you will be eligible to receive the maximum amount of federal aid. If your EFC is over a certain threshold, you will receive no aid at all.
Note that these numbers may fluctuate annually to reflect changes in your/your family’s income.
Your Expected Family Contribution’s Impact on Financial Aid Overall
Each piece of this overall aid eligibility equation helps paint a bigger picture regarding your finances, and therefore, helps schools understand where you may need financial aid.
How much of your financial need is covered by federal aid may impact how schools fill the remaining gap with aid such as university scholarships and grants.
Why Your Expected Family Contribution Changes
Your EFC will likely change year-to-year as you or your parent’s/parents’ income changes. Therefore, the amount of aid you are eligible for each year will also change.
Be sure to resubmit your FAFSA each year to ensure that you maintain access to the maximum amount of aid you are able to receive.
How Can I Calculate My Expected Family Contribution?
Let us say this before we give you the breakdown: While you can calculate your own EFC at home, be careful not to get overly attached to this number. At-home estimates are just that: estimates.
Add up the total parent income (both taxed and untaxed income)
Subtract allowances for federal and state taxes, as well as any Social Security paid
Subtract an Income Protection Allowance (IPA)
This number is intended to estimate how much a family would need for necessities such as housing and food based on its size. This number would be taken out of the overall income when calculating how much a parent would be able to contribute to a child’s education.
Subtract an Employment Expense Allowance
This will only apply for households where all parents are working, and will equal 35% of earned income or $4,000 — whichever is less. This amount is intended to cover the expenses that working parents have such as commuting.
After doing this calculation, you will reach what’s called your Available Income (AI). This represents how much of the parental income can be considered for college costs.
Calculating the Student Contribution to the EFC
Add up the total student income
Subtract allowances for federal and state taxes, as well as any Social Security paid
Subtract an IPA
Figure out the Student Contribution from Available Income (50% of the current total)
Finally, add the Parental Contribution to the Student Contribution to result in your family’s EFC.
Commonly Asked Questions About Expected Family Contribution
What is the Expected Family Contribution for an independent student?
When you are a dependent student, your EFC is calculated based on both your parent’s/parents’ income and your own.
However, as an independent student, your family’s income will not be used to calculate your EFC. Rather, your own income and assets will be factored into the calculation, minus some deductions.
If you are an independent without dependents, your EFC will be based on your income (and your spouse’s if you are married) minus taxes and basic living expenses.
If you are an independent with dependents, your EFC will be based on your income (and your spouse’s if you are married) minus taxes, basic living expenses, and an employment allowance. The employment allowance is available if you are a single working parent or a working student with a spouse.
There is no one specific number that makes your EFC “good.” Generally speaking, however, the lower your EFC, the more financial aid you may qualify for.
Why is my Expected Family Contribution so high?
Your EFC can be high for a variety of reasons, however, it is often high due to having a high income or a lot of assets. Assets are resources that can produce positive economic value such as:
Cash
Real estate
Stock holdings
When calculating your EFC, both liquid and illiquid assets are taken into account. Liquid assets are ones that can be sold quickly without losing a lot of their value, such as the money in your bank account or stocks. Illiquid assets, on the other hand, are ones that do lose value when sold quickly, such as cars and real estate.
If you/your family has a low income but a lot of assets, your EFC may be higher than you expected. If this does not seem to be the case, however, consider filing a financial aid appeal to have your EFC recalculated.
Your EFC is one piece of how your financial aid eligibility is calculated. While it isn’t the whole bit, it is important. By estimating your family’s EFC, you can determine what financial gaps may arise after receiving financial aid.
If scholarships and federal student aid don’t cover your financial need completely, it may be time to explore a student loan to fill the gap. When you’re ready, Sparrow is here to help.
Earning a graduate degree is a great way to increase your income potential. In fact, Indeed reported that, on average, the earnings increase from a bachelor’s to master’s degree is roughly 20%. Nonetheless, it can be difficult to understand how to pay for grad school.
Graduate school can be expensive. According to FinAid.org, a graduate degree costs anywhere from $30,000 to $120,000, depending on the program. This makes financial decisions around paying for graduate school even more important.
While that reality may be overwhelming, there are several ways to pay for your graduate degree. Let’s break down your top 5 options: scholarships, fellowships, grants, work-study, and loans.
How To Pay for Grad School
As with any degree, there is a certain order you should follow when it comes to how you finance your education.
Scholarships, fellowships, and grants are all forms of free aid, or gift aid. Typically, scholarships, fellowships, and grants do not need to be paid back, so you’ll want to accept these first.
After accepting any free money available to you, you should pursue work-study next. Federal work-study is considered earned money, meaning you have to trade your time to receive it. While not everyone will receive federal work-study, it’s a great option for those who do.
Loans should always come last in the process because they are borrowed money. When you borrow a loan, it’ll typically accrue interest, and by the time you pay it back, you’ll have paid a significant amount in interest.
#1: Finding the Best Scholarships for Graduate School
Graduate scholarships are typically awarded based on academic or professional achievements. However, there are scholarships awarded based on other factors such as:
What GPA Do You Need to Get Graduate School Scholarships?
Typically, you’ll need around a 3.5 GPA to be a competitive applicant for most graduate school scholarships. That said, there are scholarship programs that have a lower GPA minimum.
Where Can You Find Graduate School Scholarships?
You can find graduate school scholarships in a variety of places such as:
Professional organizations
From your school’s financial aid office
Online search engines
For example, the American Bar Association offers scholarships to first-year law students from underrepresented communities through theirLegal Opportunity Scholarship.
For search engines, there are a wide variety of options available such as ScholarshipOwl, Scholarships.com, Chegg, and Fastweb.
#2: Exploring Graduate Fellowship Options
A fellowship is another form of free aid that you’ll want to seek out before taking on student loans.
What is a Graduate Fellowship?
A fellowship is an award given to graduate students to subsidize the cost of education. Some fellowships are awarded simply to fund your education, similar to scholarships. Other fellowships are awarded specifically to fund academic projects such as dissertations, thesis projects, or research.
Fellowships are awarded by schools, professional organizations, and nonprofits, typically based on merit.
The amount you receive from a fellowship depends on the specific program. For example, the NSF Graduate Research Fellowship Program is a five-year fellowship that provides three years of financial support. Recipients receive an annual stipend of $34,000 and a cost of education allowance of $12,000.
The International Dissertation Research Fellowship (IDRF), however, provides a one-time stipend that varies depending on the research plan of the recipient. On average, each IDRF recipient receives $23,000.
When searching for a graduate fellowship, pay close attention to the length of the program and how the funds are disbursed to you or your university.
Is a Fellowship Better Than a Scholarship?
Fellowships and scholarships are both forms of free money, but you may have to complete an academic project to receive fellowship funding. If you’re interested in a particular academic project, a fellowship may be a solid option for you. If you’d prefer to receive free money with no strings attached, a traditional scholarship may be better for you.
While one is not necessarily better than the other, it’s important to understand how each one works to make an educated decision.
#3: Finding the Best Grants for Graduate School
Grants are similar to both scholarships and fellowships — they are free money you don’t need to pay back.
Who is Eligible for a Grant for Graduate School?
Typically, grants are awarded based on financial need. Some grant providers may have additional eligibility requirements such as having a certain GPA or enrollment in a specific program. Some may even require you to have specific research goals.
Graduate school grants can come from a variety of sources such as the federal and state government, your school, and professional organizations.
Federal Grants
To be eligible for any federal grants, you must complete the FAFSA. The information you provide on the FAFSA is used to determine your financial need, which is then used to determine your federal grant eligibility.
Does the Pell Grant Cover Graduate School?
As a graduate student, you are not eligible for the Pell Grant. The Pell Grant is intended for undergraduate students, minus a few exceptions.
State Grants
State grants are provided by individual U.S. states, and thus, each state grant program runs a little differently. Reach out to your state’s department of education to learn more about the grants they may offer.
School Grants
Some universities offer grants to students pursuing a graduate degree at their institution. Check with your specific program to learn more about the grants offered for your field of study. Don’t hesitate to ask the school’s financial aid office as well. There may be generic institutional grants available to both undergraduate and graduate students that you qualify for.
Professional Organization Grants
Professional organizations focus on advancing individuals within a particular profession or with specific interests. Because of this, they tend to offer financial assistance to those pursuing degrees within their field. For example, the American Bar Association and the American Marketing Association provide grants to eligible individuals pursuing related degrees.
Work-study is a federal aid program that provides part-time jobs to undergraduate and graduate students with financial need. To be eligible for work-study, you must complete the FAFSA. Your application will determine if your level of financial need meets the minimum requirement of the work-study program.
Both full-time and part-time graduate students are eligible for work-study. If you accept the work-study aid offered to you, you will be responsible for finding a work-study role through your college/university. Speak to your school’s financial aid office for specific information regarding how work-study functions at your school.
How Much Money Can You Get in Work-Study?
The exact amount you receive in work-study will depend on the school you attend. Although, at minimum, work-study roles must pay the federal minimum wage. However, there are some work-study roles that offer more generous hourly rates.
#5: Finding the Best Student Loans for Graduate School
Student loans should always be the last option when determining how to pay for grad school. The more you borrow, the more you will have to pay back due to the interest that accrues. That makes selecting a good student loan that much more important.
A cosigner is an individual that signs onto a loan alongside you, taking full responsibility for the loan if you’re unable to pay it back. A creditworthy cosigner can help you secure a lower interest rate and better terms.
If you don’t have access to a cosigner, that is okay, too. Non-cosigned loan options are available, but they may have higher interest rates.
If you are pursuing a graduate degree immediately after your undergraduate degree, you may not have a substantial full-time income just yet. Some private lenders have minimum income requirements, so if you plan to take out the loan without a cosigner, you’ll need to make sure you meet that income threshold.
Interest Rate
Each student loan will have its own unique interest rate and terms. Always compare interest rates carefully to select the loan that is best for you.
Each individual lender will offer a unique set of repayment options. While some lenders may offer a deferred repayment option, allowing you to postpone repayment while in school, others may only offer immediate repayment. This would force you to begin making loan payments while in school, which many students are unable to do. Be realistic about which repayment options would work for you and ensure the lender you select offers them.
Federal & Private Loan Options for Graduate School
As a graduate student, you will likely have access to both federal and private student loans.
Federal
Federal student loans are provided by the federal government. To be eligible for a federal student loan, you must complete the FAFSA.
Private
Private student loans are provided by private entities such as banks, financial institutions, and nonprofits. To see what private student loans you qualify for, complete the Sparrow application.
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA is a great option for Arkansas students.
Ascent is an online lender that offers three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection for those who do not have a cosigner available, are international or DACA students, or have lower credit scores.
Brazos is a non-profit lender offering private student loans to Texas Residents. They offer a wide range of loan options, covering undergraduate, graduate, MBA, law, medical, dental, veterinary, and doctoral degree programs. Therefore, Brazos is a great option if you live in Texas, have strong credit, and want competitive interest rates.
College Ave’s student loan offering is available for undergraduate, graduate, professional, and career school students, as well as parents of students. Accordingly, it’s best if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest’s student loans are available to undergraduate, graduate, and professional students. It is best if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey’s student loan offering is available to undergraduate and graduate students. In addition, it’s best if you have strong credit and want generous cosigner release and forbearance policies.
MPOWER is an online lender that offers non-cosigned undergraduate and graduate student loans to international, domestic, and DACA students. Accordingly, it is best for international students and DACA students who don’t have a credit history and can’t access a qualified cosigner.
Prodigy Finance is an online lender that offers non-cosigned graduate student loans to international students. Accordingly, it is best for international students who don’t have a credit history and can’t access a qualified cosigner.
SoFi is a strong option for undergraduate, graduate, law, and MBA students, as well as parents looking to fund their child’s education. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit for borrowers with a strong credit score or a creditworthy cosigner.
Final Thoughts from the Nest
While graduate school can be a costly affair, there are a variety of ways to pay for it. When figuring out how to pay for grad school, always remember to pursue aid in the following order: scholarships, grants, fellowships, work-study, student loans.
When it comes time to check out private student loan options, start with Sparrow.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
On August 24th, President Joe Biden announced his comprehensive student loan relief plan, complete with up to $20,000 in student loan forgiveness per eligible borrower.
Now, as the application is nearing its release, it’s time to prepare. Here’s what you should do before the application comes out to make sure you’re ready.
Stay Updated on Any Changes
Details regarding student loan forgiveness are changing frequently. To ensure you’re up-to-date with the latest information, subscribe to the Department of Education’s email updates.
If and when information changes, you’ll receive an automated email complete with everything you need to know. (Don’t worry. You can pick exactly which newsletters you want to subscribe to, so your inbox won’t wind up packed with emails you don’t care about.)
Prepare Necessary Documentation
When the student loan forgiveness application is released, thousands of borrowers will flock to the site. While the Department of Education has been preparing for this exact moment, there’s a good chance the massive uptick in traffic will cause the site to get overloaded and even crash.
If you’re halfway through your application and the site goes down, you’ll likely lose your progress and need to restart when it comes back up. So, instead of memorizing certain details then having to recall them later, compile the documents you’ll need and have them at-the-ready, right in front of you.
It’s best to also have scanned copies of these documents in case you need to upload them.
Start Saving for a Potential Tax
While the amount forgiven isn’t taxable at the federal level, it may be taxed at the state level depending on where you live. Based on current information, Arkansas, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin are expected to apply a state income tax to student loan forgiveness.
That said, several states have made an alteration to their tax rules, making discharged debt temporarily exempt from state income tax. So, there is a chance the above states follow suit.
While it’s unclear just how much you could be taxed, experts have estimated anywhere from a couple hundred to a couple thousand dollars. Due to how wide that range is, it’s important to start preparing for a potential tax as soon as you can.
Commit to sending a chunk of money to savings each time you’re paid. That way, covering the payment come tax time won’t be as much of a burden.
States Expected to Tax Student Loan Forgiveness
States Expected to Not Tax Student Loan Forgiveness
States Without Income Tax (thus, no tax on student loan forgiveness)
Arkansas Indiana Minnesota Mississippi North Carolina Wisconsin
Alabama Arizona California Colorado Connecticut Delaware Georgia Hawaii Idaho Illinois Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Missouri Montana Nebraska New Jersey New Mexico New York North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah Virginia Vermont West Virginia
Alaska Florida Nevada South Dakota Tennessee Texas Washington Wyoming
New Hampshire does not tax earned wages, so student loan debt forgiveness likely won’t be taxed.
Remember Other Aspects of Biden’s Relief Plan
The focus of President Biden’s student loan relief plan has been on forgiveness, but there are other parts to be aware of, such as the end of the forbearance period.
Forbearance Ending
If forgiveness won’t be wiping out your entire balance, you’ll need to prepare for payments to restart on January 1st, 2023 when the forbearance ends.
To estimate your monthly payment amount, log into your loan servicer’s account. In some accounts, there is an option to view your projected monthly payment for each individual loan. While the number will likely drop due to a portion of your balance being forgiven, it’ll give you a solid estimate for what to expect once the forbearance ends.
This is a good time to look at your budget and make adjustments to your spending to accommodate a loan payment.
Sign Up for AutoPay
It’s been quite a while since borrowers have been required to make payments on their federal student loans. If you’re worried that the change of pace may cause you to miss a payment once the forbearance ends, now is a good time to opt in to autopay. This will automatically withdraw your payments from your account each month, so you never miss a payment.
Make Sure Your Contact Information is Updated
If you’ve recently moved or changed email addresses, log into your account and ensure the contact information is updated. Important information regarding your loans, the forgiveness application, and changes to the program will be sent to the information on file. If the information isn’t current, you could miss out on key details.
Look at Other Forgiveness Opportunities
If you don’t qualify for President Biden’s student loan relief, don’t fret. There are other programs you may be eligible for:
Public Service Loan Forgiveness
Also known as PSLF, this program eases the burden of federal student loan debt for eligible public service workers. If you work in a qualifying role, such as a teacher or law enforcement officer, you may qualify to have your entire loan balance forgiven.
Teacher Loan Forgiveness
If you are a highly-qualified teacher with federal student loan debt, this program is for you. To qualify, you must have taught at a low-income school or educational service agency for at least five consecutive school years.
Nurse Corps Loan Repayment
If you’re a nurse working in a critical shortage facility, you may be eligible to have up to 85% of your nursing school debt forgiven.
Income-Driven Repayment Forgiveness
After making qualifying payments on an IDR plan for 20-25 years, your entire remaining balance can be forgiven. While this option requires a lengthy commitment to receive relief, it is a great option for those committed to remaining on an IDR plan for that length of time.
Beware of Student Loan Forgiveness Scams
While student loan scams aren’t new, they’re increasing in number since the Biden Administration’s plan was announced. To prevent falling prey to a scam, here are a few red flags to look out for:
Language that suggests urgency. You will never be asked to decide quickly when it comes to student loan forgiveness. Plus, most student loan forgiveness programs will require you to have made a certain number of payments. That requires preparation and, therefore, can’t be a decision made in a moment’s notice.
Saying the program ends soon. Federal student loan forgiveness programs have been running, and will continue to run, for many years to come.
Promising immediate loan forgiveness. Loan forgiveness programs all have a variety of criteria you need to meet. Plus, you’ll usually need to apply to even be considered. So, in any case, your loans won’t automatically be forgiven.
Asking for your FSA ID or password. Neither the Department of Educationnor a Federal Student Aid representative will ask for your personal information over the phone.
Requesting a fee to discharge your debt. Legitimate student loan forgiveness programs do not require a fee to participate.
Remember, scammers are smart. Some may even utilize telemarketing services that place their location at Washington, DC to make the call look more reputable. Be wary of any call you receive in relation to student loan forgiveness. Always contact your loan servicer directly if you’re unsure whether something is real or a scam.
Final Thoughts from the Nest
As the application release date approaches, it’s important to start preparing. Make sure to gather all necessary documentation, ensure your contact information is up-to-date, and prepare for the potential loan forgiveness tax.
On August 24, President Joe Biden announced broad student loan relief actions, forgiving up to $20,000 in federal student loan debt for eligible borrowers. While the much-needed relief has been celebrated by many, it’s left others —especially married couples— somewhat in the dark. Here’s what married couples need to know about student loan forgiveness:
To qualify, there are a variety of eligibility criteria you’ll need to meet, including earning below a specific income limit. However, if you are married and filed taxes jointly, you’ll be subject to different income criteria, which could leave you ineligible for forgiveness. Learn more about the student loan eligibility requirements for married couples:
Eligibility Criteria for Biden’s Student Loan Forgiveness Plan
To qualify for Biden’s student loan relief, you’ll need to meet the following requirements:
(1) You must have federal student loans disbursed on or before June 30, 2022.
Most federal student loans qualify, such as Direct Loans and Parent PLUS Loans. It is currently unclear whether Federal Family Education Loans (FFEL) will qualify.
(2) You must make less than $125,000 per year, if single. Couples who file taxes jointly must earn less than $250,000 per year, combined.
Heads of households who earn less than $250,000 per year are also eligible.
If you meet the above criteria, but did not receive a Pell Grant while in school, you are eligible for $10,000 in student loan forgiveness. If you did receive a Pell Grant, you are eligible for $20,000 in student loan forgiveness.
What Biden’s Student Loan Forgiveness Means for Married Couples
If you and your spouse filed taxes jointly, you’ll need to have made less than $250,000 combined to qualify for student loan forgiveness. If your combined income was above that threshold, neither of you will be eligible.
Your 2020 and 2021 tax returns will be used as proof of income. If you filed jointly in either of those years, and your combined income was above the threshold, you may not be eligible.
However, if you are married but did not file jointly in 2020 or 2021, your eligibility for relief will be evaluated based on your income alone.
Will Both Spouses Be Eligible?
If you filed jointly, both spouses will be eligible in cases where your combined income is less than $250,000 per year. If you are married, but did not file jointly, both spouses will be eligible in cases where your individual income is less than $125,000 per year.
Common Scenarios
Here are a few scenarios to illustrate how this will work:
Scenario 1:
Sarah and John are married and filed a joint tax return in 2021. Together, they make a combined income of $300,000. John earns $200,000 per year, and Sarah earns $100,000 per year. Sarah has federal student loan debt, while John does not.
While Sarah makes below the $125,000 individual income threshold, their combined income makes Sarah ineligible for student loan forgiveness.
Scenario 2:
Kate and Jane are married and filed taxes jointly in 2021. Together, they make a combined income of $280,000. Kate brings in $110,000 per year, while Jane brings in $170,000 per year. Both Kate and Jane have federal student loan debt.
While Kate is below the individual income threshold, because they filed jointly, Kate is ineligible for student loan forgiveness.
Scenario 3:
Luke and Miranda are married and filed taxes jointly in 2020. Together, they earn $80,000 total, with Luke bringing in $35,000 and Miranda bringing in $45,000. Both Luke and Miranda have federal student loan debt.
Because their combined income is below the income threshold for married couples, both Luke and Miranda are eligible for student loan forgiveness.
Scenario 4:
Bryce and Joe are married but did not file a joint return in 2020 or 2021. Bryce earns $110,000 per year, and Joe earns $127,000 per year. Both have federal student loan debt, however, only Bryce is eligible for student loan forgiveness as Joe’s income is above the individual income threshold.
Can I File Separately to Be Eligible for Forgiveness?
Unfortunately, you cannot retroactively file separately after filing jointly. While you can amend prior tax returns to change from married filing separate to married filing joint, you cannot do the opposite.
So, in this case, if you previously filed taxes jointly, you cannot change it. This may include instances of divorce, where you previously filed jointly in 2020 or 2021 with a now ex-spouse. However, it’s best to contact Federal Student Aid representatives directly for more information, as divorce is a special circumstance.
How to Prepare for Biden’s Student Loan Forgiveness
While the application for student loan relief has not yet been released, you can begin the process by collecting the documentation you’ll need to apply, such as:
Proof of income, such as previous tax returns;
Accurate address information;
And, loan records.
You may also want to take a screenshot of your current federal loan balance prior to forgiveness. Then, after the forgiveness is said to have taken place, you can verify the amount to ensure the proper portion was forgiven.
What to Do If You Don’t Qualify for Biden’s Student Loan Relief
While President Biden’s plan, particularly the income level requirements, are intended to help families most in need of relief, it can be frustrating if you don’t qualify.
If the income requirements for married couples leaves you ineligible for student loan forgiveness, there are a few other relief options to consider:
If managing multiple loan payments is challenging, consolidating may help you. Direct Consolidation loans allow you to combine multiple federal loans into one, leading to one interest rate and one payment, as opposed to several. While only available for federal student loans, consolidation can simplify your payments.
Due to the unprecedented nature of Biden’s sweeping student loan relief, many details are still unclear, particularly as it pertains to married couples. However, in leading up to the application release, more information is sure to arrive.
To receive updates on any changes to the program, sign up for the U.S. Department of Education’s email updates.
As an adult, your credit score matters quite a bit. Whether you’re seeking approval for an apartment, a mortgage, or a car loan, your credit score will be utilized in various important life stages. If your student loans seem to be bringing down your score, you may be wondering how to remove student loans from your credit report. Unfortunately, you can’t remove accurate information from your credit report — legally, of course.
That said, there are a few things you can do to remove student loans from your credit report if inaccurate information is present.
Dispute Inaccurate Information
While you can’t remove accurate information from your credit report, you can dispute inaccurate information. For example, if you find one of the following on your credit report, you should dispute it:
A late payment you didn’t incur
A loan that isn’t yours
Inaccurate default status
A loan inaccurately listed in forbearance or deferment
A loan account marked as open that is actually closed
To dispute it, contact your student loan servicer as soon as possible. While there may be a phone number listed online, we recommend filing your dispute in writing. That way, you have the entire interaction documented should the process be inefficient or ineffective.
How to Write Your Dispute Letter
When crafting your dispute letter, ensure you have the following:
Your student loan reference number
Contact information (ie. your phone number and email address)
An in-depth explanation of the issue
Documentation of the issue (ie. proof of the error in a credit report from one of the three major credit bureaus — Experian, TransUnion, or Equifax)
Documentation of the accurate information (ie. proof of on-time payments)
If you are still in school and aren’t required to make loan payments, yet your credit report shows late or missed payments, you may need proof of enrollment to have the information removed from your report. Contact your school’s registrar’s office for proper documentation.
If you find that your lender or loan servicer is uncooperative, you may need to follow up multiple times to get things moving. If you’re still struggling to reach them, file the dispute online with the credit bureau directly.
How Long Will it Take for the Error to Be Fixed?
Typically, it takes around thirty days to investigate a dispute and report findings. However, there are two main reasons the process can take longer: insufficient information was provided or inefficiency of the lender or loan servicer involved.
If you fail to provide sufficient information on the first go-round, the investigating agency may need to reach back out to you to ask for more information. You can avoid this by providing in-depth descriptions of the issue and proper documentation upfront in your initial dispute letter.
If you opt to dispute via the credit bureau, they’ll need to contact your lender or loan servicer to investigate further. If they don’t respond in a timely manner, it could extend the length of the process. This is one reason why disputing the error yourself with the lender or loan servicer directly can be more efficient.
Regardless of how you choose to file the dispute, don’t be afraid to follow up with each party involved throughout the process. Sometimes, a gentle nudge to move the dispute forward can speed it up quite a bit.
Pay Your Loans Off
A student loan is a line of credit. When you close a line of credit, the credit history associated with it goes out the window, too. So, when you pay off your student loans, they will no longer be on your credit report.
While this method isn’t the simplest nor quickest solution, implementing a more effective debt payoff strategy may help you get to it faster.
For example, refinancing your student loans can help you pay off your debt faster. Refinancing means replacing your current student loan(s) with a new loan with a lower interest rate. When you refinance more than one student loan, you can also consolidate them into one loan, meaning one monthly payment.
Here is a list of some of the best refinance rates for student loans:
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Like paying off your student loans, being granted student loan forgiveness closes out your loan account. So, if you have any late or missed payments associated with the account, it’ll be wiped from your credit report once the debt is forgiven.
That said, student loan forgiveness is only an option if you have federal student loans. However, depending on the type of federal student loans you have, you may need to pursue a consolidation loan first to be eligible for forgiveness. Private student loans, on the other hand, are ineligible for student loan forgiveness programs.
How Long Do Student Loans Stay on Your Credit Report?
Late student loan payments will remain on your credit report for seven years. If the loan goes into default as a result, however, the timer won’t go back to zero. The seven year period will be based on the date of the first missed payment, not the last.
Beware of Credit Repair Scams
You may see advertisements, messages, and emails from individuals or services claiming to have the power to fix your credit score. However, the vast majority of these are scams.
Some red flags to look out for include:
Asking you to pay before providing the service. Under the federal Credit Repair Organization Act, it is illegal for credit repair companies to charge you until they’ve provided the services they’ve promised.
Saying they can remove any information, including accurate information from your credit report. You cannot remove accurate information from your credit report.
Using salesy language such as “urgent” or “guaranteed.” Even with a reliable credit repair company, there is no guarantee the error disputed will be resolved.
Refusing to explain your rights. Under the Fair Credit Reporting Act, it is your legal right to dispute credit report errors on your own, free of charge. While you can utilize a credit repair service, you don’t need to hire someone to handle it for you. If an organization says only they can take care of a dispute, do not work with them.
Applying pressure to make a decision about using the service. When you choose to file the dispute is up to you. There is no timeline in which you need to make the decision.
Telling you not to contact credit card companies, lenders, loan servicers, or credit reporting agencies. It is within your right to contact any of these entities with questions regarding your credit.
Do not share any personal information regarding your student loans or your credit with anyone unless you are certain they belong to a reputable credit repair company.
Final Thoughts From the Nest
While you can’t remove just any information from your credit report, you can dispute inaccuracies associated with your student loans. Oftentimes, these mistakes are simply oversights or glitches in the system and can be promptly corrected once your lender or loan servicer is made aware.
If you aren’t sure whether something on your credit report is in fact an error, reach out to your lender or loan servicer anyways. It can’t hurt to inquire and file a dispute, but it could potentially save your score.
President Biden’s recent student loan forgiveness actions are a win for many borrowers. However, as the relief gets closer, many are left wondering whether the discharged debt will be considered taxable income.
This isn’t a new concept. In fact, discharged indebtedness has been classified as taxable income for years. However, the unprecedented nature of broad loan forgiveness may warrant some exceptions to the rules.
If you’re left asking, “Is student loan forgiveness taxable?,” here’s what we know so far.
Will The Student Loan Forgiveness Be Taxed?
Section 9675 of the American Rescue Plan states that student loan forgiveness granted between 2021 and 2025 will not be considered taxable income at the federal level. However, it may be subject to state income tax depending on which state you live in.
States that mirror federal income tax guidelines will likely exclude student debt forgiveness from state income tax. However, other states may maintain their current tax code, making debt forgiveness taxable.
Which States Will Tax the Student Loan Forgiveness?
In the last few weeks, several states have instituted a temporary exemption in their tax rules for discharged debt. Given that other states may follow suit, it isn’t entirely clear which states will ultimately tax student loan forgiveness. However, based on current tax rules, there are predictions:
Arkansas. Under its current tax code, this southern state doesn’t allow tax exemptions for discharged student loan debt. Thus, if you live in Arkansas, your forgiven student loan debt will be subject to state income tax.
Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin arealso expected to tax student loan forgiveness and have not said otherwise (as of yet).
Some states, such as California, previously had rules in place to classify discharged debt as taxable income but are implementing changes. According to a recent Twitter post from Anthony Rendon, California Assembly Speaker for District 63, California is awaiting finalized details from the federal government to better understand if “relief is tax exempt under current California law.” If not, the state will be instituting a temporary change to state law to make it exempt from state income tax.
Massachusetts has followed suit, announcing that student loan forgiveness will not be taxable in the bay state. Pennsylvania and New York have made similar announcements.
States Expected to Tax Student Loan Forgiveness
States Expected to Not Tax Student Loan Forgiveness
States Without Income Tax (thus, no tax on student loan forgiveness)
Arkansas Indiana Minnesota Mississippi North Carolina Wisconsin
Alabama Arizona California Colorado Connecticut Delaware Georgia Hawaii Idaho Illinois Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Missouri Montana Nebraska New Jersey New Mexico New YorkNorth Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Utah Virginia Vermont West Virginia
Alaska Florida Nevada South Dakota Tennessee Texas Washington Wyoming
New Hampshire does not tax earned wages, so student loan debt forgiveness likely won’t be taxed.
How Much Will I Be Taxed?
The exact amount you may be taxed depends on a variety of factors, such as your income and tax bracket, state income tax level, and any exemptions you’re eligible for. Based on some estimates, however, your tax liability could range from a couple hundred to a thousand dollars.
When Will I Be Taxed?
Even if you planned to pay your federal loan debt off over a certain period of time, the debt cancellation will be taxed the year it was forgiven. For example, if you have $10,000 in federal student loan debt and planned to pay it off over a 10-year repayment period, it will still be taxed in 2022 once forgiven.
Given the unexpected nature of this tax, it’s crucial to prepare for what you may owe come tax season.
Is Student Loan Forgiveness Usually Taxed?
Taxing student loan forgiveness isn’t entirely new. In fact, some established debt forgiveness programs, such as Income-Driven Repayment (IDR) Forgiveness, are taxable at the federal level. This is because debt cancellation is considered income, and income is taxable.
Whether it’s taxed at the state level, however, depends on the state itself. For example, some states believe student loan forgiveness should be tax-exempt in certain situations. In fact, many states do not typically tax discharged debt for public servants who received forgiveness through Public Service Loan Forgiveness. However, they may tax discharged student debt in other instances, such as IDR Forgiveness.
Is There a Way to Avoid Being Taxed on Student Loan Forgiveness?
Not quite. When filing your 2022 taxes, you’ll need to report your gross income, which includes the amount of debt you had canceled within the tax year. Then, you will be subject to taxes on that total amount.
Final Thoughts from the Nest
While most states won’t be taxing student loan forgiveness, others are firm in their stance to do so. Others are still in limbo, crafting their official perspective on the issue.
If you are concerned about your potential tax liability due to student loan forgiveness, it’s best to contact a professional tax preparer. However, it’s important to recognize that this information is still new and changing frequently as states announce exemptions, so even the professionals might not have all the answers.
This article was last updated 9/13/2022. Information regarding the tax liability of student loan forgiveness recipients is changing quickly. This information is intended for educational purposes only and should not be taken as tax advice. Please consult your tax advisor for recommendations based on your unique circumstances.
Starting the conversation about paying for college isn’t always easy, especially if you anticipate being met with one big eye-roll. While tough to navigate, it’s an important discussion to have.
If you’re not quite sure where to start, here’s a quick guide on how to have the student loan conversation with your child.
Start the Conversation Early
It can be challenging for a teenager to conceptualize just how expensive college can be. So, it may take time for them to fully process and warm up to the idea.
If you can, start the conversation about student loans early. When your child begins to mention college is often an indicator that it’s an appropriate time to start the conversation. However, if you feel as though your child is ready earlier, lean on your own instincts. After all, you know your child best.
Make sure to ease into the topic, approaching it with empathy and understanding. While you may have gone through the college process before, it looks quite different today than it did in the past.
Cover the Important Topics
To prevent the conversation from becoming muddled with extraneous topics, create a mental list (or a physical one!) of what you want to cover. Here are a few of the most important points you may want to go over:
The Cost of College
The cost of attendance has grown rapidly, nearly 213 percent since 1988 to be exact. Knowing that wages haven’t grown at the same pace, affording college looks quite different today than it did in the past.
Allow your child to explore real data on the cost of college —CollegeScorecard is a great place to start. Know that it may be shocking to see such large numbers, so be open to answering questions if your child has any.
The Short-Term and Long-Term Implications of The College You Choose
It’s important to acknowledge that it may be challenging for your child to comprehend just how much some institutions cost. However, there are real implications of such, both in the short-term and the long-term, that they should be aware of.
For example, attending a more expensive institution may require your child to work a part-time job while in school or attend school part-time to afford tuition. If your child isn’t willing to do so, it may be better to explore a more affordable option.
While optimism about post-graduate employment is valuable, it’s important to be realistic about it as well. Before exploring college options, encourage your child to research the expected entry-level salary for the field they intend to pursue. While attending their dream school may sound affordable, comparing their future monthly income to their monthly student loan payment may say otherwise. Getting real about what their future income may look like can help your child make more educated decisions about the financial aid options they choose to pursue —and especially the student loans they borrow.
How Much You Can Contribute
If you plan to contribute toward your child’s education, be upfront and honest about how much you’re able to provide and on what timeline. For example, if you anticipate contributing $5,000 out-of-pocket per year, given in two $2,500 chunks, let your child know. This will provide them with a better understanding of how much they’ll need to obtain in scholarships, grants, and student loans.
Financing Options
83.8% of first-year undergraduate students receive some form of financial aid. So, it’s important that your child understands what each type of financial aid means.
Students should always accept aid in the following order: Scholarships and grants (free money) → Work-study (earned money) → Loans (borrowed money)
While some forms of aid, like student loans, can be explored close to the institution’s enrollment deadline, others will need to be pursued proactively. For example, many scholarship deadlines are well before the academic year.
Make sure your child understands the options available, so they can be proactive about submitting any necessary financial aid applications.
How Student Loans Work
A student loan will likely be the first loan your child borrows. It might even be the first line of credit they open. So, it may be challenging to understand how student loans work.
Ensure your child understands the difference between federal and private student loans. Then, break down the process of borrowing a loan and what paying it back may look like. Discuss topics such as:
Why interest rates matter
How interest may accrue while your child is in school
What repayment may look like
How much their monthly payment may be
What different repayment plans are available to them
How long it may take to repay
This is a good time to utilize a student loan calculator to demonstrate how different loan amounts and interest rates will impact how much your child pays for their education over time.
Make it an Ongoing Conversation
The entire college process is overwhelming. Between campus tours, applications, taking the SAT/ACT, and paying for it, there’s a lot for your child to absorb. So, rather than squishing everything into one conversation, make it an ongoing discussion.
There’s a good chance your child will have questions, but they might not come up all at once. Let your child know that you’re there to answer any questions they may have, at any time.
However, know that you don’t have to have all the answers. It’s perfectly okay to say, “You know, I’m not sure what the answer to that question is. Why don’t we look into it together?” Being honest about what you do and don’t understand can create a comfortable environment where your child feels open to learning about the process with you.
Final Thoughts from the Nest
Talking to your child about how to pay for college can be challenging to navigate –especially when it comes to the student loan side of things. However, starting the conversation early and covering a wide range of topics can help make it easier.
When it comes time to begin the student loan process, know that Sparrow has your back. Our one-stop application allows you to compare private student loan offers from 15+ lenders at one time.
If you’ve borrowed a student loan to fund your college education, you may be curious about the impact it could have on your credit score.
Like other installment loans, student loans can both help and hurt your credit. If you’re diligent about making payments on time, it may give your score a boost. If you’re missing payments left and right, however, your score could take a serious hit.
To prevent any unintended credit mishaps, you should understand how your credit score is calculated and how your score can shift when borrowing a student loan.
Here’s what you need to know about how student loans affect your credit score.
How Your Credit Score is Calculated
To understand how student loans affect your credit score, you should know how your credit score is calculated to begin with. While there are a variety of credit scoring models, FICO and VantageScore are the two most commonly used by lenders. Here’s how each are calculated:
FICO Score Calculations
Payment History (35%): Your payment history takes into account whether you’ve paid past credit accounts on time. If your track record is spotted with missed or late payments, your score will suffer in this category.
Amounts Owed (30%): Amounts owed, also commonly referred to as credit utilization, is the amount of debt you owe in comparison to the total line of credit you have. While having a high total line of available credit isn’t a bad thing, using a large portion of it may indicate to lenders that you’re overextending yourself financially.
Length of Credit History (15%): The longer you’ve been able to effectively manage lines of credit, the better. The length of your credit history is evaluated based on how long your credit accounts have been established, taking into account your oldest and most recent account, plus an average age of all of your accounts.
Credit Mix (10%): An ability to effectively manage a diverse set of credit accounts can be an indicator that you’re financially responsible. So, your FICO score will take into account the mix of installment loans (like student loans), credit cards, mortgage loans, and retail accounts you have.
New Credit (10%): Opening multiple credit accounts in a short period of time raises a red flag to creditors and lenders. In their eyes, it could be a sign of an inability to manage your finances properly, or a desperate need to put expenses on a line of credit. Minimizing the number of new credit accounts you open within any given period of time can help boost your score in this category.
VantageScore 4.0 Calculations
Payment History (41%): Like FICO scores, VantageScore 4.0 places high importance on your payment history, or whether you’ve been able to make on-time payments in the past.
Utilization (20%): Utilization represents how much of your overall available credit you are currently using. The lower this ratio, the better.
Age/Mix of Credit (20%): VantageScore’s “Age/Mix of Credit” category is essentially a mix of FICO’s “Length of Credit History” and “Credit Mix” categories. It evaluates how reliable you may be by using the age of your credit accounts and the mix of credit lines you use as determining factors.
New Credit (11%): VantageScore’s “New Credit” category is the same as FICO’s, except it represents a bit more of your overall score.
Balance (6%): Balance represents how much debt you have in total. In the VantageScore 4.0 model, the larger the balance, the more it will hurt your credit score.
Available Credit (2%): Available credit represents the amount of credit you have available on revolving accounts, such as credit cards. The more available credit you have, the higher you’re likely to score in this category.
Note that VantageScore updates its scoring model from time to time. VantageScore 4.0 is the latest version, released in 2017. However, you may find that previous versions, such as VantageScore 3.0, are still used by some creditors and lenders.
FICO Score
VantageScore 4.0
Payment History (35%)
Payment History (41%)
Amounts Owed (30%)
Utilization (20%)
Length of Credit History (15%)
Age/Mix of Credit (20%)
New Credit (10%)
New Credit (11%)
Credit Mix (10%)
Balance (6%)
Available Credit (2%)
How Student Loans Impact Your Credit Score
Student loans can both help and hurt your credit score. Here are a few ways this can happen:
How Student Loans Can Help Your Credit
Consistently Making Payments: Payment history accounts for a large portion of your credit score. So, consistently making on-time student loan payments can help your score quite a bit.
Adding to Your Credit Mix: Adding an installment loan, like a student loan, to your portfolio of credit accounts makes for a more diverse credit mix. While it isn’t essential to have one of each type of credit, it can give your score a small boost when adding a student loan to the mix.
How Student Loans Can Hurt Your Credit
Missing Payments: Again, payment history is the most important factor in determining your credit score. So, if your payment history is chock full of missed or late payments, your score is bound to take a hit.
Defaulting: Defaulting on any loan can have serious consequences, both for your credit score and your financial stability. In fact, with many student loans, defaulting could lead to wage garnishment, getting your debt sent to collections, or withholding future aid until the debt has been settled. Defaulting will take a serious toll on your payment history which, in turn, can drive your score down rapidly.
Does Paying Off Student Loans Help Your Credit Score?
While paying off student loans is certainly an accomplishment, it may not boost your score in the way you think.
In fact, when you make that final payment on your student loans, the account closes, taking the payment history and age of the account with it. If you’ve missed a few loan payments, this could be helpful. However, in most cases, paying off student loans will reduce the length of your credit history. This could cause you to lose a few points in that category.
While this may hurt your credit score temporarily, it will likely rebound soon after (if everything else remains the same, that is).
Final Thoughts from the Nest
Student loans can affect your credit score both positively and negatively. To maintain your score, make loan payments on time. If you’re unable to do so, reach out to your loan servicer immediately to explore options that may help you. You may be eligible to refinance with one of Sparrow’s 15+ lending partners, switch to a better repayment plan (such as an income-driven repayment plan), or apply for a temporary period of deferment.
Making that last debt payment can feel liberating. The balance finally hits zero, and a weight is lifted off your shoulders. While an incredible accomplishment, you may notice a drop in your credit score, leaving you to feel quite defeated. It’s normal to wonder, “Why has my credit score dropped after paying my student loan? Isn’t that a responsible thing to do?” It does sound a bit backwards, huh?
However, it makes more sense when you understand how your credit score is calculated. Here’s why your credit score might drop after paying off debt.
How Your Credit Score is Determined
Your FICO credit score is calculated using five different factors: payment history, amounts owed, length of credit history, credit mix, and new credit. Each factor is weighed differently when calculating your score.
Payment History (35%)
To evaluate how risky lending to you might be, lenders will look at how you’ve handled credit in the past. If you have a spotless record, you’ll likely do well in this category. If your credit history is checkered with late or missed payments, however, you may lose some points here.
Amounts Owed (30%)
Having outstanding balances doesn’t necessarily make you a risky borrower to lend to. However, using a high percentage of your total credit limit is an indicator that you may be overextending yourself financially.
For example, if you have a total of $20,000 of available credit, and you’re using $19,000 of that, you may appear to be struggling financially. On the other hand, if your total available credit was $50,000, owing $19,000 wouldn’t be so bad.
In a lender’s eyes, having a high outstanding balance in comparison to your total credit limit puts you at a higher risk of defaulting on any one of your loans. Thus, a high credit utilization ratio will impact your credit score.
(Note: “Amounts Owed” is often referred to as credit utilization.)
Length of Credit History (15%)
Generally speaking, the longer your credit accounts have been open, the better your score may look in this category. Simply put, a long history of effectively managing your credit shows lenders you’re capable of handling credit responsibly.
Credit Mix (10%)
FICO scores also take into account your credit mix, or the variety of credit accounts you have (ie. credit cards, student loans, mortgage loans, retail accounts, etc.). While you don’t need to have an account open in each category, having a mix of credit accounts shows lenders you’re able to manage multiple lines of credit responsibly.
If you do have a mix of credit accounts and manage them effectively, it can give your score a boost.
New Credit (10%)
Opening several new lines of credit in a short period of time can be an indicator that you’re struggling financially. Thus, opening too many new lines of credit can hurt your score.
Why Your Score Drops After Paying Off Debt
While paying off debt is certainly something to be proud of, it may not reflect positively when it comes to your credit score. Here’s why:
It Can Change Your Credit Utilization Ratio
Let’s say you have three credit cards, each with a $10,000 limit. They’re set up as follows:
As a result, you’d have a credit utilization ratio of 40% (12,000 total outstanding balance / 30,000 total credit limit).
Now, let’s say you decide to pay off and close Card C. Your new credit utilization ratio would be 55% (11,000 total outstanding balance / 20,000 total credit limit).
By closing Card C, the credit limit associated with it is no longer factored into your credit utilization ratio. Thus, the new ratio of your outstanding balance to your total credit limit actually ends up being higher than it was before.
In some cases, closing an account can lead to a higher credit utilization ratio, as it changes the amounts owed in comparison to the total credit limit. This, in turn, will negatively impact your score.
It Shortens the Length of Credit History
When you close a line of credit, the credit history associated with it goes out the window. In the case of revolving credit, such as a credit card, this happens when you close a card. With student loans, this happens when you pay off the balance.
A few months after you make that final payment on your student loans, it will no longer be an active line of credit. The credit history associated with it, whether positive or negative, will be removed. Depending on how long you’ve had the account open in comparison to your other lines of credit, it could shorten your credit history.
For example, let’s say these are the three lines of credit you currently have:
Student Loan A: Borrowed 15 years ago Student Loan B: Borrowed 11 years ago Credit Card: Opened 10 years ago
In this scenario, the average age of your accounts is 12 years (15 + 11 + 10 / 3). If you paid off Student Loan A, the average age of your accounts would decrease to 10.5 years (11 + 10 / 2).
The credit history you had from Student Loan A gets wiped from your record, and your credit history is calculated based on the other lines of credit you have active.
It Could Change Your Credit Mix
If you have both revolving credit (like credit cards) and an installment loan (like a student loan), paying off your student loans will shift your credit mix. This could negatively impact your FICO score.
Will Biden’s Student Loan Forgiveness Impact Your Credit Score?
While President Biden’s student debt forgiveness will provide relief to millions of borrowers, it may wind up hurting your credit score temporarily for the reasons discussed above. And while the impact to your score pales in comparison to the relief provided, it’s important to understand why and how your score may drop so you know what to expect.
How Long It’ll Take for Your Score to Recover
If your credit score drops after paying off debt, don’t fret. While quite the bummer, it typically takes around 1-2 months for your score to bounce back (if everything else remains the same).
In the meantime, consider other ways to increase your credit score. Continue to use other lines of credit responsibly, and check on your score periodically to see if it increases as expected.
Final Thoughts from the Nest
While frustrating to see your credit score drop after paying off your student loans, it’s normal. Continue to practice healthy financial habits, and your score should bounce back in no time.
If, after a few months, your score is still the same, consider examining your full credit report to check for errors that may be preventing your score from recovering.
Since 1980, the cost of a college education has nearly tripled, even after adjusting for inflation. Yet, federal aid hasn’t kept up.
So, during his presidential campaign, Joe Biden promised to cancel $10,000 of federal student loan debt per borrower.
In August, he followed through with his promise, announcing up to $20,000 in forgiveness for eligible borrowers. While his plan will provide relief to millions, there are some borrowers that do not qualify.
Whether you don’t qualify due to your income or the type of loans you have, there are other student loan forgiveness programs available that you should consider.
Who Qualifies for Biden’s Student Loan Forgiveness?
Before completely writing off your eligibility, let’s review who qualifies for President Biden’s student loan forgiveness. To qualify, you must:
Have federal student loans
Make less than $125,000 per year, or less than $250,000 per year if married
If you received Pell Grants while in college, and meet the above criteria, you will receive $20,000 in student debt forgiveness. If you did not receive Pell Grants while in college, but meet the above criteria, you will receive $10,000 in student debt forgiveness.
Private student loans are not eligible for student loan forgiveness.
What to Do if You Don’t Qualify for Student Loan Forgiveness
If you don’t qualify for President Biden’s student loan forgiveness, there are other options you should consider.
Other Student Loan Forgiveness Programs
If you’re still itching for your student debt to be wiped out, or at least a portion of it, we don’t blame you. Consider other student loan forgiveness programs, such as the following:
Public Service Loan Forgiveness
Public Service Loan Forgiveness, or PSLF, is a government program intended to ease the burden of student loan debt for eligible public service workers. To qualify, you’ll need to have made 120 on-time, qualifying monthly payments on a Direct loan, on a qualifying repayment plan, while working for a qualifying employer.
Qualifying roles include, but are not limited to:
Teachers, staff members, and administrators at public schools
Law enforcement officers at the federal, state, or local level
Social workers at public service agencies
General employees at federal, state, or local agencies
Military servicemen
Public health professionals such as nurses, doctors, or administrators
Employees at 501(c)(3) organizations
Full-time volunteers at AmeriCorps or PeaceCorps organizations
If you do qualify, your remaining loan balance will be forgiven.
Teacher Loan Forgiveness
Teacher Loan Forgiveness is a federal program providing teachers with debt relief. To qualify, you must be a highly-qualified teacher that taught at a low-income school or educational service agency for at least five consecutive school years.
The amount forgiven depends on the subject you teach:
Full-time, secondary-level science or math teachers: Up to $17,500
Special education teachers: Up to $17,500
Other subjects: Up to $5,000
Nurse Corps Loan Repayment
Nurses working in critical shortage facilities may be eligible for forgiveness through the Nurse Corps Loan Repayment program. To qualify, you’ll need to:
Have attended a qualifying U.S. nursing school
Be either a registered nurse (RN), nurse faculty (NF), or advanced practice registered nurse (APRN)
Work full-time in a critical shortage facility or accredited nursing program
If you qualify, up to 85% of your nursing school debt can be forgiven.
Income-Driven Repayment Loan Forgiveness
Income-driven repayment (IDR) is a federal loan repayment option that bases your monthly loan payment on your income, rather than basing it on your remaining balance. If you make qualifying payments on an IDR plan for 20-25 years, your remaining loan balance can be forgiven.
Federal Direct Consolidation
If you’re struggling to manage several loan payments at once, consolidating may help you.
Federal Direct Consolidation loans allow you to combine multiple federal loans into one. Then, you’re given a new interest rate equal to the average of your initial interest rates, rounded to the nearest eighth of a percent.
While consolidating won’t save you on interest, it could provide you with access to more repayment options, such as a different repayment plan or a longer repayment period.
In some instances, consolidating may be necessary to qualify for certain forgiveness programs. If you have questions about how consolidating may impact your forgiveness opportunities, contact your loan servicer directly.
Private Student Loan Refinancing
If you don’t qualify for student loan forgiveness because you have private student loans, refinancing to a lower interest rate or a shorter repayment period may be your best bet.
A lower interest rate can reduce your monthly payment, as well as how much you pay over the life of the loan. A shorter repayment period will increase your monthly payment amount, but you’ll save on interest in the long run.
To qualify for a competitive refinance loan, you’ll need a stable income and a decent credit score. To explore your options for refinancing, complete the Sparrow application.
Final Thoughts from the Nest
If you’re confident you don’t qualify for President Biden’s student debt relief, don’t worry — there are other options you may qualify for. Start by verifying your eligibility for other student loan forgiveness programs. Then, decide whether consolidating or refinancing makes sense for you. If you’re unsure which route to take, contact your loan servicer for personalized recommendations.
When paying for college, a few thousand here and there might not seem like much. But overtime, it adds up quickly. And, with more expensive programs and advanced degrees, it’s hard to dodge the colossal tuition bills.
If you’re staring at a student loan balance of over $200,000, you might be feeling overwhelmed, and rightfully so. It may be challenging to conceptualize how one could possibly attack such a mountain of student loan debt.
The good news is this: It’s entirely possible, and we’re here to help you break it down. Here’s how to pay off $200,000 in student loans.
Student loan forgiveness programs can wipe out all, or some, of your student loan debt. That, combined with the very specific criteria of some programs, makes it a necessary starting point.
Oftentimes, student loan borrowers are unaware of such programs and their requirements, only learning about them when they are further along in their debt payoff journey. For example, the Public Service Loan Forgiveness program requires recipients to have made 120 qualifying monthly payments on an income-driven repayment plan. It is not uncommon for borrowers to have made payments for years without recognizing that they don’t count toward forgiveness as they weren’t on the proper repayment plan.
Thus, it’s important to consider these programs as soon as possible in your debt payoff journey. Making yourself aware of the options available can help you begin the process of meeting the necessary criteria before making non-qualifying payments.
Consider Refinancing Your Student Loans
If you have high-interest loans, refinancing should be your next step. Refinancing, in a simple sense, is the process of swapping your current loan(s) for one with a better interest rate or terms.
If affording your monthly payments is your main concern, refinancing to a longer repayment term will be helpful. By doing so, your monthly payments will decrease. Be aware, however, that a longer repayment period typically leads to paying more in interest over the life of the loan.
If you’d simply like to get out of debt faster and pay less over the life of the loan, refinancing to a lower interest rate and/or a shorter repayment period will be a great route. Knocking down your interest rate, even just a few percentage points, can save you thousands over the life of the loan.
You can refinance all types of student loans, including both federal and private student loans, regardless of whether they were for medical school, law school, or a simple undergraduate degree. However, you’ll need a strong credit score and stable income to qualify.
If your financial situation isn’t up to par in those areas, consider adding a creditworthy cosigner to the loan. If adding a cosigner isn’t an option, consider working with a lender that has low credit score requirements.
Make Sure You’re Debt Payoff Plan is Strong
While throwing any and all cash on your student debt is a great start, having a more well-thought-out debt payoff strategy will likely generate better results. Here are a few ways to strengthen your approach:
Use the Avalanche Method
While there are a variety of debt payoff strategies, the Avalanche Method will save you the most money over the life of the loan. With this method, you will make minimum monthly payments on all loans. Then, make monthly surplus payments on the loan with the highest interest rate until it is paid off.
Once that loan is gone, take the amount you previously allocated toward it, and start directing it toward the next highest interest rate loan until that loan is gone, too. Continue this process until all loans are paid off.
Make Biweekly Payments
Student loan interest typically compounds daily. So, by the time you’ve made it to your monthly payment, interest has accrued for nearly 30 days.
To get ahead of the interest, and make more of your payment go toward the principal, take the amount you’d contribute each month and divide it into two payments. Then, make that half payment every other week, instead of once per month. While a small change, it can reduce how much you pay over time quite significantly, especially when done with high-balance loans.
Make Surplus Payments
If you happen to get a raise, a bonus at work, or a hefty tax refund, consider throwing it at your student debt. While tempting to spend that cash on more exciting purchases, putting it toward your debt may be more rewarding in the long run.
Cut Back Expenses Where You Can
Digging yourself out of $200,000 in student loan debt will take some discipline. If you don’t already utilize a budget to guide your spending, now is the time to make one.
A budget will allow you to track your income and expenses, giving you a better idea of where you can cut back. For example, if you happen to spend $200 per month on coffee, consider cutting that in half and directing the remainder to your debt.
Negotiate a Raise or Pick Up a Side Hustle
If cutting back on expenses isn’t possible, consider increasing your income through negotiating a raise or picking up a side hustle. While it may only lead to a few thousand dollars per year, it can make a serious dent in your debt.
For example, let’s say that your increased income leads to an additional $500 per month. On a $200,000 loan balance with a 4.5% interest rate and a 10-year repayment term, that $500 monthly surplus payment would save you over 2 years of repayment and $11,300 over the life of the loan.
Find a Job with Debt Payoff Benefits
Just as some employers provide healthcare benefits or a 401k match, some provide debt payoff benefits as well. While it may seem too good to be true — I mean, an employer paying off your debt is pretty sweet — it might be more common than you think. In fact, around 17% of employers offer student debt assistance, and another 31% plan to offer it in the future.
If you’re in the market for a new role, consider searching for one with debt payoff benefits. Companies like Aetna, Chegg, Fidelity Investments, Google, Hulu, and Lockheed Martin all offer competitive debt payoff benefits, some providing up to $6,000 per year.
FAQ About Paying Off a Lot of Student Debt
How long will it take me to pay off my student loans?
It depends on the amount of debt you have, your interest rate, your repayment period, and your debt payoff strategy. To find the exact timeline for your specific situation, use a debt payoff calculator.
How much student debt is too much?
There is no numerical threshold that is widely recognized as “too much” student debt.
For example, the average dental student graduates with nearly $300,000 in student loan debt. However, with dentist salaries often in the $150,000-$200,000 range, it may not be an unreasonable amount of debt for that industry.
That amount of debt, however, for an entry-level civil engineer with a starting salary of roughly $60,000 may be overwhelming. What is considered “too much” debt is entirely subjective.
Is it better to have savings or pay off student loans?
Before dipping into savings to pay off student loans, be sure to have a solid emergency fund worth 3 to 6 months of expenses.
If you’ve already refinanced your student debt once, you know just how much it can save you. For example, borrowers that use Sparrow to refinance save, on average, $17,000 over the life of their loan.
With that in mind, you may be curious if you can refinance more than once. And if so, how many times can you do it? Here’s what you need to know.
Can You Refinance Student Loans Twice?
You can refinance your student loan debt as many times as you’d like. While common to do it once, you may be able to save even more by refinancing again.
For example, let’s say you started with a $30,000 student loan balance at a 6.8% interest rate with a 10-year repayment term. You refinance when you’re fresh out of college to a loan with the same balance and repayment term, but a 4.25% interest rate instead. Your new loan will save you $38 per month, or around $4,551 over the life of the loan.
Now, let’s say you opted to refinance again one year into paying off that loan. Your balance is now $26,029.05, and there are 9 years left in your repayment term. You refinance to a new loan with a 3.5% interest rate and a 5-year repayment term. While your monthly payment would increase, you would save another $2,958 over the life of your loan.
Initial Loan
1st Refinance, immediately after college
2nd Refinance, 1 year after making payments on the first refinance loan
Starting Balance
$30,000
$30,000
$26,029.05
Interest Rate
6.8%
4.25%
3.5%
Repayment Term
10 years
10 years
5 years
Monthly Payment
$345
$307
$474
Total Paid Over the Life of the Loan
$41,429
$36,878
$28,411
By the time you refinance a second time, you will have already paid $3,684 toward your loan ($307 monthly payment x 12 months). However, including that amount, you will only pay $32,095 total after refinancing twice. Compared with your initial loan terms, you will save $9,334 over the life of the loan.
When to Consider Refinancing Multiple Times
While refinancing more than once can make for considerable savings, it’s important to consider a variety of factors before doing so. Here are a few instances in which it does make sense to refinance multiple times:
If the savings will be significant. Refinancing is intended to make repaying your debt more manageable or less expensive. If you can save a decent chunk of cash by refinancing again, it likely makes sense to do so. However, consider whether the savings is worth going through the refinancing process again.
If your credit score has increased. If your credit score has improved since the last time you refinanced, you will likely qualify for better terms or a more attractive interest rate. If it has not, however, it may be challenging to qualify for a better offer than what you currently have.
If the origination fees are either low or nonexistent. While the majority of student loan lenders don’t have origination fees, some do. If the origination fee is so high that it equals, or outweighs, what you will save by refinancing, it may not make sense to do so. However, if the origination fees are low, or if there is no origination fee at all, refinancing again will likely save you money.
If you want to release a cosigner. If your current loan has a cosigner, and does not allow for cosigner release, you may want to refinance again to release them from their cosigner obligations.
Is It a Bad Idea to Refinance Multiple Times?
Refinancing your student loans multiple times isn’t a bad idea if you are in fact receiving a better interest rate or terms.
Submitting a formal loan application will result in a hard credit check, however, which will temporarily hurt your credit score. If your credit score isn’t in a good place, refinancing again may not be in your best interest.
How Long Do You Have to Wait to Refinance Again?
Legally, there is no limit to the number of times you can refinance within a certain period of time. So, theoretically, you could refinance a million times if you wanted to.
However, most refinance lenders cap the number of times you can refinance with them. For example, some may limit you to one refinance per month or per quarter.
What to Consider Before Refinancing Your Student Loans
Before refinancing your student loans, consider the following:
The type of loan you have. If you have federal student loans, be sure to weigh the pros and cons of refinancing them prior to doing so. If you do, you will lose access to all federal loan benefits such as income-driven repayment plans and federal loan forgiveness.
Your interest rate. While you can score a lower interest rate by refinancing, you may have already hit the lowest possible rate you can get. To see if it’s even possible to qualify for a lower rate, complete the Sparrow application. This will allow you to compare prequalified rates side-by-side, giving you insight into what you may qualify for.
Think about your current financial situation. Refinancing to a shorter repayment term will likely cause your monthly payment to increase. Make sure you’re able to afford that payment prior to refinancing again.
The credit impact. Submitting a formal loan application will result in a hard credit inquiry, which will temporarily hurt your credit score. While your credit score will recover from the hit over time, it’s important to make sure refinancing makes sense before clicking “submit” on a formal loan application. Minimize the number of applications you submit, or do so within the recommended FICO and VantageScore timeframes so the inquiries are recognized as rate-shopping.
The overall economy. Interest rates are impacted by macroeconomic factors, such as the market. If the market is in good shape, you may qualify for a better interest rate. If the market is not, however, it may be better to postpone refinancing until it is.
If your loan is within a grace period or forbearance. Refinancing while your student loan is within a grace period or a forbearance, such as the federal forbearance, will cause loan payments to begin. If your loan is within either of these periods, it’s best to hold off on refinancing.
FAQ About Student Loan Refinancing
How soon is too soon to refinance a student loan?
You can refinance your student debt as early as you’d like. There is no specific timeframe in which refinancing is considered “too early.”
How often is too often to refinance student loans?
You can refinance your student loans as often as you’d like. However, you may reach a point in which you can no longer qualify for a better interest rate or terms, simply because you’ve already landed the most advantageous option available.
Does refinancing your student loans hurt your credit?
Refinancing your student loans will cause a hard credit inquiry which will temporarily impact your credit score.
Final Thoughts from the Nest
Refinancing your student loans more than once can save you some serious cash over time. Before deciding if it’s right for you, see what you prequalify for with Sparrow. Then, compare your current loan with your new loan offers to see how much you can save.
Graduating college is the beginning of a new chapter in your life. You may be moving out of your parents’ house, landing an exciting new job, or heading to graduate school. Regardless, managing your finances post-graduation is crucial in navigating your new adult life. To help keep your finances in order, consider making a college graduate budget.
A budget is a financial tool designed to help you manage your income and expenses so you can stay on track to reaching your financial goals. Here’s how to create a budget as a college graduate.
How to Create a Budget After Graduating College
Step 1: Get Real About Your Income
Life post-graduation will likely come with a full-time job, often earning you more than the standard part-time college gig. While exciting to have more income to work with, it’s important to understand how much you’ll actually have to spend on a regular basis.
Remember that your salary is the amount you earn before taxes, or your gross income. Your salary also doesn’t factor in other potential deductions, such as your 401k contribution or employer-sponsored health insurance.
For example, let’s say you make $60,000 per year. You decide to contribute 10% of your gross income to your 401k, or around $500 per month. If you live in Missouri, for example, you’d take home $39,911.93 after contributing to your 401k and after tax. This averages out to around $3,325 per month.
Step 2: Determine Your Fixed Expenses
There are a variety of fixed expenses you may incur post-graduation, such as:
Living Expenses/Rent
Utilities
Groceries
Student Loan Payments
Insurance
Transportation/Car Payment
Phone Bill
Pet Expenses
Fixed expenses are those that remain the same each month. Oftentimes, but not always, they are necessary expenses, as well.
Depending on your lifestyle, your fixed expenses may differ from the list above. For example, if you are living at home rent-free with your parents, your fixed expenses may be:
Student Loan Payments: $250
Transportation Costs: $100
Therapy Appointments: $200
Gym Membership: $40
Your fixed expenses will create the baseline for your budget, coming before factoring in any “wants.”
Now, subtract your fixed monthly expenses from your monthly income. What you have left over will be what you can contribute to your savings goals and nonessential spending.
For example, if you earn $3,325 per month, and have fixed monthly expenses totaling $590, you’d be left with $2,375 for discretionary spending.
Step 4: Determine Your Savings Goals
Before spending your remaining income, map out your savings goals and prioritize contributing toward them. Remember, you may have larger expenses coming up in this phase of life, such as:
A down payment on a home
Moving out/moving to a new city
Furnishing a new home
Buying a car
A wedding
Having children
Set a realistic timeline for each financial goal you have. Then, figure out how much you need to contribute toward each savings goal per month to achieve it. Subtract those figures from your remaining income after factoring in fixed expenses.
Step 5: Think: After Graduating College, What Does a Full Life Look Like to Me?
As a college graduate, for a budget to be successful, it has to support a life you truly enjoy living. While you’ll likely have several necessary expenses to put in your budget, such as rent or student loan payments, it’s important to prioritize “wants” as well.
Think to yourself: What does a full life look like to me? What do I really value that is worth spending money on?
Getting clear on what you enjoy spending on allows you to budget appropriately so you can effectively balance both “needs” and “wants.” It can also help you dodge the pressure to keep up with those around you, or spend on items or experiences you don’t value. For example, if you don’t value spending money on happy hour after work, but your coworkers do, it’s okay to order a less expensive beverage or skip out on the excursion altogether.
Step 6: Look at Your Spending from Previous Months
To determine how much wiggle room you have to spend on “wants,” look at your spending habits in previous months. Find the average of what you’ve spent in different categories, and use that information to set guidelines for your budget after graduating college.
For example, let’s say you spent $200 on eating out in March, $300 in April, and $150 in May. On average, then, you spend around $216 per month on eating out. If that amount feels reasonable to you, use it to set your limit for that budget category.
This is also a great time to see where you can cut back. If you find yourself overspending in certain categories, be realistic about what that means for your overall budget. For example, if spending $500 per month on entertainment means delaying reaching your financial goals, it may be worthwhile to scale back your spending in that category.
Step 7: Map Out All Your Budget Categories
Once you know what your fixed expenses are, how much you need to contribute to your savings goals, and what you’d like to spend the remainder on, you can set your budget categories.
As a college graduate, some common budget categories are:
Rent
Gas
Insurance
Public Transportation
Student Loan Payments
Car Payment
Entertainment
Groceries
Restaurants
Shopping
Subscriptions
Gym Membership
Self Care
Medical Expenses
Donations/Charity
Pick whichever categories are relevant to you and your lifestyle. Then, assign a spending limit to each category, ensuring that all expenses, including savings goals, add up to your total monthly income.
With an income of $3,235 per month, your budget may look something like:
Budget Category
Amount Allotted
Spent
Left Over
Rent
$1,500
Transportation
$100
Student Loan Payments
$250
Therapy Appointments
$200
Gym Membership
$40
Emergency Savings
$500
Restaurants
$220
Entertainment
$300
Groceries
$125
Credit Card Payment
$90
Total
$3,325
As the month goes, periodically examine your spending. For example, if after one week into the month, you’ve spent $100 of what you budgeted for groceries, you may need to cut back in other categories for the remainder of the month to ensure you can cover grocery expenses going forward.
Likewise, total up your overall spending at the end of the month. This will allow you to see where you may have underspent, allowing you to direct the remaining amount to another expense such as your savings goals.
Bonus Step: Automate Your Budget
If managing your budget manually sounds tedious, consider using a budgeting platform such as YNAB or Mint. Both platforms will allow you to set budget categories, then sync your account with your bank. Then, your expenses will automatically be tracked and categorized, simplifying the process quite a bit.
Managing your finances can be complicated, especially if it’s your first time giving it a go. So, as you begin utilizing your budget, remember to be gentle with yourself.
Sparrow aims to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
The content displayed on this page is intended for educational purposes only and should not be taken as financial advice. Please consult a professional for personalized financial advice.
Making student loan payments with a credit card may be tempting, especially if you don’t have the cash to do so — or if you want to earn extra rewards on your card. That said, it isn’t always possible, nor is it recommended in most cases.
Before attempting to pay your student loans with a credit card, carefully consider the pros and cons. In many instances, other options will likely be a safer route.
Can You Pay Your Student Loans with a Credit Card?
Simply put, lenders incur a fee when a borrower pays via credit card, so it isn’t ideal to offer it as an option. While federal loan servicers do not accept credit card payments, some private lenders do. However, it’s typically only allowed in special circumstances, such as when a borrower has been unable to make payments.
Can You Transfer Student Loans to a Credit Card?
Some credit card companies offer 0% APR balance transfers. With this offer, borrowers can transfer their remaining student loan loan balance to a credit card and receive 0% APR for a period of time.
While it may seem appealing, you’ll likely incur a fee on the transferred balance. Interest will also begin to accrue once the offer period expires, which could lead to intense interest charges.
Pros and Cons to Paying Your Student Loans with a Credit Card
Before opting to make a payment with, or transfer a balance to, your credit card, consider the pros and cons of each.
Making Payments with a Credit Card
If your lender allows it, making payments on a credit card could save you from missing a payment. However, you should consider the downsides of doing so as well.
Pros
Cons
It could prevent you from missing a payment.
Credit card interest rates are often far higher than student loan interest rates. So, while you may avoid a missed payment, interest that accrues on your new credit card balance will likely cost you more than if you incurred a late fee on your student loan.
If you are using a third-party service, such as Plastiq, to facilitate the loan payment, you will likely incur a transaction fee.
Transferring Your Loan Balance to a Credit Card
A 0% APR offer may sound enticing, but there are downsides to this method as well.
Pros
Cons
You may be able to save on interest costs during the 0% APR period.
The interest-free period will be short-lived. After the offer ends, your balance will begin to accrue interest at the normal interest rate of the card. Knowing that the average student loan interest rate is 5.8%, and the average credit card interest rate is 17.98%, it makes significantly more sense to not transfer your loans to a credit card, unless you believe you can pay them off entirely during the 0% APR offer period.
Student loans have more protections, such as deferment and forbearance, than credit cards. If you transfer your loan balance to a credit card, you will lose access to those benefits.
Other Ways to Get Assistance With Loan Payments
If you are unable to keep up with your student loan payments, but using a credit card isn’t an option, consider these alternatives:
Opt In to an Income-Driven Repayment Plan
If you have federal loans, consider opting in to an income-driven repayment (IDR) plan. IDR plans base your monthly payments on your discretionary income, or what you earn after taxes and necessary expenses. Depending on your income, this may reduce your monthly payment amount significantly.
There are a variety of IDR plans available for federal student loan borrowers, each basing your monthly payment on a different percentage of your discretionary income.
Income-Based Repayment (IBR)
10-15% of your discretionary income
Pay As You Earn (PAYE)
10% of your discretionary income
Revised Pay as You Earn (REPAYE)
10% of your discretionary income
Income-Contingent Repayment (ICR)
20% of your discretionary income OR what you would pay monthly on a 12-year fixed repayment plan, whichever is lesser
Each IDR plan has its own eligibility criteria. To see which plans you qualify for, reach out to your federal loan servicer directly.
Apply for Deferment or Forbearance
Both federal and private student loans offer generous protections for borrowers experiencing financial hardship, such as deferment and forbearance. Both options will allow you to temporarily pause payments, which can give you a break to get your finances in order.
To see which options your lender provides, reach out to them directly.
Refinancing
Student loan refinancing, in a simple sense, is the process of swapping your current loan for one with a better interest rate or terms. In this instance, refinancing to secure a longer repayment term will be most optimal as it will likely reduce your monthly payments.
That said, a longer repayment term will typically cost you more over the life of the loan. Plus, if you opt to refinance federal student loans, you will lose access to certain benefits such as income-driven repayment plans and student loan forgiveness opportunities.
If you do choose to refinance, consider some of these top lenders:
If you’d like to combine your federal student loans, but don’t want to lose their protections and benefits by going through a private lender, consider consolidation. While similar to refinancing in that you can combine multiple loans into one, consolidation won’t score you a lower interest rate. However, it will lead to an extended repayment term, which will reduce your monthly payment.
Consolidating will allow you to maintain access to federal loan benefits, however, a longer repayment period will likely cost you more over the life of the loan.
Final Thoughts from the Nest
While making student loan payments on a credit card may be tempting, it often isn’t an advantageous decision. A stronger course of action includes contacting your loan servicer for support, considering income-driven repayment options, or refinancing your debt.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
If you’re concerned about your student loan debt affecting your chances of buying a home, you’re not alone. In fact, over a quarter of student debt holders say their debt has impacted their decision or their ability to purchase a home. Here’s what you need to know about buying a house with $100k student loan debt:
The good news: around 40% of first-time homebuyers have student loan debt. So, while it may make qualifying for a mortgage loan a bit more challenging, buying a house with student loan debt is completely possible.
Can I Buy a House with Student Loan Debt?
When people say, “buying a house with student loan debt is hard,” what they’re often referring to is the mortgage loan process. Like private student loans, you must be a creditworthy borrower to secure a mortgage loan with a competitive interest rate.
Unfortunately, student debt can impact how creditworthy you appear to a lender. That said, there are several things you can do to appear more creditworthy, and thus improve your chances of getting approved for a mortgage loan.
Work on Improving Your Credit Score
One of the most important factors in securing a mortgage loan is your credit score. Simply put, lenders want to be confident you’re a trustworthy borrower prior to lending to you. So, by examining your credit score, they can typically get an idea of whether or not you are.
Luckily for you, student loan debt typically won’t drag down your credit score too much, unless you’ve been missing payments.
If there are other aspects of your financial background that arebringing your credit score down, however, taking the time to improve it can help you qualify for a competitive rate.
Pay all your bills on time. Payment history makes up roughly 35% of your credit score. So, as you can imagine, late payments can take a serious toll on your score. Therefore, if you’re struggling to pay your credit card bill on time, consider opting in to automatic payments. Rather than making your payments manually, your credit card company will pull the payment directly from your checking account. This will ensure payments are always made on time.
Limit new credit accounts. Applying for a new line of credit will result in a hard inquiry, which will temporarily hurt your credit score. Therefore, if you plan on applying for a mortgage loan in the near future, hold off on applying for any other new lines of credit.
Keep old credit card accounts open. Credit history is another important factor in determining your credit score. Each time you open a new line of credit, it adds to the length of your credit history. If you have a credit card you opened a while ago that you no longer use, keep it open. Closing it will shorten the length of your credit history which, in turn, can reduce your overall credit score.
Check your credit report. Several credit card companies, banks, and other financial institutions offer free credit reports. If yours don’t, consider using the Annual Credit Report to get a free copy of yours. By viewing your full credit report, you can check for unknown errors, fraud, or potential identity theft that could be impacting your score.
Lower Your Debt-to-Income Ratio
When mortgage lenders evaluate you as a potential borrower, they’ll examine your debt-to-income ratio (DTI). Your debt-to-income ratio compares how much you owe to how much you earn each month. Your DTI is used to assess your ability to make a mortgage payment on top of other debts.
There are two types of debt-to-income ratios to be aware of: front-end ratio and back end-ratio.
A front-end ratio is all of your housing expenses divided by your pre-tax income. When applying for a mortgage loan, lenders will consider your future monthly mortgage payment, including expenses such as property taxes and homeowners insurance, to calculate your housing expenses.
For example, if you make $8,000 pre-tax per month, and your future housing expenses are $3,000 per month, your front-end debt-to-income ratio would be 37.5%.
[3000 ÷ 8000 = 0.375 → 37.5%]
A back-end ratio is all of your monthly debt payments divided by your pre-tax income. In addition to the monthly housing-related expenses, a back-end debt-to-income ratio will factor in debt payments such as student loans, credit cards, and auto loans.
For example, if you make $8,000 pre-tax per month, and your future housing expenses are $3,000 per month, but you have an additional $250 student loan payment and $400 auto loan payment, your back-end debt-to-income ratio would be 45.6%.
[3650 ÷ 8000 = 0.456 → 45.6%]
When applying for a mortgage loan, lenders will pay closer attention to your back-end ratio as it provides a more holistic view of monthly expenses.
What Debt-to-Income Ratio is Needed to Buy a House?
Many mortgage lenders follow what is referred to as the “28/36 rule,” also called the “28/36 qualifying ratio.” The rule suggests that you should spend no more than 28% of your monthly gross income on housing expenses, and no more than 36% on all of your debt expenses, including debt like student loans and credit cards.
That means your front-end ratio should be no more than 28%, and your back-end ratio should be no more than 36%. However, some mortgage lenders work with borrowers with higher DTIs. In fact, Rocket Mortgage recommends aiming for a DTI of 50% or less to qualify for a conventional mortgage loan. That said, the lower your DTI, the better.
Tips to Lower Your Debt-to-Income Ratio
If you have a high student loan balance relative to your income, or vice versa, consider increasing your income or refinancing your student loan.
Use Sparrow to help you find the best refinance rates. The Sparrow application shows you personalized rates from our 17+ partnering lenders. You can then compare refinance rates side-by-side, helping you narrow down your options to see which is best for you.
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See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
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By increasing your income, say, through taking on a side hustle or asking for a raise, you can reduce your overall debt-to-income ratio.
In this example, increasing your income by just $1,000 per month would lower your front-end ratio by around 4 percentage points and your back-end ratio by around 5 percentage points.
Before
AfterIncreasing Your Monthly Income
Monthly Pre-Tax Income
$8,000
$9,000
Monthly Housing Expenses
$3,000
$3,000
Total Monthly Debt Expenses
$650
$650
Front-End Ratio
37.5%
33%
Back-End Ratio
45.6%
40.5%
If increasing your income isn’t possible at this time, consider refinancing your student loan debt. Refinancing to a longer repayment period will decrease your monthly payment. Accordingly, it will lower your total monthly debt payments. In doing so, your debt-to-income ratio will drop.
For example, let’s say you were able to decrease your $250 monthly student loan payment to $100, making your overall monthly debt expenses $500 instead of $650. Even with the same income, your back-end DTI would drop around 2 percentage points.
Now, if you are able to increase your income and reduce your monthly debt payments, you may see a greater drop in your DTI. In this example, you would drop nearly 7 percentage points by increasing your income by $1,000 per month and reducing your debt payments by $150 per month.
After Only Refinancing
After Refinancing and Increasing Income
Monthly Pre-Tax Income
$8,000
$9,000
Monthly Housing Expenses
$3,000
$3,000
Total Monthly Debt Expenses
$500
$500
Front-End Ratio
37.5%
33%
Back-End Ratio
43.75%
38.8%
It’s important to note that lenders care far more about your debt-to-income ratio than they do your total debt expenses. So, even if you have $100k in student loan debt, if your overall DTI is still within the ideal range, you’re in the green.
See What You Prequalify For
Prequalifying with a mortgage lender can help you see what you may qualify for, and thus, where you need to make adjustments to qualify for your desired mortgage loan. For example, if you’re only approved for a fraction of the amount you expected to qualify for, you can ask the lender how you could improve your application to prequalify for higher.
When seeking a preapproval for a home, remember to consider the following:
Lenders will evaluate your entire short-term financial history. If questioned, you will need to be able to explain where all of your income has come from.
If you’re self-employed, your income will be under greater scrutiny. Accordingly, you may need to provide additional documents for income verification.
Once you have a preapproval, sellers are also more likely to take you seriously as a potential homebuyer. This can increase the likelihood of your offers being accepted.
Explore Down Payment Assistance Options
If your student debt is preventing you from having enough to save for a down payment, consider down payment assistance programs. These programs will help you cover the cost of your down payment if you are a first-time homebuyer.
There are a few types of down payment assistance programs to look out for:
Grants. Grants are considered a gift, meaning you never have to pay it back. (Yup! Free money.)
Forgivable loans. Similar to some federal student loan forgiveness programs, some mortgage loans are forgivable after remaining in the home for a set number of years.
Matched savings programs. Some banks, government agencies, and community organizations offer matched savings programs, allowing buyers to have their down payment savings matched. For example, if a buyer deposited $10,000 into an account, the partnering organization would add another $10,000 in to match it. Then, you can use that $20,000 toward your down payment.
Consider Your Budget
Before adding a mortgage loan into the mix, make sure you have a deep understanding of your current expenses. If you aren’t already tracking your spending, consider doing so.
You may find that you spend unnecessarily in certain areas. Therefore, by cutting those areas back even just a little bit, you could find more money to put toward paying off your debt or toward a down payment.
Be Willing to Make Compromises
If buying a house despite having student loan debt is a top priority for you, consider holding off on other “wants” for a bit. For example, rather than upgrading your cell phone, hold onto your current phone for another year, and direct what you would’ve spent on a phone toward paying off your student loan debt.
Likewise, if you don’t qualify for as much of a mortgage loan as you expected due to your debt, consider lowering your expectations for your first home. While a move-in ready home in the perfect location may be ideal, it may not be in budget. Be open to compromising on certain elements of the home to find something you like that also suits your current financial situation.
Final Thoughts from the Nest
Buying a house with student loan debt is entirely possible. However, there may be additional hurdles to overcome along the way, especially if you have a high loan balance in comparison to your income.
Be sure to calculate your debt-to-income ratio prior to beginning the homebuying process. The earlier you understand your broader financial situation, the longer you’ll have to make adjustments before applying for a mortgage loan.
If you do opt to refinance your student loan debt as a tactic for reducing your monthly debt expenses, use Sparrow. By completing the Sparrow application, you’ll be able to see what refinance loans you qualify for and at what rates. Then, you can compare your loan options side-by-side to be sure you’re picking the best one.
The average borrower takes 20 years to repay their student loan debt, costing them around $26,000 in interest alone. While it may be tempting to throw all your extra cash toward your student debt to relieve that burden faster, sacrificing investing for retirement to do so may not be the best approach. That said, the decision to pay off student loans or invest isn’t that simple.
If you’re frozen with indecision, here are a few things to consider.
Should I Pay Off Student Loans or Invest?
As with any personal finance decision, deciding whether to pay off student loans or invest is personal. Which route is more advantageous for you will depend on your unique situation.
Generally speaking, however, there are a few main factors to consider:
What Interest Rates Your Student Loans Have
It’s important to consider the interest rate on your student loan(s) in comparison to what you believe the stock market will return. For example, the average student loan interest rate, across all types of student loans, is 5.8%. However, the average return of the S&P 500 is around 10%.
Most investing experts agree that the earlier you invest, the better. This is because of the power of compounding interest: the longer you allow your investments to grow, the greater return you will receive. But by the same token, the longer you take to pay off your student loan debt, the more interest will accrue.
If you have a low-interest student loan, investing may generate a greater return than the amount of interest that accrues on your student loan. However, if you have a high-interest student loan, the interest costs may far outweigh the 10% return from investing.
Federal student loans have the potential to be forgiven. Each student loan forgiveness program will have its own unique set of requirements. Nonetheless, many will require you to make a specific number of minimum monthly payments to qualify. After making the required payments, your remaining student loan balance will be forgiven.
Given that your debt will be forgiven upon making just the minimum payments, there is little benefit to making surplus payments. In this case, investing would make more sense than directing a surplus payment toward your student debt.
Private student loans, on the other hand, don’t have the potential to be forgiven. So, depending on your interest rate and loan balance, surplus payments may make more sense in comparison to investing.
If your student loan debt is causing you an unmanageable amount of angst, it may make more sense to focus your attention on throwing all your spare cash toward it. Even if you recognize that the returns from investing will far outweigh the cost of your student loan interest, it’s okay to prioritize your mental health and pay off your student loan debt first.
When to Prioritize Paying Off Student Loans Over Investing
As a guideline, there are a few circumstances in which paying off your student loans before investing makes more sense:
If your student loan interest rate is over 6-7% and you have a high loan balance. The larger your loan balance, the more interest you’re likely to accrue. For example, if you owe $10,000 at a 6% interest rate, you would pay $17,194 total over the course of a 20-year repayment term. However, if you owe $100,000 at a 6% interest rate, you would pay $171,943 total over the course of a 20-year repayment term. Notice how the higher outstanding loan balance results in significantly higher interest costs.
If you are concerned about being unable to pay your student loan payments in the future. If you opt to prioritize investing, but later experience an inability to make your student loan payments, it may be a scramble to come up with the cash. While you can withdraw money from your investment account, you will likely face a penalty to do so.
If you predict a circumstance that will impact your ability to make your student loan payments in the future, it may make more sense to prioritize paying them off before investing. Directing surplus payments toward your student debt will lower your minimum monthly payment, which may make your future payments more manageable.
If your student loan debt is negatively impacting your mental health. If paying off your student loans will provide you with an immense amount of peace, paying them off before investing may make the most sense.
If you simply don’t want to have any outstanding debt on your record. Paying off your student loans would not only remove the outstanding debt from your record, but it could improve your credit score as your debt-to-income ratio shifts.
When to Prioritize Investing Over Paying Off Student Loans
Here are a few instances in which investing before paying off your student loans makes more sense:
If your student loan interest rate is less than 5% andyou expect to return the average 10% on your investments. Even with interest costs, the average rate of return on investments will likely outperform most low-interest student loans.
If your employer offers a 401k match and you are fully vested, meaning you are entitled to the full amount in your 401k including your employer’s match. If you currently contribute to a 401k with an employer match, you may be required to work for the company for a specific amount of time to be entitled to 100% of that employer match. If you decide to leave the company prior to being fully vested, you may only be entitled to a portion of your employer’s contributions.
If you believe the return on your investments will far outweigh the cost of the student loan. In some instances, investing will far outperform the interest costs associated with making minimum monthly payments on your student loans. In those instances, it may make more sense to focus on investing over paying off your student loans.
Do the Math to See Which Option is Better
If you still aren’t leaning towards one option over the other, do the math to give yourself a concrete answer. Mathematically, one option will outperform the other, which can give you a clearer picture of what to do.
Let’s say you’re in an “either/or” situation — you either want to put an extra $500 on your student loan each month or invest it. Here’s how this would play out based on the average student loan debt and investing data.
Pay Off Student Loans
$37,693 balance
5.8% interest rate
20 year repayment term
Total paid before $500/mo surplus payment: $63,771
Total paid with $500/mo surplus payment: $43,360
By adding a $500/mo surplus payment, you save $20,411 and pay off your student loans in 5 years instead of 20.
Invest
You invest $500/mo.
Average rate of return: 10%
Balance after 20 years: $361,993.36
After 20 years, you contribute $120,000 but earn $241,993.36 in interest.
Balance after 15 years: $200,810.61.
After 15 years, you contribute $90,000, but earn $110,810.61 in interest.
If you opted to direct the $500 a month toward your student debt, you could pay off your loan in 5 years instead of the full repayment term of 20 years. This would save you $20,411 over the life of the loan. Then, let’s say that after paying off your student loans, you began investing that $500 a month. After 15 years, you would have earned $110,810.61 in interest. In total, you “earn” $131,221.61 between both the savings on interest and the interest that accrued on your investments.
Now, if you chose to pay only the minimum monthly payment on your student loans and invest that $500 a month instead, it would take you the entire 20-year repayment term to pay back your student loans. However, you would have earned $241,993.36 in interest on your investments. Even after considering the additional $20,411 cost of making only the minimum monthly payments on your student loans, you still score a net earning of $220,933.36.
In this case, prioritizing investing over paying off your student loans makes mathematical sense. To calculate whether it makes sense for your specific situation, utilize investment calculators and student loan repayment calculators.
Create a Balanced Approach Between Debt Payoff and Investing
The examples we’ve discussed illustrate an “either/or” approach. However, it isn’t necessary to be successful in paying off your student loans OR investing. In fact, creating a balanced approach may work best for you.
If focusing solely on one leaves you anxious about your progress in regards to the other, find a middle ground. For example, in the case of having an extra $500 each month, it’s okay to split up your payments. Directing half towards your debt and half towards your investments isn’t a bad idea if it gives you peace of mind.
FAQs About Paying Off Student Loans vs Investing
The decision of whether to pay off student loans or invest may feel difficult. It’s normal to still have questions. Here are a few of the most common ones:
Is there a downside to paying off student loans early?
When borrowers ask this question, they’re often concerned about facing a prepayment penalty. A prepayment penalty is a fee charged when a borrower pays off their entire loan balance earlier than scheduled. While some lenders may charge a prepayment penalty, student loan lenders cannot.
With that said, the only notable downside to paying off your student loans early is that you may experience a temporary drop in your credit score. By paying off your student loans, you are closing an active line of credit. By doing so, the positive repayment history associated with the account will no longer be factored into your credit score.
Should I use all my savings to pay off my student loans?
While it may be tempting to use your entire life’s savings to wipe out your student loan debt, it isn’t the best approach. Before even considering investing or putting a surplus payment on your student loans, make sure you have a fully funded emergency savings of at least 3 to 6 months of expenses.
However, if you have a fully funded emergency savings, it may make sense to use the remaining balance to pay off your student loans.
What else can I do to pay off my student loans faster?
Consider refinancing. In a simple sense, refinancing your student loan allows you to swap your current student loan(s) for one with a lower interest rate or more favorable terms. Then, you can save money over the life of the loan and expedite the process of getting your balance to zero.
Opt into automatic payments. Many private student loan lenders offer a 0.25% interest rate discount to borrowers who opt in to automatic payments. While a small deduction, it can make a significant difference depending on your current interest rate and outstanding loan balance.
Cut back on expenses. If you don’t already track your spending, consider doing so. By understanding where your money goes, you may find that you’re able to cut back expenses in certain areas. Then, you can re-direct that money toward loan payments.
Pick up a side hustle. The average side hustle generates between $507 and $746 per month, according to USA Today. If you have the capacity to take on a side gig, the additional income could cut down your repayment period.
Final Thoughts from the Nest
When it comes to the decision of whether to pay off student loans or invest, there is no one-size-fits-all solution. Before making a decision, take the time to understand what makes most sense for your unique financial situation. If you still feel unsure, consider consulting a financial or investment advisor for personalized advice.
The content of this article is not, nor should it be, taken as financial advice. The content of this article is for educational purposes only. For personalized financial advice, please consult a financial or investment advisor.
In a very simple sense, student loan refinancing allows you to swap your current student loan for one with a better interest rate or terms. By doing so, you can save thousands of dollars over the life of your loan. In fact, borrowers who used Sparrow to refinance reduced their interest rate by 2.29 percentage points, saving them around $17,000 over the life of their new loan, on average.
While the prospect of saving $17,000 may have you ready to jump straight into refinancing, there are several things to consider beforehand. Let’s break down the process of refinancing your student loans, including everything you should consider before signing the dotted line.
How to Refinance Student Loans in 7 Steps
To make the process of refinancing your student loans simple, follow these 7 steps.
#1: Decide if Refinancing Makes Sense for You
Before you refinance your student loan debt, it’s important to consider whether refinancing is a good idea in the first place. You should consider refinancing under the following circumstances:
Your financial situation is sound. Most lenders will require you to have a strong credit score, typically of at least 650, to refinance. Lenders will also expect you to have a stable income as it confirms to them your ability to make loan payments. If your credit score is low, or if your income is unstable, you should consider refinancing when both are in check.
You know you can qualify for a lower interest rate or better terms. If your interest rate is high, and you are confident you can qualify for a lower interest rate, it makes sense to refinance. Likewise, if you are unsatisfied with your current loan terms, and are confident you could qualify for better ones, refinancing your student loans makes sense.
You have a federal student loan but don’t plan on using any of the federal protections. Federal student loans have certain advantages that private student loans do not, such as student loan forgiveness and income-driven repayment plans. If you don’t plan on using either, however, refinancing to a private student loan may make sense for you.
On the flip side, you should notconsider refinancing if any of the following circumstances apply to you:
You plan to use federal student loan protections. As soon as you refinance federal student loans to private student loans, you lose federal student loan benefits such as loan forgiveness opportunities and income-driven repayment plans. If you plan to use either of those benefits, it’s better to hold off on refinancing.
You are pursuing loan forgiveness. If you have federal student loans and are currently pursuing a loan forgiveness program, you should not refinance. By doing so, you will lose the opportunity to have your loans forgiven.
You recently declared bankruptcy. The purpose of refinancing your student loans is to secure a better interest rate or terms. Many private lenders will not allow you to refinance if you have declared bankruptcy within the last 4-10 years. If they do allow you to refinance with them, they will likely give you less favorable terms given your financial situation. If you have filed bankruptcy in the last 10 years, consider seeing if you qualify for a refinance loan, but understand that it is unlikely.
Your financial situation hasn’t improved since you borrowed the loan. To secure more favorable terms, you will almost always need a better credit score or income than when you initially borrowed the loan. If your credit score has dropped or if your income has dwindled since you initially borrowed the loan, however, you may not qualify for a better loan.
With that all said, you should explore your student loan refinance options to see if you qualify for a more favorable loan. There is absolutely no harm in exploring your options on Sparrow, as it doesn’t hurt your credit score, and you never know what refinance loan you may qualify for.
#2: Fill Out the Sparrow Application
After you’ve decided if refinancing is right for you, complete the Sparrow application. By completing the Sparrow application, you will be able to see what student loan refinance options are available to you at our 15+ partnering student loan lenders.
Completing the application will not hurt your credit score in any way.
To complete the application, you will need the following information:
Personal information
First and last name
Email address
Phone number
Date of birth
Citizenship status
Social security number
Address
Permanent address
Mailing address
Loan information
Amount needed
When you need funds disbursed
Financial information
Income
Housing expenses
School information
Where you currently are/previously studied
Enrollment status
Graduation date
GPA
#3: Compare Loan Offers
After filling out the application, offers will appear on the screen, showing you what refinance loans you qualify for at our 15+ partnering student loan lenders. The rates and terms shown are prequalification offers, meaning they are estimates of what you will qualify for at each given lender. If you have multiple offers, compare them to ensure you’re selecting the best refinance loan for you.
Generally speaking, the loan with the lowest interest rate will save you the most money over the life of the loan. However, you should consider other factors such as:
Whether the interest rate is fixed or variable
The repayment terms
The repayment plans available to you
Member benefits
Cosigner release policies (if applicable)
The total cost of the loan
Fixed vs variable interest rate. Fixed interest rates will remain the same throughout the life of the loan. Variable interest rates will change as the market fluctuates. If you prefer one over the other, make sure the refinance loan you choose provides that.
Repayment terms. Repayment terms include all the conditions involved in borrowing money from that lender. Make sure you are reading the fine print before agreeing to borrow a loan — there may be fees noted in the repayment terms that you don’t want to miss.
Repayment plans. Each individual lender will offer a different set of repayment options. Most, however, will have a standard repayment plan, which gives you fixed payments for the duration of your repayment period. If you are looking for a specific repayment option, double check that the lender you select has it.
Member benefits. Some lenders have additional benefits for borrowers such as free career assistance, autopay discounts, or the ability to skip one payment per year. While you shouldn’t put member benefits ahead of other factors such as the interest rate, they’re a nice bonus to consider if deciding between two near-identical loan offers.
Cosigner release policies. If you plan to include a cosigner on your refinance loan, you should consider the lender’s cosigner release policies. While some lenders do not offer a cosigner release option, meaning the cosigner must remain on the loan until it is paid off, other lenders do offer the option for the cosigner to be released from their responsibility, typically after the primary borrower makes a certain number of payments on the loan. Make sure to read the lender’s cosigner release policy if your cosigner prefers to be removed from the loan down the line.
Total cost of the loan. The purpose of refinancing, in a very simple sense, is to pay less on your student loan over time. Consider the total cost of the refinance loan in comparison to the loan you currently have. Does it save you money in the long run? If so, refinancing makes sense. If it costs you more in the long run, however, reconsider the decision to refinance.
Use these factors to compare loan offers and choose the one that is best for you.
#4: Complete the Formal Application
Once you’ve decided which refinance loan offer is best for you, it’s time to complete the lender’s formal loan application. Remember, the loan offers you see on Sparrow are prequalification offers, or estimates of the loan terms you will receive after submitting the lender’s formal application. To officially apply and borrow with a lender, you must complete their formal application.
To do so, find the loan offer you’d like to move forward with and click “Explore,” then “Get approved with [lender].” The application will then reroute you to the lender’s website to complete their formal application. To complete the lender’s formal application, you will need the same information you used to complete the Sparrow application.
After the lender processes your request, you may need to provide additional information such as proof of your income or official identification. While you wait to hear back from the lender, gather the necessary documents you may need to prove your income or identity such as:
Recent pay stubs
Proof of employment
W-2s
Bank statements
Valid driver’s license
Passport
Social security number
#5: Accept the Loan
Once you’ve received a formal refinance loan offer from the lender, review the offer to be sure it still suits you. Because loan terms can fluctuate with the market, they may not be identical to what you prequalified for through the Sparrow application, although they should be fairly similar.
Once you’ve double checked the loan terms, go through the lender’s process to accept the loan.
#6: Verify That the Loan Was Paid Off
After accepting the loan, the lender will use the amount of your new loan to pay off your initial loan. The length of this process will vary depending on the lender(s) involved.
Ask your new lender directly how long they estimate the process will take. After that timeline passes, check in with the lender to verify that your initial loan was completely paid off.
#7: Begin Making Payments on Your New Loan
Once your initial loan is paid off, you will begin making payments on your new loan. Be sure to check in with the lender to find out when your monthly payments will be due. If you have concerns about making the payments on time, consider opting in to automatic payments.
Commonly Asked Questions About Student Loan Refinancing
While the process of refinancing with Sparrow is fairly simple, it’s common to still have questions about whether refinancing is right for you. Below are some of the most commonly asked questions about student loan refinancing.
Is It Worth It to Refinance Student Loans?
Refinancing your student loan(s) is worth it if you will be able to secure more favorable terms, and thus, save money over the life of the loan. Whether it is worth it is ultimately subjective and highly dependent on the amount you are able to save by refinancing.
Can I Refinance My Student Loans at Any Time?
Generally speaking, you can refinance your student loans at any time. While some student loan lenders may require you to have graduated, others will allow you to refinance while still in school.
Can I Refinance My Student Loans More Than Once?
Yes. You can refinance your student loans as many times as you’d like.
Does Refinancing Hurt Your Credit?
Submitting a formal loan application with a lender will result in a hard credit inquiry, which will temporarily hurt your credit. However, according to FICO, a hard inquiry typically only decreases your credit score by less than 5 points.
What Credit Score Do You Need to Refinance Student Loans?
The credit score requirements for refinancing will vary depending on the lender. In general, most lenders will require you to have a credit score of at least 650 to qualify. The higher your credit score, however, the more likely you are to receive a better interest rate and terms.
What is the Best Student Loan Refinancing Company?
There is no single best student loan refinancing company. The best lender will always be the one that offers you the best interest rate and terms, which will vary from person to person. To find the best student loan refinancing company for you, complete the Sparrow application.
Final Thoughts from the Nest
The idea of swapping around your student loans may feel overwhelming. However, following these 7 steps can help guide you through the process. To what rates you qualify for with our 15+ partnering student loan lenders, complete the Sparrow application.
Student loan forgiveness allows for all, or a portion, of your student loan debt to be removed.
Yes, you read that right. All of it, gone with the click of a button.
While the idea of having your student loan debt wiped out forever sounds dreamy, it isn’t that simple. While most federal loans qualify for student loan forgiveness programs, private student loans do not. Even then, each individual program will have its own unique requirements to qualify.
If you’re pondering the possibility of having your student loan debt forgiven, here’s what you need to know.
Certain professions, typically those that serve our community, are eligible for several student loan forgiveness programs.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness Program (PSLF) is a government program that was created under the College Cost Reduction and Access Act of 2007. With the goal to ease the burden of student loan debt for qualified public service workers, the program has forgiven the loans of over 460,000 student borrowers since its inception.
What You Need to Qualify
To qualify for PSLF, you will need to have made 120 on-time, qualifying monthly payments on a Direct Loan, while working for a qualifying employer. If so, the remainder of your federal student debt balance will be forgiven. Qualifying employers include U.S. federal, state, local, and non-profit organizations.
While it is ultimately your employer that determines whether you qualify, not your role itself, there are a variety of jobs that are often considered qualifying:
Teachers, staff members, and administrators at public schools
Law enforcement officers at the federal, state, or local level
Employees of federal, state, or local agencies
Military members
Social workers at public service agencies
Public health professionals such as doctors and nurses
Employees at 501(c)(3) organizations
It’s important to note that the Public Service Loan Forgiveness program can be incredibly challenging to be accepted into. In fact, since 2020, only 2.16% of PSLF applications have been accepted. That said, we still recommend applying if you believe you qualify.
How Much Can Be Forgiven?
If you qualify, the remainder of your federal student debt balance can be forgiven.
Teacher Loan Forgiveness
Teacher Loan Forgiveness is a federal program that allows teachers to have a portion of their federal student loan debt forgiven.
What You Need to Qualify
To qualify, you must:
Be a highly-qualified teacher
Have taught at a low-income school or educational service agency for at least five consecutive school years
In terms of your student loans, you must not currently have, nor have in the past, any outstanding balance on your Direct Loans or Federal Family Education (FFEL) Loans as of October 1, 1998 (or the date you received your loans after that date). The loans must also have been borrowed prior to your five years of teaching.
How Much Can Be Forgiven?
If you are a full-time secondary-level science or mathematics teacher, or special education teacher, you may be eligible for up to $17,500 in student loan forgiveness. If you teach a different subject, you may be eligible for up to $5,000 in student loan forgiveness.
Student Loan Forgiveness for Nurses
Nurses are eligible for a variety of student loan forgiveness programs, such as Public Service Loan Forgiveness, Nurse Corps Loan Repayment, National Health Service Corps Loan Repayment, Perkins Loan Cancellation, and Army Nurse Corps Benefits/Health Professions Loan Repayment.
Nurse Corps Loan Repayment
The Nurse Corps Loan Repayment program is offered by the Health Resources & Service Administration. The program provides student loan forgiveness for nurses that work in critical shortage facilities, or healthcare facilities lacking primary, mental health, and dental care.
What You Need to Qualify
To qualify, you must:
Be either a registered nurse (RN), nurse faculty (NF), or advanced practice registered nurse (APRN)
Work full-time in a critical shortage facility or accredited nursing program
Have attended a qualifying nursing school in the United States
How Much Can Be Forgiven?
If you qualify, you can have up to 85% of your nursing school debt forgiven.
National Health Service Corps Loan Repayment
The National Health Service Corps (NHSC) Loan Repayment Program is also offered by the Health Resources & Service Administration. However, the eligibility criteria is a bit stricter in comparison, and the program requires you to serve two years at an NHSC-approved site.
What You Need to Qualify
To qualify, you must:
Be a U.S. citizen
Be fully trained and licensed to practice in an NHSC-approved primary care medical, dental, or mental health discipline in which you apply to serve
Be a provider in the Medicare, Medicaid, and State Children’s Health Insurance Program (as applicable)
Be a health professional in an eligible discipline with qualifying student loan debt for your degree
Be working at an NHSC-approved site
How Much Can Be Forgiven?
The amount you can get forgiven depends on your level of participation in the program. If you serve full-time, you can receive up to $50,000 in student loan repayment for the initial two-year term. If you serve part-time, you can receive up to $25,000 for a two-year term.
Army Nurse Corps Benefits/Health Professions Loan Repayment
If you are a nurse on active duty or in the Army Reserve, you may be eligible for a substantial amount of student loan forgiveness.
What You Need to Qualify
To qualify, you must be a nurse on active duty or in the Army Reserve.
How Much Can Be Forgiven?
If you qualify, you can receive up to $250,000 in student loan forgiveness.
Military Student Loan Forgiveness and Assistance
Members of the military are eligible for several student loan forgiveness programs including Public Service Loan Forgiveness, National Defense Student Loan Discharge, and Veterans Total and Permanent Disability Discharge.
National Defense Student Loan Discharge
National Defense Student Loan Discharge is a federal program available to students who have served in the military.
What You Need to Qualify
To qualify, you must have served 12 consecutive months in a duty station that qualified you for either imminent danger or hostile fire pay. You must also have Federal Perkins Loans or Direct Loans to qualify.
How Much Can Be Forgiven?
The amount you can have forgiven depends on a variety of factors. For more information on how much you may be eligible for specifically, contact your loan servicer.
Veterans Total and Permanent Disability Discharge
If you are a veteran with a service-related disability, the Veteran Total and Permanent Disability Discharge program may be able to help you.
What You Need to Qualify
To qualify, you must be able to provide proof that you are permanently disabled, including appropriate documentation from the Department of Veteran Affairs.
How Much Can Be Forgiven?
This program can forgive up to your entire remaining loan balance.
Student Loan Forgiveness: By Loan Type
While most of the above student loan forgiveness programs are for Federal Direct Loans and Federal Family Education Loans, Parent PLUS Loans and Perkins Loans are also eligible for some forgiveness programs.
Parent PLUS Loan Forgiveness
Parent PLUS Loans are eligible for certain forgiveness programs such as PSLF and Military Loan Forgiveness. You can also receive loan forgiveness on Parent PLUS Loans by opting into an income-driven repayment plan or working for a federal agency that offers debt forgiveness benefits.
Perkins Loan Cancellation
If you qualify for Federal Perkins Loan Teacher Cancellation, you can have 100% of your Perkins Loan(s) canceled. To qualify, you must have served full time in a public or non-profit elementary or secondary school system as a:
Teacher working with students from low-income families;
Special education teacher; or
Math, science, foregin language, or bilingual education teacher (or any other field of study deemed by the state education agency to have a shortage of qualified teachers).
Other Student Loan Forgiveness Programs
Income-Driven Repayment Loan Forgiveness
Income-driven repayment (IDR) is a federal loan repayment option that bases your monthly payment on your income instead of your remaining loan balance. After 20-25 years of qualifying payments on an IDR plan, your remaining student loan balance can be forgiven.
State-Sponsored Repayment Assistance Programs
Some states offer robust student loan assistance programs. For example, Iowa currently offers six assistance programs, one of which being the Teach Iowa Scholars program that provides qualifying first-year Iowa teachers with $4,000 per year for teaching in designated shortage areas. Likewise, New York offers nine assistance programs, one of which offering qualified social workers up to $26,000 in debt assistance. Check your state’s website to learn more about their student loan assistance programs.
Loan Discharge Programs
Loan discharge removes your obligation to repay your debt in certain circumstances. While similar to student loan forgiveness programs in that the remainder of your student debt can be forgiven, it differs in that loan discharge is typically only granted for extenuating circumstances.
The following are the most common discharge programs offered for student loans.
Closed School Discharge
Closed school discharge is designed to offer loan discharge to students whose school closed while they were still enrolled or shortly after they withdrew. If you qualify for a closed school discharge:
You will no longer be obligated to make payments on your federal student loan debt,
You will receive reimbursement for any payments you have already made, whether voluntarily or through forced collection; and
Any record of the loan and repayment history associated with it will be deleted from your credit report.
Borrower Defense to Repayment Discharge
The Borrower Defense to Repayment Discharge program is designed to assist students whose schools misled them or participated in misconduct that violated state laws. This program can remove all or some of your federal student loan debt.
Total and Permanent Disability Discharge
If you have become totally and permanently disabled, you may qualify for Total and Permanent Disability Discharge. To qualify, you must be able to provide documentation of a disability from a qualified source such as the U.S. Department of Veteran Affairs, the Social Security Administration, or a physician.
Many private student lenders also have a total and permanent disability discharge program. To check if your lender does, reach out to them directly.
Discharge Due to Death
Should a student loan borrower die, their federal student loan debt will be discharged. Parent PLUS Loans borrowed on behalf of a now-deceased student also qualify.
Frequently Asked Questions About Student Loan Forgiveness
Can I Get My Student Loans Forgiven Due to COVID-19?
While the COVID-19 pandemic has impacted many borrowers’ ability to repay their student debt, the pandemic itself is not grounds for student loan forgiveness. As a result of the pandemic, however, federal student loans are in forbearance.
That said, there have been motions to forgive up to $20,000 per borrower in student loan debt. However, litigation is currently blocking these motions from moving forward.
As a result, the forbearance has been extended until 60 days after the litigation is resolved or debt is forgiven. If neither happen before June 30th, payments will resume 60 days after that.
Are Student Loans Forgiven After 10 Years?
Student loans are not automatically forgiven after 10 years. However, if you were approved for Public Service Loan Forgiveness, you will be granted student loan forgiveness after 120 qualifying payments, or around 10 years.
Is There an Income Limit for Student Loan Forgiveness?
Currently, there are no income restrictions for federal student loan forgiveness programs.
Can You Make Too Much Money to Qualify for PSLF?
There are currently no income restrictions for the Public Service Loan Forgiveness Program. However, to qualify, you must be on a qualifying repayment plan, many of which are income-driven repayment plans. If your income is too high relative to your outstanding balance, you may not qualify for an income-driven repayment plan.
Is Loan Forgiveness Taxable Income?
Student loan forgiveness granted under the Public Service Loan Forgiveness Program is not considered taxable income. Loans that were forgiven under discharge programs, however, are typically considered taxable income.
Final Thoughts from the Nest
When researching student loan forgiveness programs, be weary of scams. If a program calls you directly, requires you to make decisions “immediately” or with any sense of urgency, or requires you to pay upfront to have your debt forgiven, do not move forward with the program.
If you have questions about which student loan forgiveness programs may be available to you, it’s best to contact your loan servicer directly for more information.
The best student loan will always be the one that meets your needs best. That said, it’s helpful to start the process with a list of strong options to make navigating the process easier.
Here are our top picks for the best places for private student loans.
The loan options shared are in no particular order. Interest rates reflected in this article were last updated on 03/06/23. Rates listed may reflect the lender’s autopay discount. Interest rates are subject to change.
Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670 Best for: Residents of, or students in, Arkansas.
Fixed Interest Rate: 4.83% to 16.16% (cosigned, undergraduate); 5.61% to 16.16% (graduate) Variable Interest Rate: 6.15% to 16.08% (cosigned, undergraduate); 6.68% to 16.08% (graduate) Maximum Borrowing Limit: $200,000 Minimum Credit Score: 540 Best for: International and DACA students who have a lower credit score.
Fixed Interest Rate: 2.71% to 6.86% Variable Interest Rate: 5.32% to 9.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700 Best for: Residents of, or student in, Texas.
College Ave – Both undergraduate and graduate degrees
Fixed Interest Rate: 5.05% to 16.99% (undergrad); 5.05% to 14.49% (grad) Variable Interest Rate: 5.49% to 16.99% (undergrad); 5.49% to 14.49% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers looking for a repayment term that matches their budget.
Custom Choice – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.43% to 14.65% Variable Interest Rate: 5.38% to 15.19% Maximum Borrowing Limit: Cost of attendance minus other aid; cannot exceed $99,999 annually or $180,000 cumulatively Minimum Credit Score: 660 for non-cosigned loans Best for: Borrowers who want a competitive interest rate and strong borrower benefits.
Fixed Interest Rate: 4.42% to 15.90% (undergrad); 4.42% to 14.30% (grad)* Variable Interest Rate: 5.62% to 16.20% (undergrad); 5.89% to 15.97% (grad)* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650 Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 0.25% to 23.00% Variable Interest Rate: N/A Maximum Borrowing Limit: $15,000 per academic year (plus $10,000 for summer) and $25,000 lifetime. Minimum Credit Score: N/A Best for: Borrowers who want an income-based repayment (IBR) loan.
EdvestinU – Both undergraduate and graduate degrees
Fixed Interest Rate: 7.00% to 10.57% Variable Interest Rate: 8.12% to 11.02% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675 Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 7.49% to 12.99% Variable Interest Rate: N/A Maximum Borrowing Limit: $20,000 per school year Minimum Credit Score: N/A Best for: Borrowers that were high-achieving undergraduate students.
INvestED – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.61% to 8.67% Variable Interest Rate: 7.88% to 12.34% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 670 Best for: Borrowers who are residents of or students in Indiana.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660 Best for: Borrowers that want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% (undergrad); 12.74% (grad) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A Best for: International and DACA borrowers without a cosigner.
Nelnet Bank – Both undergraduate and graduate degrees
Fixed Interest Rate: 4.49% to 15.47%* Variable Interest Rate: 6.29% to 15.51%* Maximum Borrowing Limit: $125,000 total for undergraduate students; $500,000 total for graduate students Minimum Credit Score: 680 individually; 640 with a qualified cosigner Best for: Borrowers who want competitive interest rates and a flexible forbearance policy.
Fixed Interest Rate: N/A Variable Interest Rate: 6.70%+ Maximum Borrowing Limit: $220,000 Minimum Credit Score: N/A Best for: International student borrowers with no cosigner.
Sallie Mae – Both undergraduate and graduate degrees
Fixed Interest Rate: 3.75% to 13.72% Variable Interest Rate: 4.00% to 14.34% Maximum Borrowing Limit: School-certified cost of attendance minus other aid Minimum Credit Score: Mid 600s Best for: Borrowers who want competitive interest rates and a flexible repayment plan.
Fixed Interest Rate: 4.44 to 13.80% (undergrad); 4.99% to 13.60% (grad) Variable Interest Rate: 5.99% to 14.30% (undergrad); 5.99% to 14.10% (grad) Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose Best for: Borrowers with a strong credit score or a creditworthy cosigner.
Private student loans are provided by private entities such as banks, credit unions, and other financial institutions. Because each lender is its own unique entity, their eligibility requirements will vary. There are a couple of requirements, however, that are fairly standard:
Be Enrolled in an Eligible Program
Private student loans can only be used for educational purposes. So, in order to be considered for a private student loan, you’ll need to be enrolled in an eligible program.
Be a U.S. Citizen, Permanent Resident, or Eligible International Student
Most private student lenders will require you to meet certain residency requirements. If you are a U.S. citizen or permanent resident, you will be eligible with most student lenders.
If you are an international student, certain student lenders may require you to apply with an eligible U.S. citizen or permanent resident cosigner. If you do not have a cosigner available, you can explore loan options with companies such as MPOWER and Prodigy Finance, who work specifically with international students with no Social Security Number or cosigner.
How to Pick the Best Place for Private Student Loans
The Annual Percentage Rate (APR) of a student loan is the annual interest rate you will incur, plus any additional fees or costs the lender tacks on. APR is typically one of the most important elements of a student loan because it’s essentially what you’ll be “charged” each year to borrow the loan.
The Type of Interest Rate You Prefer
Student loan interest rates are either fixed or variable. Fixed interest rates will remain the same throughout the life of the loan. Variable interest rates are subject to change in response to the market. If you prefer one over the other, make sure the loan you borrow has that type of interest rate.
A Repayment Plan That Suits You
Each student lender will offer a different set of repayment plans. Like other loan features, the best repayment plan will be the one that suits you best. For example, if you know you prefer a standard repayment plan, make sure the lender you choose offers it.
A Monthly Payment You Can Afford
Once the loan enters repayment, you will be responsible for making a minimum monthly payment. Your exact monthly payment will depend on your interest rate, repayment plan, and repayment term. Before agreeing to a loan, estimate your future monthly payment to make sure it’s affordable given your predicted post-graduate salary.
A Flexible Cosigner Release Policy
To borrow a student loan, you may need a cosigner to qualify. While some cosigners are comfortable remaining on the loan until it’s paid off in its entirety, others may prefer to be released from their responsibility. If you or your cosigner would like the option to release your cosigner later on, look for a lender with a flexible cosigner release policy.
What is the Best Place for Private Student Loans?
There is no one-size-fits-all approach to student loans. The best student lender for you will be the one that offers you the best interest rate and loan terms.
To find the student lender that suits you best, complete the Sparrow form. In as little as 3 minutes, we’ll show you what rates you pre-qualify for at our 15+ partner lenders. Then, you can compare the loan rates side-by-side to be sure you’re picking the best option for you.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
The average 4-year in-state college degree will run you nearly $25,000 per year, or over $100,000 for the entire degree. If you’re borrowing student loans to cover this, it’ll likely cost you even more once interest is factored in.
Having a job while in school can not only help you manage your college expenses but help you chip away at your student loan debt before you even graduate.
Here are the 12 best jobs for college students to start paying off your student debt.
Best On Campus Jobs for College Students
On-campus jobs are ideal in college as you won’t have a commute, you can work with other people your age, and they tend to be more flexible and understanding of a college student’s busy schedule.
You may find securing an on-campus job to be easier as well, as many college programs and offices are run primarily by student workers.
Fitness Instructor
If you enjoy working out, being a fitness instructor at the campus recreation center is a perfect job for you. There are often a wide variety of fitness classes you can teach such as spin, aerobics, and barre, so you’re bound to find a class you enjoy teaching.
The average entry-level fitness instructor makes around $19 per hour, which is higher than most traditional college jobs.
Resident Assistant
Resident assistants (RAs) are an essential part of living on campus. They help maintain the dorms, support students in various ways, and help uphold campus policy.
The exact terms of compensation will vary from school to school, but oftentimes, being an RA gets you both free room and board and a stipend.
At the University of Connecticut, for example, RAs receive a housing waiver plus a stipend of $4,510 for the academic year, paid out biweekly. While the housing waiver doesn’t give you cash in your pocket, it does result in significant savings overall.
Tutor
If you tend to excel in an area of study, putting your knowledge to use as a tutor could score you some serious cash, around $18 per hour to be exact. While some campuses may have specific tutoring centers you can apply to, you can also offer tutoring services privately.
Rideshare Driver
If you have a car on campus, driving for a rideshare service such as Uber or Lyft may be a perfect fit for you. With the ability to pick your own hours, being a rideshare driver is perfect if you’re busy or have a schedule that changes frequently. Plus, college students are always in need of a ride, especially if your campus is big or spreads throughout a city.
The average rideshare driver makes around $15 per hour, but this rate can vary significantly based on tips and location.
Best Off-Campus Jobs for College Students
The best jobs for college students aren’t always on campus. If you’re itching to work outside the campus atmosphere, there are a variety of off-campus jobs you may enjoy.
Babysitter
If you love working with kids, consider being a babysitter for local families. To connect with families looking for babysitters, search for “[Town] Babysitting Group” on Facebook, then promote your services within the group.
The average hourly rate for babysitting is around $11 per hour, however, it can range significantly based on the number of children you’re caring for, their age(s), and any special requests the parent(s) may have. For example, picking up the children from school, bringing them to practice, or making them dinner will often result in a higher hourly rate.
Dog Walker/Pet Sitter
If kids aren’t your thing but dogs are, dog walking and pet sitting will be right up your alley. Apps like Rover are designed to connect pet owners with dog walkers and sitters, making it an easy gig to pick up when you have free time. Plus, the average dog walker makes around $15 per hour.
Food Service
Waiting tables at a local restaurant may sound a bit less fun than playing with puppies, but it can be fairly lucrative. During peak seasons where more families are visiting campus — open house season, the end of semesters when parents are coming to pick up their kids, etc. — you can rack up quite a bit of cash.
The average food service worker makes $13.91 per hour, but at some chain restaurants such as Chili’s, you can make upwards of $22 per hour.
Ocean Lifeguard
Lifeguards, in general, are paid fairly well. However, if your school is close to an ocean, you may want to consider applying for an ocean lifeguard role. Ocean lifeguards tend to make more than pool lifeguards, bringing in around $16 per hour. While you would have to obtain a lifeguard certification, it’s the perfect gig if you enjoy sitting in the sun and being by the water.
Best OnlineJobs for College Students
If showing up to work in person isn’t your jam, we can’t blame you. Working from your dorm in your pajamas does sound pretty sweet, and there’s several jobs that will allow you to do just that.
Freelance Writer
As a freelancer, you’re essentially your own business. You get to choose what services you offer and at what rate, making it a highly flexible and fairly lucrative job. In fact, the average freelance writer makes around $23 per hour as a base rate.
Online English Teacher
If you enjoy working with children but don’t want to be physically in person, consider teaching English as a Second Language (ESL) online. Most ESL tutoring websites will set you up with a proper curriculum and provide guidance around how to actually teach English. Plus, the average ESL teacher makes $23 per hour, which is a fairly high rate in comparison to other college jobs.
Social Media Manager
If 95% of your screen time is spent scrolling through Tik Tok, being a social media manager is the gig for you. Social media managers make around $22 per hour when just starting out and even more with experience.
Interpreter/Translator
If you know more than one language, interpreting or translating is for you. Beginner interpreters can make around $23 per hour, but it can range depending on the languages you know and the organizations you work with.
College Jobs and Their Impact On Your Student Debt
It might be challenging to imagine how a $13 per hour college job could actually make a dent in your student debt, so let’s illustrate it.
Let’s say you worked 5 hours per week at $13 an hour. Before taxes, you’d make $260 per month. For simplicity’s sake, we’ll use your pre-tax income to estimate how much you’d save.
Now, let’s say you worked that same job, at the same rate, and for the same number of hours per week, for the entire duration of your college career.
$260 per month x 12 months in a year x 4 years (the typical length of a bachelor’s degree) = $12,480
Here’s how much you could save on the average student loan*, depending on how much you put towards your debt.
Example 1
Example 2
Example 3
Loan Balance
$37,584
$37,584
$37,584
Interest Rate
5.8%
5.8%
5.8%
Repayment Term
20 years
20 years
20 years
Percentage of Income Put Towards Student Debt
10%
20%
30%
Dollar Amount Put Towards Student Debt
$1,248
$2,496
$3,744
Amount Saved Over the Life of the Loan
$2,580
$4,851
$6,861
As you can see, putting even a small portion of your income towards your debt can result in significant savings. So, while working in college can sometimes be challenging to manage, consider picking up one of the jobs listed above, even for just a few hours a week.
*The average student loan balance is $37,584. The average student loan interest rate is 5.8%. The average student loan borrower takes 20 years to repay their student loan debt. Calculations are based on the averages — a $37,584 loan with a 5.8% interest rate and a 20-year repayment term.
The purpose of student loan refinancing is to score a better interest rate or terms. And landing a better interest rate could quite literally save you thousands. So, before choosing just any refinance loan, make sure you’re getting the best rate possible.
Here are the best rates for student loan refinancing.
September 2024’s Best Rates for Student Loan Refinance
Rather than searching for lenders one-by-one, we recommend starting the process with an automated student loan refinance search tool. With the free Sparrow application, you can see the rates and terms you’d qualify for with 17+ premier lenders.
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
Compare your personalized, pre-qualified rates from these lenders in minutes.
Fixed APR range: 4.90% to 6.99% Variable APR range: 5.32% to 9.12% Maximum Borrowing Limit: $400,000 Minimum Credit Score: 720, or 690 with a qualified cosigner
Fixed APR range: 3.94% to 8.48% Variable APR range: N/A Maximum Borrowing Limit: $5,000 ($10,000 for California residents) to $300,000 Minimum Credit Score: 670
Best for: Borrowers who want to work with a non-profit lender.
Fixed APR range: 4.49% to 8.99% Variable APR range: 4.49% to 8.99% Maximum Borrowing Limit: Up to your total outstanding balance Minimum Credit Score: Does not disclose
Best for: Borrowers with a strong credit score or a creditworthy cosigner.
Before you refinance your student loan(s), you should consider a few factors.
Loan Type
If you have federal student loans, refinancing will eliminate a variety of benefits unique to federal student loans. If you plan on utilizing any of those benefits, such as income-driven repayment and potential forgiveness, hold off on refinancing.
The purpose of refinancing is to score a lower interest rate or better terms than the loan(s) you currently have. You will need to have a steady income and a good credit score to receive competitive loan offers. If your income and/or credit score isn’t in a better place than when you originally borrowed the loan, it’s best to wait until it is to refinance.
Lenders may examine your repayment history before agreeing to lend to you. If your repayment history is full of late payments, it may be challenging to qualify for a competitive refinance loan. On the other hand, if your repayment history shows consistent on-time payments, you may qualify for a solid refinance loan.
The key to finding the lowest student loan refinance rate is comparing your options side-by-side. Without the transparency to see all of your loan options in one place, it can be challenging to decipher which is the best option.
To see which student loan refinance options you qualify for, and at what rates, submit the Sparrow application. The Sparrow process will allow you to explore the best student loan refinance rates in one place.
Does Refinancing your Student Loan Hurt Your Credit?
When you inquire about a potential refinance loan, you may go through a prequalification process which will allow the lender to give you an estimate of the interest rate and terms you would qualify for. The prequalification process does not hurt your credit.
If you decide to move forward with a loan option, you will need to submit a formal application which will hurt your credit score. A formal refinance loan application results in a hard credit check inquiry, although this will only hurt your credit score temporarily.
If you have federal student loans, now might not be the best time to refinance your student debt. Federal student loans are currently scheduled to remain in forbearance until June 30th, 2023 or 60 days after student loan forgiveness litigation is resolved or debt is forgiven. During this time, federal student loans will not be accruing interest, and making minimum monthly payments is not required. Refinancing your federal student loans during this time would make interest start to accrue, and minimum monthly payments would be required.
If you have private student loans, however, there are no time limits on refinancing.
Before refinancing your student loans, consider whether now is the appropriate time to refinance. If so, start the process with Sparrow to be sure you receive the best rates for student loan refinancing.
Sparrow aims to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Interest, often expressed as a percentage, is the cost of borrowing money from a lender. It can be one of two types: simple or compound. The difference between simple and compound interest lies in how they are calculated. While seemingly small differences in their formulas, the type of interest on a loan can drastically change what you pay over time.
Here’s what you need to know about simple vs compound interest.
Simple Interest vs Compound Interest
What is Simple Interest?
Simple interest is calculated based on the principal of the loan, or the amount you originally borrowed. So, in other words, the amount of interest you accrue each month will only be calculated based on the amount you initially borrowed.
What is Compound Interest?
Compound interest is calculated based on the principal of the loan plus any unpaid interest accrued on the loan. So, over time, interest will accrue on top of both the principal and any previously accrued interest.
Simple vs Compound Interest Example
Let’s say you had a principal loan balance of $30,000. For simplicity’s sake, let’s say it costs you $3 per day in interest to borrow that money.
With simple interest, it will cost you $90 per 30-day month in interest. ($3 x 30 days = $90)
With compound interest, your balance would increase to $30,003 on the first day. The next day, the interest amount would be calculated on a balance of $30,003, not the principal balance of $30,000. So, over time, the interest can accrue quite quickly as it compounds on itself.
Which is Better: Simple or Compound Interest?
If you have the option to choose between simple and compound interest, we recommend selecting simple interest.
Simple interest will often cost you less over time than compound interest because you will only pay interest on your principal loan balance. With compound interest, you will pay interest on your interest (say that 10x fast), which will inevitably cost you more over the life of your loan.
Here’s an example of how simple and compound interest would impact how much you pay over the life of the same loan.
Simple Interest
Compound Interest*
Principal Balance
$30,000
$30,000
Interest Rate
5.8%
5.8%
Repayment Period
15 years
15 years
Total Paid Over the Life of the Loan
$56,100
$69,888
Total Interest Paid Over the Life of the Loan
$26,100
$39,888
*Compounded quarterly. Loans will compound on different frequencies. How often the interest compounds can drastically change how much you pay over time.
While the two loans have the same principal balance, interest rate, and repayment period, the loan with compound interest would cost you $13,788 more over the life of the loan.
Are Student Loans Simple or Compound Interest?
All federal student loans operate on simple interest, and the vast majority of private student loans do, too. However, some private student loans do operate on compound interest, which often compound daily. To verify how your student loan interest is calculated, check with your lender directly.
Once you know how your student loan interest is being calculated, you can estimate your overall interest cost. To do so, use the simple and compound interest formulas.
Simple interest loans: Principal x interest rate x loan term = simple interest
Compound interest loans: (Principal (1 + interest rate)^ Number of compounding periods in a year) – principal = compound interest
As you can tell, the compound interest formula is a bit more complicated than the simple interest formula. If you have trouble doing the calculation by hand, you can utilize a compound interest calculator to help you.
How to Save on Student Loan Interest
Interest is often a major expense when it comes to borrowing a student loan. In fact, the average student loan accrues $26,000 in interest over the course of 20 years.
While opting for a simple interest loan is a great start to minimizing interest costs, there are a variety of ways to minimize it even further.
Refinancing your student loan debt can result in significant savings in interest. In fact, borrowers who used Sparrow to refinance reduced their interest rate by 2.29 percentage points, saving them approximately $17,000 over the life of their new loan, on average.
When you refinance, you essentially take out a new loan with a better interest rate or terms and then use the new loan to pay off your old loan.
Here’s how a 2.29% interest rate reduction could impact how much you pay over the life of your loan.
Principal Balance
Initial Interest Rate
Expected Total Payment Over the Life of the Loan
Interest Rate After Refinancing with Sparrow (Initial Interest Rate – Average 2.29% Savings in Interest)
Expected Total Payment Over the Life of the Loan with the New Interest Rate*
Savings from Refinancing
$10,000
8%
$17,202
5.71%
$14,909
$2,293
$30,000
6.5%
$47,040
4.21%
$40,514
$6,526
$50,000
5%
$71,171
2.71%
$60,905
$10,266
*Note that these numbers are based on a full 15-year repayment term, prior to making payments on the initial loan. The calculations will change based on how far into your repayment period you are, any surplus payments you may have made, and the new loan term you choose.
Add a Cosigner to the Loan
A cosigner is an individual who signs onto a loan alongside you, taking legal responsibility for paying back the loan should you fail to do so. A creditworthy cosigner gives lenders a “second line of defense,” if you will, lowering the risk for them to lend to you.
As a result, lenders will often offer you a lower interest rate on your student loan if you have a creditworthy individual cosign your loan.
Believe it or not, you can actually negotiate your student loan interest rate. While it isn’t 100% effective, it can’t hurt to call up your loan servicer and ask for a lower interest rate.
See if the Lender Offers an Autopay Discount
Many private student lenders offer an interest rate discount, often 0.25%, for opting into autopay. By opting in to autopay, your student loan payments will automatically be withdrawn from your account each month.
You should only opt in to autopay, however, if you are absolutely positive it will not result in an overdraft of your account.
The type of interest you have on a loan can drastically impact how much you pay over the life of the loan. So, before borrowing, consider whether the loan has simple or compound interest.
To explore a variety of student loan options at low interest rates, submit the Sparrow application.
According to Education Data, American parents save $5,143 annually for their kid’s college, on average. Without this parental support, paying for college can feel out of reach. However, each year, thousands of students pay for college on their own, successfully utilizing a variety of resources to support them.
Here’s how you can pay for college without your parents’ help.
#1: Start Saving Early
While there are a variety of recommendations regarding how much to save, the approaches may not be feasible if you are paying for college on your own. So, rather than focusing on saving a certain amount, focus on saving as much as you can. Consider picking up a side hustle or part-time job prior to college to provide you with an additional income.
If you are in a position where you are unable to direct any income towards saving for college, don’t worry — you aren’t out of luck. While helpful to have some cash to put towards college, it isn’t a make-it-or-break-it factor.
#2: Utilize AP Classes
As a high school student, you may be offered the opportunity to take AP courses. While these courses require additional labor, they can save you thousands of dollars if counted for college credit.
What are AP Credits?
The Advanced Placement (AP) program was created by the College Board to provide high school students the opportunity to take college-level courses and earn college credit for doing so. The program offers a wide variety of courses, from AP English Language and Composition, to AP US History, to AP Psychology.
At the culmination of each course, AP students are offered the option to take the AP exam. If you score sufficiently on it, you could gain college credit and skip the equivalent course in college. Skipping the equivalent college course could allow you to graduate early, which in turn could save you thousands of dollars in tuition and fees.
How Much Can AP Credits Save You in College?
The amount of money AP credits can save you varies greatly depending on the courses you take, the school you choose to attend, and the major you decide to enroll in.
Each school will have its own unique AP credit policy. So, while some schools may only accept 5s on the AP exam (the highest you can score), other schools may accept 3s and up. Likewise, some programs may require you to take all of the major courses at the school itself, which could discount your AP credit. Let’s break this down with an example.
Let’s say you apply to the University of Connecticut.
If you take the AP English Language and Composition exam, you will only be eligible for the equivalent UConn course credit if you score a 4 or 5. However, if you took the AP Calculus BC exam, you would only need to score a 3 to be eligible for the equivalent UConn course credit.
If you do earn a qualifying score, though, you would earn anywhere from 3 to 6 credits on average. At UConn, 15 credits is the average semester course load. So, if you took 5 AP courses throughout your high school career and earned qualifying scores on all exams, you may be able to knock an entire semester off of your college career at UConn.
At UConn, out-of-state tuition is around $20,000 per semester. So, in theory, the AP credits could save you nearly $20,000.
While this will change from school to school, the same idea applies. Depending on the courses you take, the school you attend, and your AP score, you could save a decent chunk of money.
How to Find Out Where Your AP Score Counts
If you applied to multiple schools, check to see which school(s) will accept your AP scores for credit. Simply search for “[school name] AP credit policies” to find each school’s policy.
If you already have your AP test scores in hand, check to see which scores will qualify for the equivalent course credit at each school. If you don’t have your test scores yet, see which school takes lower scores. The lower the accepted score, the more likely you are to score high enough for it to count for credit.
If you have specific questions regarding how your AP credits could help you graduate early, reach out to your intended college’s program directly. They will be able to provide you with a more accurate assessment of how your AP credits may be applied to your degree to save you money in the long run.
#3: Be Strategic About Which School You Choose to Apply To
The cost of college will differ greatly depending on the type of school you choose to attend. For example, while the average cost of a 4-year in-state public institution is $25,487 per year, the average cost of a full-time in-district community college program is $3,730 per year.
When paying for college without your parents’ help, you may find more affordable college options more appealing. Consider the average cost of each college program when deciding where to apply.
Likewise, consider the application fees of each school. To avoid paying hundreds of dollars in application fees, narrow down your list of schools to the ones you could truly see yourself attending. For the ones you do apply to, contact the school directly to ask about an application fee waiver. Many schools waive application fees for students like yourself who are navigating the college process without parents.
#4: Apply for Scholarships
Scholarships are essentially free money. (Yup, money you don’t have to pay back.) So, it’s recommended that you exhaust all scholarship options before considering student loans.
Throughout the search process, you will encounter a variety of scholarship opportunities, such as academic scholarships, private scholarships, institutional scholarships, and need-based scholarships.
To find scholarships to apply to, consider the following sites:
Sallie Mae’s Scholarship Search Tool: While Sallie Mae is one of the most well-known private student loan companies, they also offer a robust scholarship search engine. After registering, the engine will send you customized scholarship recommendations based on your profile.
Scholarships.com: As one of the most established scholarship websites, Scholarships.com has reported nearly $19 billion in scholarships, making it a great place to search for and apply to scholarships.
Chegg.com: Chegg is well-known for its textbook rental service and homework help, but it’s also a great resource for scholarships. Chegg offers over 25,000 scholarships and tutors to help review your scholarship essays before you submit them.
Fastweb.com: Fastweb has over 1.5 million scholarships in its database and will send you personalized application recommendations based on your profile. The platform will even email you when deadlines are approaching so you don’t miss any opportunities.
Niche.com: Niche.com is known for providing insight on colleges and universities from over 140 million real reviews and ratings. However, the site also offers a wide variety of scholarships, using a similar matching process as other platforms.
Cappex.com: Cappex database holds over $11 billion in scholarship opportunities and allows you to narrow your search based on a variety of factors.
#5: Apply for Financial Aid
If you are an independent student, you do not need your parents’ information to apply for federal student aid through the FAFSA. If you are a dependent student, however, you will need your parents’ information to complete the form.
Dependent vs Independent Student
For financial aid purposes, you are considered an independent student if you are at least one of the following:
At least 24 years old
A graduate/professional student
An orphan or ward of the court
An emancipated minor
Married
Someone who is homeless or at risk of being homeless
Have legal dependents (children)
Have a dependency override from a financial aid administrator with proper documentation
If you are at least one of the above, you are considered an independent student. To see what federal financial aid you qualify for, complete the FAFSA.
If you do not identify with any of the above, you are considered a dependent student. If able, you should complete the FAFSA with your parents’ information. You will need information such as:
Social Security Numbers
Tax information
Family income information
Records of untaxed income
Information on any financial assets you or your parents may have
If you are considered a dependent but obtaining that information from your parents is not possible for whatever reason, you should consider filing for a dependency override. A dependency override allows you to file as an independent despite being considered a dependent by the above criteria. You can file a dependency override for the following reasons:
An abusive family environment (ie. sexual, mental, physical, or other forms of domestic violence)
Abandonment by parents
Incarceration or institutionalization of both parents
Parents lacking the mental or physical capacity to raise a child
Parents cannot be located
Unsuitable household (ie. child is removed from the home and placed in foster care)
A married student’s spouse dies or gets divorced
Filling out the FAFSA can provide you with access to thousands of dollars in financial aid. Make sure to complete the form as soon as you can after the October 1st open date.
#6: Compare Aid Offers Carefully
Without financial support from your parents, finding an affordable school will likely be a top priority. So, when you receive financial aid packages from each school, be sure to compare the aid offers carefully.
Start by writing down the following information for each school:
The cost of attendance
The free aid you won’t have to pay back (ie. scholarships, grants, etc.)
The cost to attend after subtracting the free aid
The aid you would have to pay back (ie. any federal student loans you were offered and any private student loans you would need to take out)
For example, let’s say you applied to the University of Connecticut, Eastern Connecticut State University, and the University of Bridgeport as an in-state student. You also won $6,000 total in private scholarships — one $5,000 scholarship and one $1,000 scholarship. Comparing aid offers may may look like:
$5,000 in federal student loans Remaining balance: $14,760
*For the sake of this example, the cost of attendance metrics used are for an in-state, on-campus student. The other metrics are random numbers just used to illustrate the concept.
Comparing the offers side-by-side will allow you to see which school is most affordable. In this example, you can see that while the University of Bridgeport offered more scholarship money than Eastern Connecticut State University, the difference in tuition still makes ESCU more affordable. Make sure to compare your aid offers carefully to determine which school is best for you financially.
#7: Don’t Be Afraid to Ask For More
It never hurts to ask for more financial aid, especially if your parents are claiming you as a dependent student but not helping you pay for college.
To appeal your financial aid, simply submit a financial aid appeal letter to the school’s financial aid office. Make sure to address the financial aid director by name, be polite, and provide appropriate documentation. You can use a financial aid appeal letter template to craft your letter.
#8: Use Savings First
When it comes time to actually confront the bill, dip into your savings first only if you have an emergency savings set up.
Most financial professionals recommend an emergency savings that is at least 3 months of your typical expenses. So, if you know you typically spend around $1,500 per month, you’ll want to have an emergency savings of $4,500.
While putting some of your savings towards your college education is helpful, you should not do so at the expense of putting yourself in an unstable financial situation. If you do have savings, however, consider putting what you can towards your tuition bill.
#9: Consider Student Loans
While helpful, student loans should be somewhat of a last resort as you will have to pay them back with interest.
First, look at the federal student loans offered to you in your financial aid package. Federal student loans will typically have lower interest rates than private student loans as well as more flexible repayment terms.
If you were not offered federal student loans, or if federal student loans do not cover your remaining balance, consider private student loans. If you are applying without a cosigner, you will likely need a strong credit score to qualify on your own. If you don’t have a strong credit score, consider non-cosigned loan options.
The most efficient way to find a student loan option that you qualify for is to use Sparrow. Sparrow allows you to compare loan options from 15+ premier student lenders in one place. This allows you to rest assured knowing you found the best loan option available to you.
#10: Get a Part-Time Job or Side Hustle During School
Picking up a part-time job or side hustle can help you pay for college expenses such as books and other course supplies during the school year. Depending on how much you’re able to bring in, you may be able to pocket some of the money to pay for the following year’s tuition. Reach out to your school’s office of student employment to inquire about on-campus positions, or consider off-campus positions that may pay more.
#11: Ask for Help
Paying for college without your parents’ help may be overwhelming, but know that there are resources available to help. If at any point you feel confused about the next step or how to handle a certain aspect, ask for help.
Undergraduate students have a wide range of student loan options to choose from, making the selection process that much more important.
Before agreeing to any one loan, it’s important to understand your options, the pros and cons of each, and how your student loan decision impacts your future.
The following are our top picks for the best private student loans for undergraduates.
The loan options shared are in alphabetical order. Interest rates reflected in this article were last updated on 03/06/23. Rates listed may reflect the lender’s autopay discount. Interest rates are subject to change.
Fixed Interest Rate: 3.20% to 6.34% Variable Interest Rate: 6.06% to 10.61% Maximum Borrowing Limit: Cost of attendance minus other aid; $100,000 lifetime maximum Minimum Credit Score: 670
Fixed Interest Rate: 2.71% to 6.86% Variable Interest Rate: 5.32% to 9.47% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 700
Fixed Interest Rate: 5.05% to 16.99% Variable Interest Rate: 5.49% to 16.99% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Mid 600s
Best for: Borrowers looking for a repayment term that matches their budget.
Fixed Interest Rate: 4.43% to 14.65% Variable Interest Rate: 5.38% to 15.19% Maximum Borrowing Limit: Cost of attendance minus other aid; cannot exceed $99,999 annually or $180,000 cumulatively Minimum Credit Score: 660 for non-cosigned loans
Best for: Borrowers who want a competitive interest rate and strong borrower benefits.
Fixed Interest Rate: 4.42% to 15.90%* Variable Interest Rate: 5.62% to 16.20%* Maximum Borrowing Limit: Cost of attendance mins other aid Minimum Credit Score: 650
Best for: Borrowers who want a competitive interest rate and flexible repayment options.
Fixed Interest Rate: 0.25% to 23.00% Variable Interest Rate: N/A Maximum Borrowing Limit: $15,000 per academic year (plus $10,000 for summer) and $25,000 lifetime. Minimum Credit Score: N/A
Best for: Borrowers who don’t have a strong credit score and want an income-based repayment (IBR) loan.
Fixed Interest Rate: 8.00% to 10.79% Variable Interest Rate: 7.47% to 10.47% Maximum Borrowing Limit: $1,000 to the total cost of attendance Minimum Credit Score: 675 Best for: Borrowers who want to work with a nonprofit that offers flexible repayment plans.
Fixed Interest Rate: 4.61% to 8.67% Variable Interest Rate: 7.88% to 12.34% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 670
Best for: Borrowers who are residents of or students in Indiana.
Fixed Interest Rate: 4.39% to 11.11% Variable Interest Rate: 5.84% to 11.11% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: 660
Best for: Borrowers that want to work with a credit union or community bank.
Fixed Interest Rate: 13.74% maximum (14.75% APR) Variable Interest Rate: N/A Maximum Borrowing Limit: $50,000 per semester; $100,000 per year Minimum Credit Score: N/A
Best for: International and DACA borrowers without a cosigner.
Fixed Interest Rate: 4.49% to 15.47% Variable Interest Rate: 6.29% to 15.51% Maximum Borrowing Limit: $125,000 total for undergraduate students; $500,000 total for graduate students Minimum Credit Score: 680 individually; 640 with a qualified cosigner
Best for: Borrowers who want competitive interest rates and a flexible forbearance policy.
Fixed Interest Rate: 3.75% to 13.72% Variable Interest Rate: 4.00% to 14.34% Maximum Borrowing Limit: School-certified cost of attendance minus other aid Minimum Credit Score: Mid 600s
Best for: Borrowers who want competitive interest rates and a flexible repayment plan.
Fixed Interest Rate: 4.44% to 14.70% Variable Interest Rate: 5.99% to 13.97% Maximum Borrowing Limit: Cost of attendance minus other aid Minimum Credit Score: Does not disclose
Best for: Borrowers with a strong credit score or a creditworthy cosigner.
Before selecting a student loan, you should consider a variety of factors to ensure it’s a good fit for you:
Does the loan require a cosigner? Some private student loans will require you to have a cosigner if you do not meet the minimum credit requirements. As an undergraduate, you may not have enough credit history to have a qualifying credit score, and thus, you may need a cosigner. If you do not have access to a creditworthy cosigner, you will want to consider student loan options that do not require a cosigner or have a flexible minimum credit score requirement.
What is the interest rate? One of the most important factors of a student loan is the interest rate. The interest rate will determine the cost of borrowing the loan and can drastically change how much you pay over time. The general rule of thumb when it comes to interest rates is the lower the better. Before agreeing to borrow a student loan, make sure to calculate the total cost using a student loan payoff calculator.
Are payments required while in school? While most private student lenders will allow you to defer payments until after graduation, some may require you to make payments while in school. If this won’t be feasible for you, make sure the lender you choose has a deferred repayment option.
What Type of Loan is Best for Undergraduate Students?
Federal student loans will typically have lower interest rates and more flexible repayment options than private student loans. So, you should start the student loan process for undergrad by submitting the FAFSA. The information you provide on the FAFSA will determine your eligibility for federal student loans.
However, if you do not receive federal student loans in your financial aid package, you should consider your private student loan options. Unlike federal student loans, private student loans typically require you to meet certain credit requirements. To see which private student loan options you qualify for without hurting your credit, complete the Sparrow application.
With that said, the best student loan option will always be the one that works best for you. You should start by considering federal student loan options, then utilize private student loans to fill in any remaining gaps.
How Your Student Loan Choice Impacts Your Future
The student loan you choose as an undergraduate can impact your future quite a bit. Both the interest rate and the loan terms will impact how much you pay over the life of your loan as well as the monthly payment you are responsible for post-graduation.
For example, a $30,000 student loan with a 6% interest rate will cost you $45,568 over a 15-year repayment term. This will break down to a monthly payment of around $253.
By comparing your loan options side-by-side, you may discover another private student loan at a 4% interest rate. This loan option would only cost you $39,943 over a 15-year repayment term, with monthly payments of $222.
The difference in interest would save you nearly $6,000 over the life of the loan and around $30 on your monthly payments. This is why it is crucial to compare your student loan options carefully as an undergraduate student. Your post-grad self will thank you.
Final Thoughts from the Nest
There is no single best private student loan for undergraduates. The best student loan option will always be the one that works best for you. So, be sure to compare your options carefully and select the loan you feel suits you best.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
In a sea of student loan companies, finding the best one for you may feel overwhelming. Each private student loan company will offer something different. Some elements may be right up your alley and others maybe not so much.
While the best student loan company for you will ultimately be the one that suits your needs and desires best, the following are our top picks for the best student loan companies.
Arkansas Student Loan Authority
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions.
What They Offer: ASLA offers three types of student loans: undergraduate and graduate loans, family loans, and student loan refinancing. The traditional undergraduate and graduate student loans are best for students who have a qualified cosigner and want a variety of repayment options. The family loan is best for family members or friends who want to help an undergraduate or graduate student with college costs. The refinance loan is best for students looking to refinance existing debt to simplify repayment and get a lower interest rate.
Best Features:
Competitive interest rates
A variety of loan options
Flexible cosigner release policy
A variety of repayment options
Offers 0.25% interest rate reduction for opting into auto-debit payments
Drawbacks:
Strict residency requirements (Borrowers must be residents of or students in Arkansas.)
Inaccessible to international students
ASLA is the best student loan company for borrowers who are located in Arkansas, have a qualified cosigner, and want competitive interest rates.
Ascent
Ascent is an online student lender offering a wide selection of student loan options. Ascent was named Best Private Student Loan for 2021 by Forbes Advisor, NerdWallet, and Money.com.
What They Offer: Ascent offers three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. The traditional cosigned loan is best for students who have a qualified cosigner and want to pay off their debt fast. The non-cosigned loan is best for borrowers with a strong credit score and stable income. The non-cosigned outcomes-based loan is best for upperclassmen with limited credit and income and no access to a cosigner.
Best Features:
Variety of loan options
Competitive interest rates
Accessible to international and DACA students
Flexible cosigner release policy
Drawbacks:
Unavailable to students enrolled less than half-time
Cosigner release is not available to international students.
Ascent is the best student loan company for borrowers who do not have a cosigner available, are international or DACA students, or have lower credit scores.
Brazos
Brazos is a non-profit lender that launched in 1975 with a focus on bringing transparency and low-cost loans to Texas residents.
Strict eligibility criteria (Only available to Texas residents.)
Brazos is the best student loan company for borrowers who are Texas residents with an established income and strong credit.
College Ave
College Ave is an online student loan company with the mission to make the student loan process more simple, clear, and personal.
What They Offer: College Ave offers both private student loans and student loan refinancing for undergraduates, graduate students, professional school students, career school students, and parents of students.
Best Features:
Strong customer experience
Competitive interest rates
Ability to choose your own loan term
Drawbacks:
Unclear forbearance policy
College Ave is the best student loan company for borrowers who want a more flexible repayment term that allows them to find a loan that matches their budget.
The Custom Choice Loan®
The Custom Choice Loan® is powered funded by Citizens. The loan option is designed to provide borrowers with greater flexibility and control when it comes to funding their college education.
What They Offer: The Custom Choice Loan is available for undergraduate and graduate students.
Best Features:
Competitive interest rates
Flexible repayment options
Strong customer service
Drawbacks:
Some Custom Choice Loans are not accessible to students enrolled less than half-time
No repayment plan shorter than 7 years or longer than 15 years
The Custom Choice Loan is the best student loan option for borrowers that want competitive interest rates, are seeking a flexible repayment term, and want strong borrower benefits.
Earnest
Earnest is an online student lender that was founded in 2013 with the mission to make the student loan process simpler for students and graduates.
No cosigner release option on traditional student loans; no option to add a cosigner on refinance loans
Loan products are unavailable in certain states
Earnest is the best student loan company for borrowers who want competitive interest rates, unique borrower perks, and flexible repayment options that allow them to find a loan that matches their budget.
Edly
Edly offers Income-Based Repayment (IBR) loans through FinWise Bank, an FDIC-insured bank. IBR loans create an alternative loan option for students by setting post-graduation payments based on income.
Students who borrow an IBR loan from Edly will not have to make payments while in school. Instead, borrowers make payments after graduation based on their income.
Repayment begins when the borrower has an income of at least $30,000.
No cosigner required
Drawbacks:
The borrowing limit is capped at $15,000 per academic year, which may not cover all programs.
Only available for a select group of schools
Offers a 4-month grace period, which is shorter than the typical 6-month grace period offered by other private student lenders.
Edly is the best student loan company for borrowers who want a loan option with no cosigner, competitive repayment terms, and flexible repayment options.
Funding U
Funding U is an online lender that focuses exclusively on undergraduate students with no cosigner. Rather than looking at the borrower’s credit score or income, Funding U looks at non-traditional metrics such as GPA and estimated future income to assess creditworthiness.
What They Offer: Funding U offers non-credit-based student loans for undergraduate students.
Best Features:
No cosigner required
No credit history required
Variety of repayment options
Available to DACA students with a work-eligible Social Security card
Drawbacks:
Unavailable in 13 states
Maximum funding amount is $20,000, which is less than most other private lenders.
Unavailable to students enrolled less than half-time
Loan payments are required while in school
Funding U is the best student loan company for borrowers who are high-achieving undergraduate students with limited credit history and no access to a creditworthy cosigner.
INvestED
INvestED has been providing students in Indiana with higher education solutions for over 40 years.
INvestED is the best student loan company for borrowers who are residents of or students in Indiana who want competitive interest rates and a variety of repayment options.
ISL Education Lending
ISL Education Lending is a nonprofit student lender established in 1979 with the mission of supporting students and families who have exhausted other sources of aid.
What They Offer: ISL Education lending offers both private student loans and student loan refinancing.
Best Features:
Competitive interest rates
Zero fees
Drawbacks:
Limited repayment options
ISL Education Lending is the best student loan company for borrowers who want to work with a nonprofit lender and want competitive interest rates.
LendKey
LendKey is an institution that connects borrowers with a network of 100+ lesser-known credit unions and community banks, allowing borrowers to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions.
Allows borrowers to work with credit unions and community banks
Competitive interest rates
Variety of borrower benefits
Drawbacks:
Unavailable to part-time students, parents, and non-U.S. citizens/permanent residents
Unavailable in certain states
LendKey is the best student loan company for borrowers who want to work with a credit union or community bank, have strong credit, and have stable income.
MPOWER
MPOWER is an online lender that works with international and DACA students to provide affordable college financing.
What They Offer: MPOWER offers non-cosigned undergraduate and graduate student loans for international, domestic, and DACA students.
Best Features:
Available to international, domestic, and DACA students
Provides additional assistance such as scholarship opportunities
Borrowers can receive up to 1-1.5% in rate discounts depending on the loan type.
Drawbacks:
Only one repayment term of 10 years
Higher interest rates and fees than other lenders
MPOWER is the best student loan company for borrowers who are international or DACA students, don’t have a credit history, and can’t access a qualified cosigner.
Nelnet Bank
Nelnet Bank is an online student lender founded over 40 years ago with the mission to make educational dreams possible.
Unavailable to international students or student visas
No biweekly payment via autopay
Nelnet Bank is the best student loan company for borrowers who want competitive interest rates, a variety of repayment options, and a flexible forbearance policy.
Prodigy Finance
Prodigy Finance is an online student lender founded in 2007 to help international students find affordable college financing.
What They Offer: Prodigy Finance offers student loans for international students in master’s degree programs.
Best Features:
No cosigner required
No collateral required
No credit history required
Variety of repayment options
Drawbacks:
Not available in all 50 U.S. states
Limited interest and repayment options
Higher interest rates and fees than other online lenders
Prodigy Finance is one of the best student loan companies for international student borrowers with no credit history.
Sallie Mae
Sallie Mae is one of the largest online private student lenders and is committed to helping borrowers find affordable college financing.
What They Offer: Sallie Mae offers student loans for undergraduate, graduate, MBA, law, medical, dental, and career training programs.
Best Features:
Competitive interest rates
Strong customer experience
Various repayment options
Flexible cosigner release policy
Drawbacks:
No biweekly student loan payments via autopay
Unable to see what rate you qualify for before formally applying
Sallie Mae is the best student loan company for borrowers who want a more flexible repayment plan and competitive interest rates.
SoFi
SoFi is an online student lender founded in 2019 and is now one of the largest student loan companies in the industry.
What They Offer: SoFi offers both private student loans and student loan refinancing. SoFi’s student loan offering is available for undergraduates, graduates, law and MBA students, as well as parents of students.
Best Features:
Competitive interest rates
Variety of repayment options
Fast online application and no fees
Drawbacks:
Unclear credit requirements
High loan minimum
SoFi is the best student loan company for borrowers that have a high credit score and want competitive interest rates.
Final Thoughts from the Nest
When picking a student loan company to move forward with, make sure you compare options side by side. Start by using Sparrow. Our free student loan search tool will allow you to see what student loan rates you pre-qualify for in as little as 3 minutes. Then, we’ll help you compare loan rates side by side so you can pick the best option for you. Sign up today to get started.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
While the average 4-year dental program could run you around $400,000 with all expenses included, the career trajectory is promising. Average dentist salaries outrank various other industries, putting newly graduated dentists in a fairly sound financial position.
Despite competitive salaries, the average dental student graduates with around $300,000 in student debt. While daunting, the significant earning potential makes you a great candidate for student loan refinancing.
Student loan refinancing can save you thousands, sometimes even tens of thousands, of dollars over the life of your loan, while also helping you pay off your student debt faster.
Let’s learn more about the average dentist salary, both by state and speciality, and how you save thousands by refinancing your dental school loans.
According to ZipRecruiter, the average dentist salary is $172,328 in the United States. However, similar to many other industries, the average salary varies significantly by state.
State
Average Annual Salary
Average Hourly Wage
Alabama
$136,021
$65.30
Alaska
$181,591
$87.30
Arizona
$155,451
$74.74
Arkansas
$158,376
$76.14
California
$162,841
$78.30
Colorado
$161,289
$77.54
Connecticut
$156,262
$75.13
Delaware
$163,128
$78.43
Florida
$132,191
$63.55
Georgia
$126,446
$58.59
Hawaii
$191,620
$92.13
Idaho
$161,924
$77.85
Illinois
$151,073
$72.63
Indiana
$149,400
$71.83
Iowa
$143,042
$68.77
Kansas
$164,718
$79.19
Kentucky
$154,002
$74.04
Louisiana
$121,872
$58.59
Maine
$153,137
$73.62
Maryland
$171,369
$82.39
Massachusetts
$189,612
$91.16
Michigan
$154,888
$74.47
Minnesota
$150,896
$72.55
Mississippi
$162,569
$78.16
Missouri
$147,227
$70.78
Montana
$156,848
$75.41
Nebraska
$162,841
$78.29
Nevada
$189,434
$91.07
New Hampshire
$164,088
$78.89
New Jersey
$157,906
$75.92
New Mexico
$137,189
$65.96
New York
$174,327
$83.81
North Carolina
$134,573
$64.70
North Dakota
$180,299
$86.68
Ohio
$143,233
$68.86
Oklahoma
$153,828
$73.96
Oregon
$182,096
$87.55
Pennsylvania
$144,297
$69.37
Rhode Island
$185,435
$89.15
South Carolina
$160,215
$77.03
South Dakota
$170,905
$82.17
Tennessee
$155,513
$74.77
Texas
$143,183
$68.84
Utah
$141,218
$67.89
Vermont
$161,517
$77.65
Virginia
$166,782
$80.18
Washington
$178,344
$85.74
West Virginia
$147,568
$70.95
Wisconsin
$143,486
$68.98
Wyoming
$152,992
$73.55
Average Dentist Salaries By Specialty in 2022
Similarly to state discrepancies, dentist salaries vary significantly by specialty. For example, while public health dentists make an average $102,320 per year, periodontists make a whopping $374,400 per year.
Keep in mind that these numbers are simply averages — there are dental professionals who make significantly more and significantly less.
Whether a career in dentistry is worth it is ultimately up to you. However, being a dentist is both a high-paying and growing career — two factors many job seekers heavily consider.
In fact, the U.S. Bureau of Labor Statistics says that employment of dentists is expected to rise 8% between 2020 and 2030. This is on par with the average for all occupations.
Here’s a few other statistics to consider:
Only 29% of dentists plan to look for a new job this year.*
Only 18% of dentists work more than 40 hours per week.*
Nearly 22% of dentists work less than 21 hours per week.*
Why Dentists Should Consider Student Loan Refinancing
The average dental student takes on nearly $300,000 in dental school debt. Combine that with the average private student loan interest rate of around 7% and a 15-year repayment term, and you’re looking at monthly payments of around $2,696. By the end of the repayment term, you will have paid roughly $485,367 — nearly $200,000 more than what you initially borrowed.
With such a large balance, the amount owed will grow fairly quickly, making your interest rate that much more important. This is precisely why dentists should consider student loan refinancing. Refinancing can help lower that interest rate, saving you thousands over the life of your loan.
Borrowers who use Sparrow to refinance reduce their interest rate by 2.29 percentage points, on average. In this same scenario, a 2.29 percent interest rate reduction would save you $369 on your monthly payments and $66,451 over the life of the loan.
Note that this interest rate reduction is only the average. As a dentist, your salary makes you a more competitive candidate for refinancing as lenders will view you as financially able to pay off your debt. Thus, you may score an even greater interest rate reduction when you refinance your dental school debt with Sparrow.
What Dentists Should Look for in a Refinance Loan
When looking for a lender to refinance your dental school debt with, you should consider the following factors:
Interest rate
Borrowing limit
Loan terms
Interest Rate
The purpose of refinancing is to save money, which is primarily done through a lower interest rate. Before agreeing to a refinance loan, be sure to compare loan options to see what interest rates you qualify for.
To compare refinance loans with 15+ lenders in one application, complete the Sparrow application.
Borrowing Limit
Due to the amount of student loan debt you may hold as a dentist, you’ll need to find a lender with a higher borrowing limit. For example, some lenders may allow you to refinance up to $500,000 while others may only allow up to $100,000.
If you plan to refinance the entirety of what you owe, make sure the lender you decide to work with will allow you to refinance your whole outstanding balance.
Loan Terms
Oftentimes, refinancing will allow you to extend your loan term. Extending your loan term will often lead you to pay more over the life of your loan, however, it can lower your monthly payments.
If your goal with refinancing is to lower your monthly payment, look for a lender that allows for a longer repayment term than what you currently have.
Best Student Loan Refinancing Options for Dentists
The best refinance loan will ultimately be the one that provides you with the best interest rate and terms. However, the following are our top picks for refinance loans for dentists, in order of borrowing limit from highest to lowest.
SoFi is one of the largest student loan refinance companies in the industry. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit if you have an associate’s degree or higher, a high income, and a strong credit score.
Borrowing Limit: Up to your total outstanding balance
Earnest offers both private student loans and student loan refinancing. With competitive interest rates, customizable repayment plans, and forward-looking eligibility criteria, Earnest is a good fit if you don’t have a cosigner but have a strong credit score.
Brazos is a non-profit lender that offers private student loans and student loan refinancing for Texas residents. While Brazos student loan refinancing is only available to Texas residents, the non-profit lender offers competitive rates and flexible terms to those who qualify. It’s best if you are a Texas resident with at least a bachelor’s degree and have an established income and strong credit.
Note: You are not required to have graduated from a Texas school in order to qualify.
Borrowing Limit: $400,000
Minimum Credit Score: 720, or 690 with a qualified cosigner
College Ave offers both private student loans and student loan refinancing with competitive rates, flexible repayment terms, and strong customer service. College Ave’s student loan refinance offering is best if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
ISL Education Lending is a nonprofit student lender offering both private student loans and student loan refinancing. ISL Education Lending refinance loans are best if you want to work with a nonprofit lender, want competitive interest rates, or want to refinance if you did not finish your dental degree.
LendKey offers both private student loans and student loan refinancing. By connecting you with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey’s student loan refinance offering is best if you want to work with a credit union or community bank to access loan offers you otherwise might have overlooked.
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides both private student loans and student loan refinancing for Arkansas students and graduates.
While ASLA’s student loan refinancing is only available to Arkansas residents or students who attended a school in Arkansas, they do offer competitive interest rates and flexible terms to those who qualify. ASLA is best if you are an Arkansas resident or attended a school in Arkansas and want flexible repayment options.
INvestED offers private student loans, parent loans, and student loan refinancing for residents of Indiana and students who attended a school in Indiana. INvestED’s student loan refinance offering is best if you are a resident of Indiana or student who attended school in Indiana seeking competitive interest rates, a variety of repayment options, and a flexible repayment option.
Nelnet Bank offers both private student loans and student loan refinancing. Nelnet Bank’s student loan refinance offering is best if you are seeking competitive rates, a flexible forbearance policy, and the ability to refinance both private and/or federal student loans, including parent PLUS Loans.
Borrowing Limit: $225,000
Minimum Credit Score: 640
Final Thoughts from the Nest
As a dentist, it’s fairly common to wind up with $300,000 in student loan debt. While it may feel overwhelming, the average dentist salary is high, which can help you pay off your student debt more easily.
Finding a state and specialty that provides you with a solid salary is a good start. If you find that your loan debt is still overwhelming, consider student loan refinancing with Sparrow. With Sparrow, you can see what rates you qualify for with 15+ premier lenders ready to help you.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Each year, college-bound students anticipate receiving their college financial aid award letters. Oftentimes, financial aid becomes a make-it-or-break-it factor in pursuing a higher education.
If your financial aid award is too small, it could put attending that university out of the question. But what if you receive nofinancial aid at all?
Before you throw your college dreams out the window, let’s break this down. Here’s what you can do to pay for college with no financial aid.
Opening a financial aid award letter only to see a series of zeros is both disappointing and uncommon. In fact, the vast majority of students do receive at least some sort of financial aid, whether that be scholarships, grants, work-study, or loans.
Financial aid is calculated based on a variety of factors, however, it tends to be either need-based or merit-based. Need-based financial aid is given based on your financial need, or how much you or your family is expected to be able to contribute to your college education. Merit-based aid, on the other hand, is given based on achievements, such as academic or athletic excellence.
Why Didn’t I Get Financial Aid?
How your financial aid is calculated is frankly a complex process. So, in theory, there are a variety of reasons you didn’t qualify for financial aid.
That said, there are seven common things that often disqualify students from receiving financial aid.
#1: You Didn’t Submit Your FAFSA
The FAFSA, or Free Application for Federal Student Aid, must be filled out for you to be considered for federal financial aid. Federal financial aid includes all federally-funded aid programs, such as federal grants, work-study, and federal student loans.
The FAFSA opens each year on October 1st and closes on June 30th of the following year. You should complete the FAFSA the year before you plan to enroll in college. For example, if you plan to attend college for the 2023-2024 academic year, you should complete the FAFSA during the October 1st, 2022-June 30th, 2023 cycle.
If you did not complete the FAFSA, you will not be eligible for federal financial aid.
#2: You Submitted the FAFSA Late
Federal financial aid is awarded on a first-come, first-served basis.
The later you submit your application, the lower your chances of receiving financial aid. Because of this, we recommend submitting your FAFSA as close to the October 1st opening date as possible.
Likewise, the June 30th deadline for submitting the FAFSA is firm. If you submitted the FAFSA past the deadline, you will be ineligible for federal financial aid for that academic year. You must wait until the next application cycle to fill it out again.
If helpful, put the FAFSA opening date and submission deadline in your calendar for future academic years so you don’t forget.
#3: You’ve Reached Your Financial Aid Limit
Certain financial aid has limits. For example, some grant programs award recipients with $20,000 and allow them to use the funds as they see fit. So, if the recipient had already used the entire $20,000 of that award to fund their freshman year tuition, they will not receive any additional grant funding from that program in following years.
If you have already met the maximum award or borrowing limits for the financial aid you have access to, you will not see more financial aid in your aid package.
Some of the most common financial aid programs with limits are:
6 years of funding. Recipients are eligible to receive 600% of their yearly award (over the course of a 6-year period). If recipients use 150% of their total 600% in their freshman year, they will have a remaining 450% for the rest of their college career.
The total Cost of Attendance minus your Estimated Family Contribution (EFC).
Federal Undergraduate Unsubsidized Loans (Dependent Students)
• First Year: $5,500 ($3,500 subsidized, $2,000 unsubsidized) • Second Year: $6,500 ($4,500 subsidized, $2,000 unsubsidized) • Third Year and Beyond: $7,500 ($5,500 subsidized, $2,000 unsubsidized) • Total Limit Over the Course of Your Entire Education: $31,000 ($23,000 subsidized, $7,000 unsubsidized)
Federal Undergraduate Unsubsidized Loans (Independent Students)
• First Year: $9,500 ($3,500 subsidized, $6,000 unsubsidized) • Second Year: $10,500 ($4,500 subsidized, $6,000 unsubsidized) • Third Year and Beyond: $12,500 ($5,500 subsidized, $7,000 unsubsidized) • Total Limit Over the Course of Your Entire Education: $57,500 ($23,000 subsidized, $34,500 unsubsidized)
Graduate Federal Student Loans
$20,500 in unsubsidized loans with a lifetime limit of $138,500, which includes undergraduate federal student loans.
If you have already reached your maximum award or borrowing limit, you may not receive more financial aid.
#4: You are Defaulted on a Federal Student Loan
Your federal student loans are considered defaulted after you’ve missed your scheduled loan payments for more than 9 months, which is around 270 days.
If you are defaulted on a federal student loan, you are ineligible for federal student aid, regardless of whether you submitted the FAFSA.
If your student loans are in default, or you believe they may be in default, contact your federal student loan servicer as soon as possible to discuss options such as loan rehabilitation.
You will not be eligible for any federal financial aid until the defaulted loan is paid off.
#5: You Did Not Meet the Income Threshold for Need-Based Aid
Need-based financial aid requires you to meet a certain threshold of financial need to be eligible. Information such as your expected family contribution (EFC), your school year, and the cost of attendance at your school will determine your eligibility for need-based financial aid.
#6: You Did Not Meet the Eligibility Requirements for Merit-Based Aid
When determining your eligibility for merit-based aid, your academic standing may be considered. If you are not making Satisfactory Academic Progress (SAP), you will be ineligible for merit-based federal financial aid.
To make SAP, you must have at least a 2.0 GPA on a 4.0 scale (a C average) and pass enough classes to make progress toward earning a degree.
#7: You Are Not a U.S. Citizen
When it comes to federal financial aid, only U.S. citizens and permanent residents with a green card are eligible. If you are neither, you will not be eligible to receive federal financial aid.
6 Ways to Pay for College Without Financial Aid
If you fall into one of the above categories, and thus did not receive financial aid, there are a few things you can — and should — do to pay for college.
Here are the top six things you can do to pay for college with no financial aid:
Write an Appeal Letter
While it may sound intimidating, appealing your financial aid package should be your first step. Before you write an appeal letter, though, you should consider the following:
Has your or your family’s financial situation changed since you submitted the FAFSA due to unexpected or special circumstances? (ie. medical expenses)
Did you make an error on your FAFSA that you believe impacted your financial aid package?
Did you receive a better financial aid package from another school that you’d like another school to match?
If any of the above circumstances are applicable to you, it is worthwhile to appeal your financial aid award.
When writing your appeal letter, be mindful of what you say and how you say it. Remember, their initial assessment granted you $0 in financial aid. They will need to spend time reevaluating your financial aid package, so be understanding and respectful of their time.
Look for Merit-Based Scholarships
Merit-based scholarships should be your next stop in paying for college without financial aid. Scholarships, unlike student loans, do not have to be paid back. (Yup, free money.)
We recommend starting your search with scholarship search engines. These sites compile thousands, sometimes even hundreds of thousands, of scholarship opportunities, making it easy for you to apply to several in one place.
For example, if you received your financial aid package of $0 on May 1st, 2023, you still have until June 20th, 2023 to complete the FAFSA. While you may not receive any financial aid due to submitting so late in the cycle, it is worth a shot.
To complete the FAFSA, start by gathering any necessary documents such as:
Your social security number
Your parents’ social security numbers (if you are a dependent)
Your Alien Registration Number (if you are not a U.S. citizen)
Tax information, such as tax returns
Records of any untaxed income
Information on cash you may have
After you have this information, fill out the FAFSA, and submit it before June 30th.
Look for Jobs that Offer Tuition Assistance
If receiving other financial aid is not an option, pursuing employment at a company with tuition assistance is another solid option.
There are a variety of companies offering both part-time and full-time employment with incredible tuition reimbursement benefits.
For example:
Starbucks offers both full-time and part-time employees up to 100% tuition reimbursement for courses taken through Arizona State University’s online program.
Target offers employees up to 100% tuition reimbursement for undergraduate degrees.
Papa John’s offers employees at corporate-owned locations up to 100% tuition reimbursement for undergraduate and graduate degree programs done through Purdue University Global.
Consider Private Student Loan Options
If you are unable to secure other forms of financial aid, private student loans can be a viable option. As with any loan, however, you should always compare interest rates and terms so you can get the best student loan possible.
The following are our top picks for private student loans:
Arkansas Student Loan Authority – Best if you are located in Arkansas, have a qualified cosigner, and want competitive interest rates.
Ascent – Best if you don’t have a cosigner, are an international or DACA student, or have a low credit score.
Brazos – Best if you are a Texas resident, have strong credit, and want competitive interest rates.
College Ave – Best if you are seeking competitive interest rates and a more flexible repayment plan that matches your budget.
Earnest – Best if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options.
Funding U – Best if you are a high-achieving student with limited credit history and no access to a creditworthy cosigner.
INvestED – Best if you are a resident of or student in Indiana seeking competitive interest rates and a variety of repayment options.
LendKey – Best if you have strong credit and want generous cosigner release and forbearance policies.
MPOWER – Best if you are an international or DACA student, don’t have a credit history, or can’t access a qualified cosigner.
Nelnet Bank – Best if you are seeking competitive interest rates, a variety of repayment terms, and a flexible forbearance policy.
Prodigy Finance – Best if you are an international student who doesn’t have a credit history and can’t access a qualified cosigner.
Sallie Mae – Best if you are seeking a more flexible repayment plan and competitive interest rates.
SoFi – Best if you are seeking competitive interest rates and have a strong credit history or a creditworthy cosigner.
Rather than completing an individual application with each lender to see what you qualify for, consider using Sparrow. The Sparrow application allows you to submit one single application to see what rates you qualify for at 15+ student lenders. Using Sparrow is also free and won’t impact your credit score.
Consider Community College
If your top choice school is simply out of reach due to a lack of financial aid, it may be worthwhile to consider a less expensive school, or even a year or two at a local community college. Community college is often far cheaper than traditional 4-year institutions.
Final Thoughts from the Nest
If you didn’t receive any financial aid, don’t lose hope. There are a variety of things you can do to still pursue a higher education. Start with appealing your financial aid award, then look for other avenues for aid, such as scholarships and private student loans.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Navigating adult life is easier with a good credit score. This three-digit number affects nearly every facet of your financial life, from paying for college, to renting an apartment, to buying a car.
In this article, we’ll go over everything you need to know about credit, focusing on how your credit score impacts your ability to get a student loan.
What is a Credit Score?
A credit score is a number that represents an individual’s creditworthiness. In other words, it reflects the willingness of a lender to trust you to pay back your debts.
Credit scores are important because lenders use them to determine whether they’ll grant you credit and at what cost. The higher your credit score, the more a lender will consider you able and responsible enough to repay your debt.
Where Do Credit Scores Come From?
There are three main credit bureaus: Experian, Equifax, and TransUnion. Each of these credit bureaus obtain individual credit information through lenders. They then keep track of all the information and store it until requested to release it in the form of a credit report.
Some lenders don’t report information to all three credit bureaus. Thus, not all three credit bureaus will have all of your financial information. This means that your credit report from Experian may look different than your credit report from Equifax, which may look different than your credit report from TransUnion…(you get the idea).
Check-in: Credit bureaus essentially keep track of your financial information. Then, when requested, they provide this information to lenders and creditors, in the form of a credit report, so they can determine your credit score and decide whether to lend to you.
Each credit report includes information about your financial history. Lenders use this information to determine your credit score. Let’s break this down.
Lenders and creditors calculate individual credit scores through credit scoring models. A credit scoring model is a framework or equation used to calculate a credit score. There are two main credit scoring models: FICO and VantageScore. You can think of them as the Walmart and Target of the financial world – they’re similar, yet slightly different.
Let’s use an example to illustrate this concept.
If you asked 10 people to go bake a vanilla cake, they would all come up with a vanilla cake. However, each one would be slightly different. Everyone will have access to a different recipe and use slightly different ingredients to make their final product.
The same goes for lenders and creditors.
Each lender or creditor will use the information they have access to about your finances, along with the credit scoring model they prefer to use, to generate a credit score. Thus, while all lenders and creditors will generate the same final product (a credit score), it may vary based on which credit bureau they got your information from and which credit scoring model they used to calculate the score.
Currently, around 90 percent of top lenders use the FICO scoring model, while less than 10 percent use VantageScore. However, there are hundreds of credit scoring models lenders can choose from. So, you can theoretically have hundreds of credit scores.
This doesn’t mean you need to go calculate every single credit score you might have. It just makes understanding your credit score, how it’s calculated, and why it matters incredibly important.
Check-in: If this is still seeming a bit fuzzy, let’s try to put all the pieces together here. Credit bureaus collect and store information about your finances. The credit bureaus use this financial data to create a credit report that sums up your credit history. Then, when a lender wants to assess your creditworthiness, they pull information from these credit bureaus and the credit reports they generate to create an individual credit score. To create the score, they will use a credit scoring model. Different lenders will prefer different credit scoring models.
Why the Credit-Scoring Model Matters
If you checked your FICO credit score based on information from your Experian credit report, it will likely be different from your VantageScore credit score based on your Experian credit report. Even though both credit scoring models are factoring in information from the same credit report, they are two separate formulas and will thus generate different results.
When a lender wants to evaluate your creditworthiness, they will select the credit scoring model they want to use. You do not get to choose which model a lender uses. This is important to note because you may, for example, think you will qualify for a certain loan because you have a decent FICO score. Butif a lender uses the VantageScore model and your VantageScore is lower, they may deem you not creditworthy enough to borrow.
So, while the bureaus collect the information and create the credit reports, it’s the lenders that choose which model they’d like to use to assess your credit. This means that the lender who issues you your student loan will probably look at a different credit score than the lender who issues you your auto loan or your mortgage.
Check-in: Okay. Let’s put this all together again. Credit bureaus collect and store information about your finances. Then, when a lender wants to assess your creditworthiness, they pull information from these credit bureaus in the form of a credit report. Lenders use the information in your credit report in combination with the credit scoring model of their choice to generate a credit score. They then use that credit score to assess your creditworthiness.
How is My Credit Score Calculated?
Your credit score is calculated using many different pieces of credit data in your credit report. This data is grouped into five categories, each of which is weighted differently. FICO, the most common credit score provider, uses the following information on your credit report to determine your FICO score.
Payment History (35%): How you’ve repaid your credit in the past
Credit Utilization (30%): How much of your available credit you’ve used
Length of Credit History (15%): How long your credit accounts have been in use
New Credit (10%): The number of credit accounts you recently opened
Credit Mix (10%): The different types of credit accounts you have
Each of these is important for a different reason.
Payment History (35%)
What it means: Your payment history shows how you’ve repaid your credit in the past. It often includes your past payments on credit cards, installment loans, auto loans, student loans, home equity loans, and mortgage loans.
Why it matters: Payment history is the most important factor in a credit score. When a lender looks at your credit score to determine whether to lend you money, they are trying to answer the question “If I give this person money, will they pay me back on time?” This helps a lender figure out the amount of risk they will take on when extending credit. Having a few lines of credit and paying them back on time can help you look more reliable to a lender.
For example, if you had 8 accounts and you had a late payment on 6 of them, your payment history wouldn’t look so great to the lender. This makes this section of your credit score very important.
Credit Utilization(30%)
What it means: Your credit utilization shows how much of your available credit – the “credit limit” – you are using. The ratio is calculated by dividing the total revolving credit you are currently using by the total of all your revolving credit limits.
For example, if you have a credit limit of $3,000, and you’ve only used $1,000 of it, you’d have a 30% credit utilization ratio.
Why it matters: Your credit usage is the second most important factor in your credit score. Lenders and creditors like to see that you are responsibly able to use credit and pay it off regularly. Experts recommend using no more than 30% of your available credit.
Length of Credit History (15%)
What it means: Length of credit history is all about how long your credit accounts have been in use. This includes the age of your oldest credit account, the age of your newest credit account, and the average age of all your accounts.
Why it matters: Length of credit history is the third most important factor in your credit score. Lenders want to know you’ve been in the credit game for a while — the longer your credit history is, the better. Having a history of responsibly paying your credit accounts shows lenders that you are capable of doing the same for them.
If you are just getting started with building your credit, this may be the area that hurts your credit score the most. Only time will be able to boost this section as you prove over time that you’re able to pay off your credit.
New Credit (10%)
What it means: New credit refers to the number of credit accounts you recently opened. When you apply for new credit, lenders will conduct a hard inquiry. A hard inquiry is essentially a peek into your credit report to examine your financial history. A hard inquiry can lower your credit score, but typically only by 0-5 points.
If you choose to accept the offer and open a new line of credit, it could also lower the average age of your total accounts. This, in effect, lowers your length of credit history and subsequently, your credit score.
Why it matters: The number of credit accounts you’ve recently opened, as well as the number of hard inquiries lenders make when you apply for credit, accounts for 10% of your credit score. Too many accounts or inquiries can indicate increased risk and hurt your credit score.
Credit Mix (10%)
What it means: Credit mix refers to the different types of credit accounts you have, including revolving debt (such as credit cards) and installment loans (such as mortgages, home equity loans, auto loans, student loans, and personal loans). Credit scoring models consider the types of accounts and how many of each you have as an indication of how well you manage a wide range of credit products.
Why it matters: Lenders like to see a healthy credit mix that shows that you can successfully manage different types of credit. People with top credit scores often carry a diverse portfolio of credit accounts, which might include a car loan, credit card, student loan, mortgage, or other credit products.
For example, responsibly managing a credit card, student loans, and a mortgage may demonstrate a significant level of responsibility in the eyes of a lender. Thus, diversifying your credit accounts can help demonstrate greater creditworthiness. It’s important to note that there is a “limit” to this, so to speak. Having 30 retail credit accounts probably wouldn’t be a great idea.
What is a Good Credit Score?
Credit scores range from 300-850. Generally speaking, FICO credit scores are ranked as follows:
Below 630: Bad
Between 630 and 689: Fair
Between 690 and 719: Good
Above 720: Excellent
It’s important to note that each student loan lender is different, and therefore, there is no “magic number” that will guarantee you a lower interest rate or better terms. However, there is a general principle for credit scores: “the higher, the better.”
Your Credit Score’s Impact on Student Loans
You don’t need to have a credit history to secure a federal student loan, however, private lenders may use your credit score to determine whether or not you’re eligible and at what terms. Most private lenders will look for a credit score of 670 or higher on the FICO scale (the one discussed above).
Your credit score will impact your ability to take out a private student loan and may also impact the interest rate assigned to that loan. Of course, over time this impacts how much you obtain in student debt and how much you pay for your education in the long run.
If you have a low credit score (or none at all), you should consider applying with a cosigner, such as a parent or guardian, who can help you qualify for a student loan with better terms. If that isn’t an option for you, there are specific private lenders that are known for lending to people with bad credit.
Final Thoughts from the Nest
While not the end-all-be-all, your credit score is an important factor in determining your ability to get a student loan. Don’t worry if your credit score isn’t up to par though, there are ways you can improve it.
In today’s job market, employee retention is dwindling by the minute. In an effort to keep up, companies are offering more robust benefits, including substantial tuition assistance programs.
If your eyes are set on pursuing a higher education, consider working for one of the following companies to help reduce the amount you pay out-of-pocket or in student loans.
FedEx reimburses employees up to $1,500 per year for eligible education programs. The courses you take doneed to be related to advancing your career within the company.
Home Depot offers employees up to 50% of the cost of tuition, books, and class registration fees as well as 50% of mandatory fees. More specifically, salaried employees are eligible for up to$5,000 per year in tuition reimbursement, full-time employees are eligible for up to $3,000 per year, and part-time employees are eligible for up to $1,500 per year.
To qualify, employees must be pursuing an associate’s, bachelor’s, master’s, doctoral, or technical degree.
Both full-time and part-time Intuit employees are eligible for tuition reimbursement if taking courses related to careers within the company. Full-time Intuit employees are eligible for up to $5,000 per year in tuition reimbursement, while part-time employees are eligible for up to $2,500 per year.
KFC offers tuition reimbursement through their REACH Educational Grant Program. Managers are eligible for up to $3,000 in tuition reimbursement grants. First-time winners that are not managers are eligible for up to $2,000 in tuition reimbursement grants.
Kroger offers both full-time and part-time employees up to $3,500 per year, or up to $21,000 over the course of their employment with the company, in tuition reimbursement.
McDonald’s Archways to Opportunities program is more challenging to qualify for than others as only some franchise locations participate in the program. If your location does participate, you can be eligible for up to $3,000 per year in tuition reimbursement if you are a full-time restaurant manager. If you are a crew member, part-time manager, or part-time office staff member, you must be working at least 15 hours per week to receive the $2,500 per year tuition reimbursement benefits.
Publix offers up to $3,200 per year for college and university courses and up to $1,700 per year for other courses of study. However, there are a variety of eligibility criteria employees must meet, such as working with the company for at least 6 months and working an average of 10 hours per week.
Ticketmaster reimburses employees up to $5,000 for graduate courses, up to $3,000 for undergraduate courses, and up to $500 for non-accredited business-related courses.
Allstate employees that have been with the company for at least one year are eligible for up to 100% tuition reimbursement, with an annual limit of $5,250.
Both part-time and full-time employees at AT&T are eligible for up to $5,250 per year in tuition reimbursement, as long as they have worked at least 6 months with the company.
Best Buy offers employees up to $3,500 per year in tuition reimbursement for undergraduate courses and up to $5,250 per year for graduate-level courses.
Bank of America offers employees $7,500 per year for tuition expenses for job-related courses and certifications through their Tuition Assistance and Academic Support Program.
Blue Shield of California offers full-time employees up to $5,250 in tuition reimbursement per year. Part-time employees are eligible for up to $2,625 per year.
Carmax reimburses up to $5,250 per year in eligible tuition expenses for full-time employees and up to $2,500 per year for part-time employees. For a course to be eligible, it must be a GED, ESL, or literacy course going towards a degree-granting program.
While you can’t necessarily save 50% or more on tuition, GEICO does reimburse full-time employees up to $5,250 per year for undergraduate educational expenses. GEICO allows employees to use this money towards application fees, textbook costs, and course-related expenses.
Both full-time and part-time Marco’s Pizza employees are eligible for up to $5,250 per year in tuition reimbursement if they attend a program with the company’s partner school, Bellevue University.
Taco Bell reimburses up to $5,250 per year for employees pursuing college degrees, professional certificates, high school diplomas, and Master’s degrees.
Full-time T-Mobile employees are eligible for up to $5,250 per year in tuition reimbursement, while part-time employees are eligible for up to $2,500 per year. To qualify, employees have to work at T-Mobile for at least 90 days, and courses must be related to jobs within the company.
Amazon’s Career Choice program reimburses employees up to 95% of their tuition and fees for courses going towards a certificate or diploma in a related field of study.
Boeing offers up to $25,000 per calendar year in tuition reimbursement for eligible programs.
BP
BP reimburses up to 90% of employees’ eligible expenses for both traditional educational courses and vocational schools. The courses must be related to your role at BP and completed at an eligible institution.
Chevron’s tuition reimbursement program is a bit unclear, however, employees have reported on Glassdoor that the company offers up to 75% tuition reimbursement for programs related to career development within the company.
Chipotle covers 100% of tuition for specific degrees, high school diplomas, and college prep courses. If the program you’d like to pursue does not fall within the specified list of degrees, Chipotle also offers up to $5,250 per year in tuition assistance for other programs.
Deloitte reimburses the full tuition cost for employees pursuing a graduate school degree. To qualify, you must agree to work with Deloitte for at least two years after graduating school.
Discover offers all employees, regardless of how long they’ve been with the company, 100% tuition reimbursement for select bachelor’s degree programs. Employees who would like to pursue a degree outside of the eligible programs can still receive up to $5,250 per year for bachelor’s degree programs or up to $10,000 per year for graduate degree programs.
To add even more magic to working at the Most Magical Place on Earth, Disney offers both full-time and part-time employees 100% of tuition paid upfront if the degree is pursued through a Disney Aspire network school. The network schools cover a variety of courses at both undergraduate and graduate levels, and the courses do not need to relate to your role at Disney.
Full-time Fidelity employees who have worked within the company for at least 6 months are eligible for up to 90% tuition reimbursement, with a maximum of $10,000 per year. The courses must be within a work-related program.
Gap’s Tuition Reimbursement Program offers employees looking to advance their career-related skills up to 100% of tuition for up to two classes per term, 100% of up to two books per term, and any additional approved fees. This program includes employees of Gap’s sister companies, Old Navy and Banana Republic.
Genentech reimburses employees up to $10,000 per year. To qualify, employees must be attending an accredited college or university and taking courses for company-related positions.
Papa John’s Dough & Degrees program offers employees at corporate-owned locations up to 100% tuition reimbursement for undergraduate and graduate degree programs done online through Purdue University Global. Employees at franchise locations are ineligible for 100% tuition reimbursement, however, they can qualify for reduced tuition.
For eligible full-time and part-time employees, Starbucks will reimburse 100% of tuition for courses taken through Arizona State University’s online program. To qualify, employees must be pursuing a first-time bachelor’s degree and in one of the 100 eligible degree programs.
Full-time Verizon employees are eligible for up to a whopping $13,520 per year in college tuition reimbursement, and part-time employees are eligible for up to $8,000. To qualify, employees must attend Verizon’s partner school, Bellevue University.
Rather than offering employees a set amount, Chick-Fil-A partners with over 100 colleges and universities through Scholarship America and provides a different amount of tuition assistance based on the school.
Comcast reimburses up to 20% of tuition costs. To qualify, you must be afull-time employee who has been with the company for at least six months. You must also be pursuing one of the 50+ associate’s, bachelor’s, or master’s degree programs that Comcast’s partner school, the University of Arizona Global Campus, offers.
CVS’s tuition reimbursement program is unclear, however, some sources report that the company will reimburse up to 25% of tuition costs for job-related programs.
Pizza Hut employees are eligible for up to 51% tuition reimbursement if enrolled in an eligible program at the company’s partner school, Excelsior College.
Procter & Gamble offers full-time employees up to 80% tuition reimbursement for pre-approved college costs related to advancing their career within the company.
While not technically reimbursement, Walmart provides employees with a variety of course opportunities for certificate programs, career diplomas, and college degrees at just $1 per day.
Does Tuition Reimbursement Affect Your Financial Aid?
While tuition reimbursement funds are not considered taxable income, it could be considered gift aid when filling out the FAFSA. The more gift aid, or free money, you have, the less you may qualify for in other sources of financial aid. However, if your employer is offering you free money, we do recommend that you accept it regardless.
Final Thoughts from the Nest
Regardless of your desired career path, obtaining higher education can open the door to a wide variety of additional career opportunities. Whether you’re interested in a vocational course or a doctoral degree, there’s a company out there ready to offer you tuition reimbursement to pursue it. That said, if you’ve already graduated and need help paying off student debt, consider refinancing or looking for an employer with debt payoff benefits.
The idea of an employer giving you extra money to pay off your student loan debt may seem too good to be true. But in fact, around 17%1 of employers offer student debt assistance and another 31% plan to offer it in the future.
Regardless of how much you owe, an employer throwing extra cash towards your debt is quite a compelling employee benefit.
So, we’ve partnered with Dwindle Student Debt to help you find just that. Dwindle is focused on helping you find a job that helps you pay down your student debt or lower the cost of your education.
With the help of Dwindle’s robust job page, we’ve compiled the top 30 companies offering student loan repayment assistance to help get your job search started.
30 Companies Ready to Help Pay off Your Debt
#1: Aetna
Who they are: Aetna is a well-known, American healthcare company that sells health insurance to individuals, families, employers, and healthcare providers.
What they offer: In addition to a strong tuition reimbursement program, Aetna also helps employees during debt payoff by matching employees’ student loan payments.For full-time employees, Aetna will match up to $2,000 per year in student loan payments, for a lifetime maximum of $10,000. For part-time employees, Aetna will match up to $1,000 per year with a lifetime maximum of $5,000.
Who is eligible: To be eligible, employees must have earned a U.S.-based undergraduate or graduate college degree from an accredited program within 3 years of applying to the program.
#2: Abbott
Who they are: Abbott is an American medical device and healthcare company.
What they offer: Abbott typically requires all employees to contribute, at minimum, 2% to their 401(k). However, Abbott’s Freedom 2 Save program allows employees with student debt to divert the 2% minimum 401(k) contribution to their student loan payments, and in return, Abbott will contribute 5% to the employee’s 401(k). While Abbott’s contribution doesn’t go directly to the employee’s student debt, it allows employees to pay off their debt faster while keeping their 401(k) in check.
Who is eligible: Full-time Abbott employees are eligible.
#3: AlloSource
Who they are: AlloSource is a healthcare company with a mission to help patients heal through innovative cellular and allograft research.
What they offer: AlloSource partners with Tuition.io to contribute a percentage to the principal balance of the loan.
Who is eligible: To qualify, employees must have worked with AlloSource full-time for at least a year.
#4: Ally Financial
Who they are: Ally Financial is a leading digital financial services company offering a wide variety of education benefits for its 8,500+ employees.
What they offer: Ally offers employees $100 a month towards an eligible 529 College Savings Plan and $100 per month towards student loans, with a combined lifetime maximum of $10,000.
Who is eligible: All Ally employees are eligible.
#5: Andersen Global
Who they are: Andersen Global is a financial consulting company for both individuals and businesses.
What they offer: Andersen Global partners with Gradifi to provide employees up to $12,000 toward student loan repayment. The amount is contributed in monthly stipends of $100, followed by a $6,000 lump sum payment after five years.
Who is eligible: Employees must have been with the company at least one month and working at least 20 hours per week to be eligible.
#6: American Family Insurance
Who they are: American Family Insurance (AmFam) is a mutual insurance company offering personal and business insurance.
What they offer: AmFam offers $100 per month towards student loan repayment, with a lifetime maximum of $10,000.
Who is eligible: AmFam employees who have graduated with an associate’s degree or higher are eligible.
#7: Atticus
Who they are: Atticus is a Public Benefit Corporation with a mission to improve the legal system by offering online legal advice from experts.
What they offer: Atticus offers up to $1,200 per year in student loan repayment assistance.
Who is eligible: It appears as though all Atticus employees are eligible, however, there may be additional eligibility requirements.
#8: Carhartt
Who they are: Carhartt is a men’s and women’s apparel company.
What they offer: Carhartt partners with Tuition.io to provide employees with $50 per month towards student loan repayment, with a lifetime maximum of $10,000.
Who is eligible: It appears as though all Carhartt employees are eligible, however, there may be additional eligibility requirements.
#9: Carvana
Who they are: Carvana is an online used car retailer.
What they offer: Carvana partners with Gradifi to provide employees with $1,000 per year towards student loan repayment.
Who is eligible: It appears as though all Carvana employees are eligible, however, there may be additional eligibility requirements.
#10: Chegg
Who they are: Chegg is a well-known education technology company.
What they offer: Chegg offers employees up to $6,000 per year in student loan repayment assistance.
Who is eligible: All Chegg employees with student debt are eligible for their $1,000 per year student loan repayment assistance. Additionally, employees that have been with Chegg for at least two years are eligible for up to an additional $5,000 per year in student loan repayment assistance.
#11: Connelly Partners
Who they are: Connelly Partners is an advertising agency.
What they offer: Connelly Partners teamed up with Gradifi to provide employees with up to $100 per month toward their student loan payments. This benefit is in addition to Connelly Partners’ $1,000 signing bonus, which can be used toward student loans. Employees who reach a five-year anniversary with Connelly Partners will also receive another $1,000 cash bonus toward their student loans.
Who is eligible: All Connelly Partners employees are eligible for the $100 per month assistance and the $1,000 signing bonus. Employees must have been with the company for five years to qualify for the $1,000 cash bonus.
#12: Estée Lauder
Who they are: Estée Lauder is a well-known American manufacturer of makeup, skincare, fragrance, and hair products.
What they offer: Estée Lauder provides employees with $100 per month in student loan repayment assistance, with a lifetime maximum of $10,000.
Who is eligible: Employees of Estée Lauder, including its subsidiaries Clinique, MAC Cosmetics, and Origins, are eligible for student loan repayment assistance.
#13: Fidelity Investments
Who they are: Fidelity Investments is an American financial services corporation.
What they offer: Fidelity Investments offers employees student loan benefits through their Step Ahead Student Loan Assistance Program, which provides up to $2,000 per year in student loan repayment assistance, with a lifetime maximum of $10,000.
Who is eligible: Employees who have been with the company for at least six months are eligible.
#14: First Republic
Who they are: First Republic is a private bank and wealth management company.
What they offer: First Republic partners with Gradifi to offer their employees a tiered student loan repayment assistance program. Employees are initially eligible for $100 per month towards their student loans. This amount increases each month the employee utilizes the benefit, with a maximum of $200 per month. There is no lifetime maximum contribution.
Who is eligible: It appears as though all Carvana employees are eligible, however, there may be additional eligibility requirements.
#15: Google
Who they are: Do we need to explain who Google is?!
What they offer: Google offers their employees up to $2,500 in student loan repayment assistance per year.
Who is eligible: All Google employees are eligible.
#16: Hulu
Who they are: Hulu is a popular streaming service.
What they offer: Hulu offers employees $1,200 per year in student loan repayment assistance.
Who is eligible: All Google employees are eligible.
#17: Kronos
Who they are: Kronos is a software company catering to management and human resources fields.
What they offer: Kronos offers employees student loan repayment assistance, however, employees have to contact the benefits department to see how much they qualify for.
Who is eligible: It is unclear which Kronos employees are eligible.
#18: Live Nation
Who they are: Live Nation is an American concert promoter and venue operator company.
What they offer: Live Nation matches employee’s student loan payments up to $100 per month, with a lifetime maximum of $6,000.
Who is eligible: To qualify, employees must have been with the company for at least six months.
#19: Lockheed Martin
Who they are: Lockheed Martin is an American aerospace, arms, defense, information security, and technology company.
What they offer: Lockheed Martin offers new graduates student loan repayment assistance through their Invest in Me program. The program provides eligible employees with $150 per month for up to five years. While intended to be used for student loan repayment, the money can be used toward other expenses.
Who is eligible: To be eligible, employees must be a recent graduate, a full-time hire, and working in the Missiles and Fire Control department.
#20: New York Life
Who they are: New York Life is the third-largest life insurance company in the United States.
What they offer: New York Life offers all eligible employees up to $10,200 in student loan assistance over a five year period.
Who is eligible: To be eligible, employees must be non-officers with student loans working under the New York Life Insurance Company, NYL Investors, New York Life Investment Management, or Index IQ.
#21: Nvidia
Who they are: Nvidia is a technology company and global leader in artificial intelligence.
What they offer: Nvidia offers employees $500 per month toward student loans, with a lifetime maximum of $30,000.
Who is eligible: Both full- and part-time employees are eligible if they have worked with Nvidia for at least three months and work at least 20 hours per week.
#22: Parallon
Who they are: Parallon is a leader in healthcare and business operations services, providing hospitals and healthcare systems with tools to improve their business performance.
What they offer: Parallon offers employees $50-$100 per month in student loan repayment assistance. Parallon has not specified any lifetime maximums.
Who is eligible: Full-time Parallon employees are eligible for $100 per month, while part-time employees are eligible for $50 per month.
#23: Peloton
Who they are: Peloton is a well-known fitness technology company.
What they offer: Peloton offers employees $100 per month. The program does not appear to have a lifetime maximum.
Who is eligible: Peloton does not specify which employees are eligible.
#24: Penguin Random House
Who they are: Penguin Random House is an American book publisher and the largest general-interest paperback publisher in the entire world.
What they offer: Penguin Random House offers employees $100 per month in student loan repayment assistance, with a lifetime maximum of $9,000.
Who is eligible: Only full-time employees who have been with the company for at least one year are eligible.
#25: PricewaterhouseCoopers (PwC)
Who they are: PricewaterhouseCoopers (PwC) is a multinational network of firms bringing businesses assurance, tax, and consulting services.
What they offer: PwC offers employees up to $1,200 per year in student loan repayment assistance, with a $10,000 lifetime maximum.
Who is eligible: All PwC employees are eligible. There is no requirement to have worked with PwC for a specific length of time before being eligible.
#26: SoFi
Who they are: SoFi is an American personal finance company and online bank providing customers with a variety of financial services.
What they offer: SoFi offers employees up to $200 per month in student loan repayment assistance, with no lifetime maximum.
Who is eligible: All SoFi employees are eligible.
#27: Staples
Who they are: Staples is an American retail company specializing in office supplies.
What they offer: Staples offers employees $100 per month in student loan repayment assistance, for a maximum of 36 months.
Who is eligible: To be eligible, Staples employees must be deemed qualifying and high-potential by the company. It is unclear what makes an employee high-potential.
#28: Terminix
Who they are: Terminix is one of the largest pest control companies in the world.
What they offer: Terminix offers employees $50 per month in student loan repayment assistance.
Who is eligible: Both full-time and part-time employees may be eligible, however, Terminix does note that the program is only available to qualifying employees. It is unclear what makes a Terminix employee qualify.
#29: The U.S. Government
Who they are: Shall we explain this one?
What they offer: The U.S. federal government offers employees up to $60,000 in student loan repayment assistance, paid in $10,000 increments over the course of six years.
Who is eligible: U.S. government employees are eligible if they have federal student loans and agree to sign a contract agreeing to work for the government for at least three years. U.S. government employees will still qualify for federal loan forgiveness programs such as Public Service LoanForgiveness.
#30: Weedmaps
Who they are: Weedmaps is a California-based cannabis technology company.
What they offer: Weedmaps offers up to $1,000 a year in student loan repayment assistance.
Who is eligible: Weedmaps does note their student loan repayment assistance benefit on full-time roles. It is unclear whether part-time Weedmaps employees are eligible or what other criteria full-time employees have to meet to be eligible.
Why Do Companies Offer Debt Repayment Benefits?
While many employers offer student loan repayment benefits as a way to attract and retain talent, there are more widespread impacts such as improving company culture and employee happiness.
How to Find Employers That Will Pay Off Your Debt
While this list is a solid starting point, we recommend keeping up with Dwindle Student Debt’s growing job page. Dwindle Student Debt allows you to explore a list of companies with student loan repayment benefits, ensuring that you stay up-to-date on potential employment opportunities as more companies add student loan repayment benefits to their offers.
Final Thoughts from the Nest
Whether you’re just beginning the post-grad job search or you’re looking to change companies later in your career, finding a company that offers student loan repayment benefits is a solid choice. To explore additional opportunities with other top companies, check out Dwindle Student Debt.
Becoming a dentist has a variety of benefits, but getting there can be quite expensive. A 4-year dental school program could run you about $400,000 with all expenses included. That’s why it’s essential to understand how to best pay for dental school
The return on investment with a dental degree is promising, with the average dentist making around $155,000 per year. So, while expensive, pursuing a dental degree is worthwhile.Regardless of your career goals or projected outcomes, financing your dental degree can still be overwhelming. There are four main strategies you’ll want to know about when it comes to knowing how to pay for dental school.
#1: Scholarships & Grants
Regardless of what type of degree you’re paying for, scholarships and grants should always be your first priority. Scholarships and grants are a form of free money, meaning you aren’t responsible for paying them back.
Both scholarships and grants for dental school can come from a variety of sources and vary in amount.
Scholarships for Dental School
Dental school scholarships can come from internal or external sources. Internal scholarships are awarded by your dental program, while external scholarships are awarded by private, professional, or non-profit organizations. The amount you receive in a scholarship will depend on who is providing the scholarship.
For example, the ADEA Crest Oral-B Scholarship awards recipients a one-time stipend of $3,000, while the Chinese American Medical Society awards recipients a $5,000 stipend each year they are accepted.
The eligibility for scholarships will vary depending on the scholarship provider. In general, you must:
Be enrolled in an eligible program. Most scholarship programs require you to be enrolled in an accredited, four-year dental program. If you are unsure whether your program is eligible, check with the scholarship provider.
Demonstrate academic or professional achievement. Scholarship programs will typically require applicants to excel in a specific area, have a special interest, or belong to a specific group. For example, many scholarship programs provide awards to students of certain minority groups, students with a certain GPA, or students who demonstrate financial need. To be a competitive applicant for any scholarship, you should aim to have an array of academic and extracurricular experiences.
Have a solid GPA. While some dental scholarship programs will not require you to report your GPA, many will. A 3.0 GPA is typically the minimum to qualify, however, there are scholarships that award students with lower GPAs. To be a competitive applicant, you will want to aim for a GPA of 3.5 or higher.
Internal dental scholarships will typically appear on your financial aid package when you are accepted to a dental school. However, you should always check in with your school’s financial aid office to inquire about any additional scholarships you may be eligible for.
For external scholarships, you’ll want to focus your search on professional organizations and scholarship search engines. Organizations such as the American Dental Association provide an array of scholarships for dental students. Scholarship search engines such as Scholarships.com, Sallie Mae’s Scholarship Search Tool, and Bold.org are all great options for exploring thousands of dental scholarships in just a few clicks.
Can I Get a Full Ride Scholarship for Dental School?
Full ride scholarships do exist for dental school, however, they are typically significantly more competitive, and thus, harder to receive.
While you can rack up a significant amount in dental scholarships, it typically won’t be enough to cover your tuition entirely. On average, dental school tuition ranges from $53,000 to $70,000 per year, totaling to roughly $200,000 to $280,000 over the course of a standard four-year dental degree. While entirely possible, securing enough scholarship money to cover $200,000+ in tuition may prove to be challenging.
Grants for Dental School
Similar to scholarships, dental grants can come from a variety of sources, but they typically come from your state, your university, or professional organizations. Eligibility for grants is typically based on your financial need, often determined by the information submitted on your FAFSA application
State Grants
State grants are an incredibly underrated resource for free money. Nearly all 50 U.S. states offer grants to students in various programs. To check your eligibility for state grants, fill out the FAFSA, then check your state website. Many states will require you to have submitted the FAFSA to be eligible.
University Grants
Many dental programs offer grants for enrolled students. So, to see which university grants may be available to you, talk to your school’s financial aid office. There may be grant programs that require an additional application beyond the FAFSA.
Professional Organization Grants
Whether a professional organization offers a scholarship or a grant is truly a semantic matter. Some professional organizations will refer to the awards as scholarships, while others will refer to them as grants. So, in your search, be sure to search for both keywords so you don’t miss an opportunity for free money.
After pursuing all scholarship and grant options, you’ll want to look into service programs (if they interest you). A service program will provide you with financial aid in exchange for service work.
Most service programs will require you to commit to serving a specific community for a set amount of time, often providing dental care to people without access. For example, the National Health Service Corps Scholarship service program requires recipients to complete service work for 1-2 years to receive funding. The Health Professions Scholarship Program, on the other hand, covers all tuition and fees and provides a living stipend, but requires recipients to be serving in the military.
If completing a service program sounds interesting to you, it’s worth checking out and submitting applications where you see fit. Be aware, though, that if at any point you decide to withdraw from a service program, your financial aid from the program will be revoked.
#3: Federal Work-Study
Work-study is a federal aid program that provides part-time jobs to undergraduate and graduate students who demonstrate financial need. Federal work-study funds are not awarded upfront, but rather, given in exchange for worked hours throughout the duration of your program. Because of this, work-study is considered “earned money” and should be accepted after all free money options have been exhausted.
Federal work-study is available to dental students at schools that decide to participate. Due to the rigor of dental school, some schools may decide not to participate in the federal work-study program. If your school does not offer work-study, we recommend exploring part-time jobs that offer tuition assistance.
How Do You Get Work-Study for Dental School?
To be eligible for work-study, you must complete the FAFSA and demonstrate financial need. Then, if you receive work-study aid, you will see the aid offer in your financial aid package at each school you are accepted to.
Jobs within the work-study program must pay at least $7.25 per hour, per federal regulations. Although, if the state’s minimum wage is higher, schools must pay that minimum wage. According to a 2020 report by Sallie Mae, the average work-study award was around $1,847 for students with an eligible job.
#4: Student Loans
After pursuing all free money and earned money options, you should consider taking out a student loan. Student loans, regardless of type, are a form of borrowed money. You will be responsible for paying the money back over time, typically with interest. This means that you will likely pay more than what you initially borrowed by the time you pay off your loan(s) completely.
When figuring out how to pay for dental school through a student loan, you will have two main options: federal and private loans.
As a dental student, you will be eligible for two types of federal student loans: Direct Unsubsidized Loans and Direct PLUS Loans. Unlike in undergrad, you are ineligible for Direct Subsidized Loans as a dental student.
Federal Loan Borrowing Limits for Dental School
Direct Unsubsidized Loans have a maximum borrowing limit of $20,500 per year, with a lifetime limit of $138,500. Direct PLUS Loans, however, have a more flexible borrowing limit, allowing you to borrow up to the cost of attendance minus other aid.
How to Get Federal Loans to pay for Dental School
To borrow Direct Unsubsidized or Direct PLUS Loans, you must complete the FAFSA and be considered eligible. You may only be eligible for a certain amount of each depending on your level of financial need or overall borrower profile.
You will not need a cosigner for Direct Unsubsidized Loans, however, you may need an endorser for Direct PLUS Loans depending on your credit history.
Private student loans are provided by private entities such as financial institutions and banks. Each private lender will have their own unique eligibility requirements, interest rates, and borrowing limits.
In general, to secure a private student loan to pay for dental school, you must:
Be a U.S. citizen, permanent resident, or eligible noncitizen
Have a solid credit score (or a cosigner with a solid credit score)
Be enrolled in an eligible dental program
Have a debt-to-income ratio of 65% or less
Not have declared bankruptcy in the last 7 years
Private Loan Borrowing Limits for Dental School
Most private lenders will allow you to borrow anywhere from $5,000 to the total cost of attendance at your dental program. So, if your program costs $250,000 total, private loans will likely cover the entire cost. Some lenders do have minimum borrowing requirements, typically $5,000 or $10,000. If you plan to borrow less than $5,000 for dental school, you will need to find a lender with a more flexible borrowing minimum.
Best Student Loans for Dental School
The best private graduate student loan will ultimately be the one that works best for you. Rather than searching for lenders one-by-one, we recommend starting the process with an automated student loan search tool. With the free Sparrow application, you can see the rates and terms you’d qualify for with 17+ premier lenders.
ASLA is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA is a great option if you are from or studying in Arkansas.
Ascent is an online lender that offers three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection if you don’t have a cosigner available, are an international or DACA student, or have a lower credit score.
Brazos is a non-profit lender offering educational funding to Texas residents. They are a great option if you live in Texas, have strong credit, and want competitive interest rates.
College Ave’s student loan offers educational funding for undergraduate, graduate, professional, and career school students, and parents of students. It’s a great option if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest’s student loans provide funding that’s available to undergraduate, graduate, and professional students. They’re a great option if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. It’s best if you have strong credit and want generous cosigner release and forbearance policies.
MPOWER is an online lender that offers educational funding to international, domestic, and DACA students. They offer non-cosigned undergraduate and graduate student loans. It is best if you are an international or DACA student who doesn’t have a credit history and can’t access a qualified cosigner.
Prodigy Finance is an online lender that provides funding to international students. They offer non-cosigned graduate student loans. They’re a good option if you are an international student who doesn’t have a credit history and can’t access a qualified cosigner.
Sallie Mae offers cosigned and non-cosigned undergraduate, graduate, and career training student loans. They’re a good option if you’re seeking competitive interest rates and have a creditworthy cosigner.
SoFi offers educational funding to undergraduate, graduate, law, and MBA students, and parents of students. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit if you have a strong credit score or a creditworthy cosigner.
What is the Interest Rate on Dental School Loans?
The interest rate you receive on dental school loans depends largely on whether the loan is federal or private. Federal loans have fixed interest rates that are the same across all borrowers. As of May 2022, the interest rate on Direct Unsubsidized Loans is 5.28%, and the interest rate on Direct PLUS Loans is 6.28%.
Private student loans will have either a fixed or variable interest rate. Because each lender is its own unique entity, interest rates will vary between them. Sparrow partners with 15+ lenders, with interest rates ranging from 0.94% to 14.52%. To check your eligibility across lenders and see what interest rates you would qualify for, complete the Sparrow application.
Final Thoughts from the Nest
Being a dentist can be an incredibly lucrative career. Getting there, however, can be an expensive journey. Understanding how to pay for dental school is a crucial first step in setting yourself up for a successful dental career.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
According to the Law School Admission Council, a law degree can cost upwards of $150,000. While there are more affordable law programs, it isn’t uncommon for law school graduates to end up in a fair amount of student debt. If you’re headed to law school any time soon, the reality of how much it costs may be setting in…hard.
Before you let this number consume your mind, know that there are a variety of ways to pay for law school. Here’s how you can do it.
#1: Scholarships
Scholarships are a form of free money because they don’t need to be paid back. So, the more scholarships you can rack up, the better.
Where Can I Find Scholarships for Law School?
Law school scholarships can come from various sources such as professional organizations, your university, the Law School Admission Council, and search engines.
Professional Organizations
Professional organizations are typically focused on furthering the development of individuals within their industry. So, many professional organizations offer scholarships to students pursuing a degree in their field. Organizations such as the American Bar Association and the National Bar Association both offer compelling scholarships options for law school students.
Your University
Universities also tend to offer a hefty amount of scholarship money. While most scholarships are merit-based, some university scholarships may require you to meet a certain level of financial need. Sometimes, your university will automatically award you a scholarship upon acceptance. Other times, you may need to reach out to your school’s financial aid office to see what scholarships are available to you.
The Law School Admission Council
The Law School Admission Council (LSAC) website has a frequently-updated list of reputable law school scholarships, with many designed specifically for marginalized students. With over twenty scholarships on the list, LSAC is a great source for trustworthy scholarship programs.
Search Engines
Scholarship search engines will allow you to refine your scholarship search a bit more than the other options. Sites like Sallie Mae’s Scholarship Search Tool and Bold.org’s Scholarship Search Engine allow you to filter your search based on a variety of factors such as your year in school, your interests, your LSAT score, and more. This allows you to find scholarships that match your unique qualifications, which increases your chances of winning the scholarship once you apply.
What LSAT Score Do I Need to Get a Scholarship?
Generally speaking, you’ll need an LSAT score of 165 or higher to be a competitive applicant for most law scholarships. That said, there are a variety of law scholarships catering to applicants with lower LSAT scores.
#2: Grants
Grants are another form of free money, so you’ll want to maximize how much you can receive in these, too. That said, grants are almost always need-based, so they won’t be accessible to every law school student.
If you do demonstrate financial need, there are a few main places you’ll want to look for grants.
University Grants
University grants are similar in nature to university scholarships, except they’re typically based on financial need rather than merit. If you receive a grant from your university, you’ll usually see it on your financial aid package. That said, your university may have grant programs that require a separate application. Reach out to your school’s financial aid office to inquire about any grant programs they may offer.
Private Grants
Private grants are offered by private institutions such as nonprofit organizations, professional organizations, and businesses. To secure a private grant for law school, you will typically need to submit an application with each individual organization that may require your transcript, an essay, and your FAFSA application. Because each private organization is its own unique entity, they may have different eligibility or application requirements.
The Law School Admission Council, for example, offers a variety of private grants such as pipeline grants, grants for underrepresented groups, and outreach grants.
Can Pell Grants be Used for Law School?
Unfortunately, Pell Grants cannot be used for law school. The Pell Grant is an award given to undergraduate students.
#3: Work-Study
Work-study is a form of need-based financial aid that is considered earned money. While you may be awarded a specific amount in work-study, you’ll need to complete a work-study job to receive that money.
Due to the caliber of law school, many universities do not participate in the work-study program or limit the number of work-study hours a first-year student can complete. For second- and third-year law students, universities typically limit work-study employment to 20 hours per week.
Because work-study requires you to complete working hours to receive it, you won’t be able to use work-study funds to cover tuition expenses up front. However, a work-study role can help you cover living expenses while in school.
If you’re attending law school part-time while working, always check with your employer to see if they offer tuition assistance programs to help fund your law school education. If not, it may be worthwhile to explore other part-time employment opportunities that offer tuition assistance or programs to cover education expenses.
#4: Loans
After pursuing all free money and earned money options, you may need to explore borrowed money options to cover that last bit of tuition. In general, law school loans come in two forms: federal and private.
Federal Student Loans
To be eligible for federal student loans, you will need to submit the Free Application for Federal Student Aid (FAFSA). As a law school student, you are eligible for two types of federal loans: Direct Unsubsidized and PLUS Loans.
With Direct Unsubsidized Loans, you are eligible to borrow up to $20,500 per academic year. There is a lifetime borrowing limit of $138,500.
With Direct PLUS Loans, you are eligible to borrow up to the cost of attendance minus other aid you’ve received. There is no lifetime limit for Direct PLUS Loans. You will, however, need to pass an adverse credit check to be able to borrow Direct PLUS Loans.
Private Student Loans
To borrow a private student loan, you will need to submit an application with the lender of your choice. To see what rates you would qualify for with several lenders at once, complete the Sparrow application.
How Much Can I Borrow in Law School Loans?
The amount you can borrow in private student loans will depend on the individual lender’s borrowing limits. Annually, most private lenders will allow you to borrow up to the cost of attendance at your law school minus other aid you’ve received.
Some lenders will have lifetime borrowing limits, which limit how much you can borrow cumulatively. For example, some lenders have a lifetime borrowing limit of $500,000. Note that this limit may include undergraduate loans as well. So, if you previously borrowed a loan to fund your undergraduate academic career, that loan amount may count towards your overall borrowing limit if you plan to use the same lender for law school loans.
What Do I Need to Qualify for a Private Student Loan for Law School?
Each private lender will have its own unique set of borrower eligibility criteria. In general, you’ll need to:
Be a U.S. citizen, permanent resident, or eligible non-citizen
Be enrolled in an eligible program at least half-time
Have a solid credit score, or a cosigner with a solid credit score
Have a steady income, or a cosigner with a steady income
What Can I Use Law School Loans For?
Both federal and private student loans will cover traditional law school expenses such as tuition, room and board, and fees. Private student loans, however, can cover a wider array of expenses including the bar exam. Some private lenders offer a specific bar exam loan designed to cover all bar exam expenses, from the actual exam cost to living expenses during your exam prep.
Best Student Loans for Law School
While there are a variety of lenders ready to help you cover the cost of law school, the following are our top picks.
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA is a great option for law students either from Arkansas or pursuing a degree in Arkansas.
Ascent is an online lender that offers educational funding for students. They offer three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection for law students who do not have a cosigner available, are international or DACA students, or have lower credit scores.
Brazos is a non-profit lender offering educational funding through private student loans available only to Texas Residents. They offer a wide range of loan options, covering undergraduate, graduate, MBA, law, medical, dental, veterinary, and doctoral degree programs. Brazos is a great option if you live in Texas, have strong credit, and want competitive interest rates.
College Ave Student Loans offers educational funding for undergraduate, graduate, professional, and career school students, and parents of students. It’s a great option if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest’s student loans provide funding to undergraduate, graduate, and professional students. They’re a great option if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
LendKey is an institution that offers educational funding to undergraduate and graduate students. By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. It’s best for students with strong credit who want generous cosigner release and forbearance policies.
MPOWER is an online lender that offers educational funding to international, domestic, and DACA students. They offer non-cosigned undergraduate and graduate student loans. It is best for international students and DACA students who don’t have a credit history and can’t access a qualified cosigner.
Prodigy Finance is an online lender that provides funding to international students. They offer non-cosigned graduate student loans. They’re a good option for international students who don’t have a credit history and can’t access a qualified cosigner.
Sallie Mae is an online lender that provides educational funding to students. They offer cosigned and non-cosigned undergraduate, graduate, and career training student loans. They’re a good option for students seeking competitive interest rates with a creditworthy cosigner.
SoFi offers educational funding to undergraduate, graduate, law, and MBA students, and parents of students. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit for borrowers with a strong credit score or a creditworthy cosigner.
Final Thoughts from the Nest
Borrowing money to pay for law school is incredibly common. In fact, the vast majority of attorneys take on student debt to pay for their J.D. So while financing such an expensive degree may feel overwhelming, know that you’re not alone.
Begin the process by exploring scholarship and grant options, see if you qualify for work-study, then dive into the loan process as your last step.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
If you have a stable income and a solid credit score,student loan refinancing can save you thousands over the life of your loan. But if you’re planning to refinance federal student loans, know that it does come with some sacrifices. Let’s take a look at the pros and cons of refinancing federal student loans.
Pros of Refinancing Federal Student Loans
Lower Interest Rate: Refinancing can allow you to secure a lower interest rate, which can save you thousands of dollars throughout the loan repayment period. For example, if you had a $30,000 loan with an 8% interest rate, refinancing to a 5% interest rate could save you over $5,000. As of today, some federal loans have interest rates as high as 6.28%. If you have access to a cosigner or have excellent credit, you may be able to score a lower interest rate with a private lender.
Option to Consolidate: Refinancing gives you the opportunity to combine multiple student loans into one, simplifying your monthly payments. There are two options for consolidating federal student loans: federal Direct Consolidation Loan or private student loan refinance and consolidation.
Longer Repayment Term & Smaller Monthly Payments: Refinancing to a loan with a longer repayment period can make your monthly payments more manageable. For instance, switching from a 10-year plan to a 15-year plan can reduce your monthly payment amount.
Cons of Refinancing Federal Student Loans
Giving up Benefits of Federal Loans: If you refinance federal student loans with a private loan, you will lose access to federal loan benefits. These lost benefits include potential loan forgiveness, forbearance, and flexible repayment options.
Restarting Loan Payments: If you refinance federal student loans during the forbearance period (until June 30, 2023), you will have to start making payments again.
Considerations for Refinancing
Refinancing during forbearance: It’s possible to refinance during forbearance. However, we recommend waiting until the forbearance period ends. In doing so, you can avoid accruing interest and starting payments prematurely.
Will Biden Extend the Student Loan Forbearance? While President Biden has extended federal student loan forbearance in the past, there’s no guarantee it will happen again. We recommend waiting until the forbearance is completely over (June 30, 2023) before refinancing. Doing so minimizes the risk of missing out on an extension.
Best Student Loan Refinance Lenders
If you decide to refinance your federal student loans, there are a variety of lenders ready to help you through the process. The following are the best lenders to refinance your student loan.
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Refinancing your student loans can save you quite a bit over the life of your loan. But if you have federal student loans, you may want to hold off to maintain your federal loan benefits.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
The average graduate student borrower leaves school with $71,000 in student debt. This is on top of undergraduate student loans, bringing the average debt total for graduate students to $82,800.
While an exciting new chapter of your life, financing your graduate education may feel overwhelming. Before selecting a loan to pay for graduate school, it’s important to understand what your options are.
Federal and Private Loan Options
Federal Loan Options for Graduate School
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to eligible undergraduate, graduate, and professional students. Eligibility is not based on financial need.
How much can you borrow in Direct Unsubsidized Loans?
Graduate students can borrow up to $20,500 annually in Direct Unsubsidized Loans. There is a lifetime limit of $138,500.
Direct PLUS Loans
Direct PLUS Loans are available to eligible graduate and professional students as well as parents of dependent undergraduate students. Eligibility is not based on financial need, however, a credit check is required. If you have adverse credit history, you will need to meet additional requirements to qualify.
How much can you borrow in Direct PLUS Loans?
In Direct PLUS Loans, graduate students can borrow up to the cost of attendance minus any financial aid already received.
Private Loan Options for Graduate School
There are a variety of private lenders, such as banks and financial institutions, that work with graduate students. Each individual lender will have its own unique eligibility requirements and borrowing limits. You can check your eligibility across 15+ lenders in one application using Sparrow.
What Makes A Graduate School Student Loan Good?
When borrowing a graduate school student loan, you should review a variety of factors to ensure it’s a good fit for you.
Cosigner vs No Cosigner
A cosigner is an individual who signs onto a loan alongside you. By signing onto the loan, the cosigner takes full responsibility for the loan should you fail to pay it back. Having a creditworthy cosigner can help you secure a lower interest rate and better terms.
Most graduate school student lenders will offer both cosigned and non-cosigned loan options. If you are searching for a student loan on your own, a non-cosigned loan option may be a good fit for you. However, if you do have access to a creditworthy cosigner, having them sign onto the loan may help you score better terms.
A creditworthy cosigner is someone who:
Has a stable income. If you are unable to make payments on your loan for any reason, your cosigner will be responsible for doing so. Make sure that your cosigner is in a position to make those payments if necessary.
Has little to no debt themselves. Again, if you are unable to make payments, you want to be sure your cosigner is in a financial position to make them. Balancing multiple debt payments could make it more difficult for the cosigner to manage yours.
Has a high credit score. A cosigner can help you secure a lower interest rate on your loan if they have a high credit score.
Has a solid debt repayment history. When you add a cosigner to your loan, the lender will evaluate their financial history. Having a solid debt repayment history shows the lender that the cosigner is responsible, and therefore, scores you a lower interest rate.
Minimum Income Requirements
If you are pursuing a graduate education immediately after your undergraduate education, you may not have a full-time income just yet. Many private student lenders require a minimum income to borrow. So, you’ll either need to meet that minimum income requirement or have a creditworthy cosigner who does.
There are also lenders that offer non-cosigned loan options with no minimum income requirement. Be sure to evaluate your options and select the loan that best aligns with your borrower profile.
Interest Rate
Each student loan will have its own unique interest rate and terms. If borrowing a loan with a cosigner, your interest rate will likely be lower. If borrowing a loan without a cosigner, your interest rate will likely be higher. Compare interest rates carefully to select the loan that is best for you.
Repayment Options
Each individual lender will offer a unique set of repayment options. While some lenders will allow you to defer repayment while in school, others will require immediate repayment. For example, MPOWER borrowers are required to make interest-only payments starting 45 days after loan funds have been disbursed. On the other hand, lenders such as SoFi and Sallie Mae offer several repayment options including deferred repayment.
Be realistic about which repayment options would work best for you. Always review your options carefully before selecting a loan.
Our Picks for Graduate School Student Loans
The best student loan will always be the one that works best for you. However, the following are our top picks for graduate school student loans.
The Arkansas Student Loan Authority (ASLA) is an Arkansas state entity that provides educational funding for all Arkansas students who wish to attend higher education institutions. ASLA is a great option for Arkansas students.
Ascent is an online lender that offers three types of student loans: a traditional cosigned loan, a non-cosigned credit-based loan, and a non-cosigned outcomes-based loan. Collectively, the three options provide a great selection for those who do not have a cosigner available, are international or DACA students, or have lower credit scores.
Brazos is a non-profit lender offering private student loans to Texas Residents. They offer a wide range of loan options, covering undergraduate, graduate, MBA, law, medical, dental, veterinary, and doctoral degree programs. Brazos is a great option if you live in Texas, have strong credit, and want competitive interest rates.
College Ave’s student loan offering is available for undergraduate, graduate, professional, and career school students, as well as parents of students. It’s best if you are seeking a more flexible repayment term that allows you to find a loan that matches your budget.
Earnest’s student loans are available to undergraduate, graduate, and professional students. It is best if you are seeking competitive interest rates, unique borrower perks, and flexible repayment options that allow you to find a loan that matches your budget.
By connecting borrowers with a network of 100+ lesser-known credit unions and community banks, LendKey allows you to work with smaller lenders with low rates and good customer service, rather than traditional lending institutions. LendKey’s student loan offering is available to undergraduate and graduate students. It’s best if you have strong credit and want generous cosigner release and forbearance policies.
MPOWER is an online lender that offers non-cosigned undergraduate and graduate student loans to international, domestic, and DACA students. It is best for international students and DACA students who don’t have a credit history and can’t access a qualified cosigner.
Prodigy Finance is an online lender that offers non-cosigned graduate student loans to international students. It is best for international students who don’t have a credit history and can’t access a qualified cosigner.
Sallie Mae is an online lender that offers cosigned and non-cosigned undergraduate, graduate, and career training student loans. It is best for students seeking competitive interest rates with a creditworthy cosigner.
SoFi is a strong option for undergraduate, graduate, law, and MBA students, as well as parents looking to fund their child’s education. With competitive interest rates, a diverse set of repayment options, and exclusive member benefits, SoFi is a good fit for borrowers with a strong credit score or a creditworthy cosigner.
How to Apply for a Graduate School Student Loan
To apply for a graduate school student loan:
Check your eligibility. Sparrow allows borrowers to check their eligibility with 15+ lenders in one free application.
Compare loan options. After seeing which lenders you qualify with, we’ll show you your loan options side-by-side. You can evaluate the loan options to see which one you’d like to pursue.
Wait to hear back. After selecting the lender you’d like to pursue, you can submit a formal loan application with them. It can take a few days to a few weeks to hear back from the lender about whether you’ve been approved.
Ensure the funds were disbursed. After your school certifies the loan, the lender will let you know. Then, the money will be sent to your school. Always follow up with your school to confirm that the funds were properly disbursed.
Final Thoughts from the Nest
Going to graduate school is an exciting new chapter. While funding that education can be overwhelming, we’ve got your back.
The most important thing to remember: Always evaluate your loan options carefully. Be sure that the loan you select feels right. If it doesn’t, keep browsing until you find one that does.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
When paying for college, there are two main types of student loans you will find: federal and private. Within these categories, there are several kinds of loans, each designed to cover a different academic program.
Before taking out a student loan, it’s important to understand the broader landscape of your loan options. That way, you can select the loan option that best fits the degree you are pursuing.
The federal government issues federal student loans. Each year, U.S. citizens pay federal taxes, and a portion of these tax dollars are allocated to providing federal student aid programs. Private student loans are issued by private entities such as banks and financial institutions.
Who is eligible for student loans?
To be eligible for federal student loans, you must:
Demonstrate financial need
Be a U.S. citizen or eligible noncitizen
Have a valid Social Security Number
Be enrolled or accepted for enrollment in an eligible degree or certificate program
Be enrolled at least half-time to be eligible for Direct Loan Program funds
Maintain satisfactory academic progress in college or career school
Show you’re qualified to obtain a college or career school education
Whether you are eligible for a private student loan will depend on the lender’s eligibility criteria. Each individual lender will have its own eligibility requirements.
How much can you get in student loans?
The amount you can borrow in both federal and private student loans depends on a variety of factors such as:
The type of loan
Your year in school
Your school’s cost of attendance
Types of Federal Student Loans
Federal student loans come in a variety of forms depending on your year in school and your financial need.
Direct Subsidized Loans
Direct Subsidized Loans are available to undergraduate students who demonstrate financial need. While in school, the Department of Education pays the interest on Direct Subsidized Loans. So, the amount you receive in a Direct Subsidized Loan will be exactly the same the day you graduate — no interest will have accrued in the meantime.
Who is eligible for Direct Subsidized Loans?
Direct Subsidized Loans are available to undergraduate students who demonstrate financial need. Direct Subsidized Loans will cover up to 150% of your program length. So, if you are pursuing a traditional 4-year program, you can only receive Direct Subsidized Loans for 6 years (4*150%).
How much can you get in Direct Subsidized Loans?
Your university will ultimately determine your financial need, which in turn dictates how much you are eligible to borrow in Direct Subsidized Loans. For example, if your school’s cost of attendance was $20,000, and you received $15,000 in scholarships, your financial need would be $5,000. You would be eligible for up to $5,000 in Direct Subsidized Loans.
There are, however, limits to how much you can borrow based on your year in school.
Undergraduate Year 1 Annual Limit: $3,500
Undergraduate Year 2 Annual Limit: $4,500
Undergraduate Year 3 Annual Limit: $5,500
Lifetime Subsidized Loan Maximum: $23,000
So, even if your financial need was $5,000, but you are in the first year of your undergraduate education, you would only be able to receive up to $3,500 in Direct Subsidized Loans.
Direct Unsubsidized Loans
Direct Unsubsidized Loans are available to undergraduate and graduate students, regardless of financial need. Unlike Direct Subsidized Loans, the Department of Education does not pay the interest on Direct Unsubsidized Loans while you are in school. Interest will begin to accrue after the loan is disbursed.
Who is eligible for Direct Unsubsidized Loans?
Direct Unsubsidized Loans are available to both undergraduate and graduate students. You do not need to demonstrate financial need to receive a Direct Unsubsidized Loan.
How much can you get in Direct Unsubsidized Loans?
Individual universities will determine how much you can borrow in Direct Unsubsidized Loans based on your cost of attendance, any aid you’ve already received, and your dependency status.
To calculate your maximum borrowing eligibility for Direct Unsubsidized Loans, your university will first take into account any Direct Subsidized Loans you’ve already been offered. Then, the university will evaluate your dependency status and determine your eligibility with these factors in mind.
Year in School
Dependent Status Students
Independent Status Students
Undergrad Year 1 Annual Limit
$5,500
$9,500
Undergrad Year 2 Annual Limit
$6,500
$10,500
Undergrad Year 3 Annual Limit
$7,500
$12,500
Graduate/Professional Degree Annual limit
N/A
$20,500
Subsidized
$31,000
$57,500 for undergrads
$138,500 for graduate/professional students
Let’s use an example to illustrate this.
Brandon, a 3rd year undergraduate student, filed as a dependent. ($7,500 annual limit)
Brandon received $2,000 in Direct Subsidized Loans. (minus $2,000)
Brandon is eligible for up to $5,500 in Direct Unsubsidized Loans. ($7,500 – $2,000 = $5,500)
$7,500 (Brandon’s overall Direct Unsubsidized Loan eligibility) – $2,000 (What Brandon already received in Direct Subsidized Loans) = $5,500 (The maximum amount Brandon is eligible to borrow in Direct Unsubsidized Loans).
Note: This does not guarantee that Brandon will receive $5,500 in Direct Unsubsidized Loans. This is simply the maximum amount Brandon is eligible to receive.
PLUS Loans
PLUS loans come in two forms: Grad PLUS and Parent PLUS. Grad PLUS loans are available to students pursuing graduate or professional degrees. Parent PLUS loans are available to parents of dependent undergraduate students.
Who is eligible for PLUS loans?
To be eligible for a Grad PLUS loan, you must:
Be enrolled at least half-time in an eligible graduate or professional school
Pass a credit check
Meet the same eligibility requirements needed for federal student aid
To be eligible for Parent PLUS loans, you must:
Be the biological or adoptive parent of a student enrolled in school at least half-time
Be a citizen or eligible non-citizen
Pass a credit check
Meet the general eligibility requirements for federal student aid
How much can you get in PLUS loans?
PLUS loans can cover the entire cost of education minus any other financial aid you’ve already received.
For example, if your cost of attendance was $50,000, and you previously received $20,000 in additional aid, you would be eligible to borrow up to $30,000 in a PLUS loan.
This is true for both Grad PLUS and Parent PLUS loans.
Direct Consolidation Loans
A Direct Consolidation loan is available to you after you’ve graduated, left school, or dropped below half-time enrollment. A Direct Consolidation loan allows you to combine multiple federal student loans into one loan. This can simplify your payments, but there are certainly various pros and cons to weigh.
Who is eligible for a Direct Consolidation loan?
To be eligible for a Direct Consolidation loan, you must have graduated, left school, or dropped below half-time enrollment. Your loans must be in repayment or in their grace period.
Your federal student loans must also be one of the following types:
Subsidized Federal Stafford Loans
Unsubsidized and Non-Subsidized Federal Stafford Loans
PLUS loans from the Federal Family Education Loan (FFEL) Program
Supplemental Loans for Students
Federal Perkins Loans
Nursing Student Loans
Nurse Faculty Loans
Health Education Assistance Loans
Health Professions Student Loans
Loans for Disadvantaged Students
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans
FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
Federal Insured Student Loans
Guaranteed Student Loans
National Direct Student Loans
National Defense Student Loans
Parent Loans for Undergraduate Students
Auxiliary Loans to Assist Students
Generally, you cannot consolidate a Direct Consolidation loan unless you are adding an additional loan into the consolidation.
How much can you consolidate with a Direct Consolidation loan?
Currently, there are no set limits on the amount you can consolidate with a Direct Consolidation loan.
Types of Private Student Loans
Private student loans are provided by private entities such as financial institutions and banks. They come in a variety of forms, designed for nearly all academic programs.
Undergraduate Student Loans
Private undergraduate student loans cover undergraduate degrees such as Associate’s and Bachelor’s degree programs.
Who is eligible for private undergraduate student loans?
Each individual private lender will have its own unique set of eligibility requirements. In general, most private lenders require you to:
Attend an eligible, degree-granting program
Be a U.S. citizen, permanent resident, or eligible noncitizen
Meet certain income requirements
Meet certain credit history requirements
There are a handful of private lenders that offer future-income-based student loans. These loans allow you to skip over most financial criteria many lenders require. To check your eligibility with 15+ top lenders, start here.
How much can you get in private undergraduate student loans?
How much you’re able to borrow in undergraduate private student loans depends on the lender you’re borrowing from. Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received.
For example, if your school’s cost of attendance is $30,000, and you accepted $5,000 in scholarships, you would be eligible to borrow up to $25,000 in private undergraduate student loans.
Graduate Student Loans
Private graduate student loans cover graduate degree programs such as Master’s programs.
Who is eligible for private graduate student loans?
Similar to undergraduate student loans, each individual private lender will have its own unique set of eligibility requirements for graduate student loans. In general, most will require you to meet the same set of criteria as you would need to for undergraduate student loans.
How much can you get in private graduate student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received. Others have borrowing limits, some reaching $500,000.
Medical School Student Loans
Medical school student loans cover traditional school expenses such as tuition, room and board, and fees. Most medical school student loans also offer benefits designed specifically for medical school students such as residency deferment, interest-only repayment options for residency, and longer repayment periods to make payments smaller during residency.
Who is eligible for medical school student loans?
Each individual private lender will have its own unique set of eligibility requirements for medical school student loans. In general, most will require you to be enrolled in an eligible program and completing medical school or residency at least half-time.
How much can you get in medical school student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received. Others have borrowing limits, some reaching $500,000.
Law School Student Loans
Law school student loans cover traditional school expenses such as tuition and fees. But, law school loans can also support law students during the period of time between graduating and passing the bar exam.
Most law students spend roughly three months studying for the bar, and most do it right after graduation. As a recent graduate, many law students take out an additional student loan to pay for the bar course itself and living expenses for those three months of studying.
Who is eligible for law school student loans?
Each individual private lender will have its own unique set of eligibility requirements for law school student loans. In general, most will require you to be enrolled in an eligible J.D. program, completing it at at least half-time status. Recent graduates preparing for the bar may also be eligible depending on the lender.
How much can you get in law school student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received. Others have borrowing limits, some reaching $500,000.
Dental School Student Loans
Dental school student loans cover traditional dental school expenses such as tuition and fees. Most dental school student loans also offer benefits designed specifically for dental school students such as deferment and flexible repayment options should you choose to pursue a dental residency program.
Who is eligible for dental school student loans?
Each individual private lender will have its own unique set of eligibility requirements for dental school student loans. In general, most will require you to be enrolled in an eligible dental school program, completing it at at least half-time status. Recent graduates pursuing a dental residency program may also be eligible for additional post-graduate student loans to cover costs associated with residency.
How much can you get in dental school student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received. Others have borrowing limits, some reaching $500,000.
Non-Cosigned Student Loans
Non-cosigned student loans are designed for borrowers with little to no credit score.
Who is eligible for a non-cosigned student loan?
If you have at least two years of credit history, you may qualify for a non-cosigned credit-based student loan. If you do not have two years of credit history, you may want to pursue non-cosigned outcomes-based student loans.
While both are non-cosigned options, outcomes-based student loans are ideal for borrowers with no credit history. Most lenders offering non-cosigned loan options base the interest rate and terms you receive on other factors instead, such as your future income potential based on your major.
You must be enrolled in an eligible program and meet basic eligibility requirements.
How much can you get in non-cosigned student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received.
International Student Loans
International student loans are a type of private student loan available to non-U.S. citizens studying in the United States. International student loans can help you cover expenses such as tuition, room and board, books, travel expenses, health insurance, and more.
Who is eligible for international student loans?
Non-U.S. citizens studying in the United States are eligible for international student loans. As with other student loans, you must meet a lender’s basic eligibility requirements to qualify. In general, lender’s look for individuals with a U.S. citizen or permanent resident cosigner, however, there are exceptions.
How much can you get in international student loans?
Most lenders will allow you to borrow up to the cost of attendance minus any other aid you’ve already received.
Refinance Loans
Refinance loans allow you to take out a new student loan, often with better terms and interest rate, to replace your previous student loan(s). By doing so, you may pay less overall by lowering your interest rate or shortening your repayment period.
Who is eligible for a refinance loan?
Each individual refinance lender will have its own unique set of eligibility requirements. In general, most will require you to:
Have graduated or left school
Have attended an eligible, degree-granting program
Be a U.S. citizen, permanent resident, or eligible noncitizen
Meet certain income requirements
Meet certain credit history requirements, usually with a credit score of 650 or higher
Have a debt-to-income ratio of 65% or less
How much can you get in a refinance loan?
Most lenders will allow you to refinance up to your outstanding balance, some reaching up to $500,000.
State Loans
Many U.S. states have private student loan programs available to their residents. The program requirements, borrowing limits, and how it generally functions will vary by state.
Who is eligible for state student loans?
Each individual state will have its own unique set of eligibility requirements that may include:
Specific income limits
Age requirements
Credit requirements
Dependency status requirements
Pursuing college in that specific state
Demonstrating financial need
Demonstrating sufficient academic progress
How much can you get in state student loans?
Each individual state will have its own borrowing limit for state loans.
Institutional Student Loans
Institutional student loans are provided by your college or university. With institutional student loans, the terms are set by the school. Thus, they vary by institution.
Who is eligible for institutional student loans?
Each individual college or university will have its own unique set of eligibility requirements. Schools may, however, require you to meet certain academic requirements such as having a certain GPA.
How much can you get in institutional student loans?
Each individual college or university will have its own borrowing limit for institutional loans.
Final Thoughts from the Nest
There are many different types of student loans. Each one will offer something slightly different, so be sure to compare your options closely.
As a reminder, financial aid should always be accepted in the following order:
When you do arrive at the student loan phase of financing your college education, be sure you understand what all of your options are. To search and compare private student loan offers in one easy application, use Sparrow.
Studying in the United States is an exciting opportunity. When it comes to funding this new chapter, there are various options including scholarships, grants, and student loans.
While helpful, scholarships and grants may not cover your entire cost of attendance. If so, a private international student loan may be your next step.
To get you prepared, let’s dive into everything you need to know about student loans as an international student.
What are International Student Loans?
International student loans are a type of private student loan available to non-U.S. citizens studying in the United States. International student loans can help you cover expenses such as tuition, room and board, books, travel expenses, health insurance, and more.
Why International Student Loans?
On average, international students pay between $20,000 and $40,000 in tuition per year to study in the United States, according to the International Education Specialists. Note that this is strictly tuition and does not include any additional fees, housing, meal plan, travel expenses, insurance, phone plan, etc.
Because of this, most international students are unable to pay for college out of pocket. Even with scholarships and grants, there still tends to be a remaining balance. To cover that remaining balance, many international students opt for a private student loan.
What Types of Loans are International Students Eligible For?
As an international student, you are more than likely eligible for private international student loans. To be eligible for federal student loans, however, you must meet certain criteria.
Are International Students Eligible for Federal Student Loans?
As an international student, you are only eligible for federal student loans if you are an eligible noncitizen. An eligible noncitizen is someone who:
Is a U.S. national, such as a citizen of American Samoa or Swains Islands
Is a U.S. permanent resident with a permanent residence card or “green card”
Has an Arrival-Departure Record (I-94) from the Department of Homeland Security showing any of the following statuses:
Refugee
Asylum granted
Indefinite parole
Humanitarian parole
Cuban-Haitian entrant
Holds T-nonimmigrant status
If you are an eligible noncitizen, you should complete the FAFSA to apply for federal student aid. Be sure to complete the FAFSA and pursue any federal aid prior to exploring private international student loans.
Are International Students Eligible for Private Student Loans?
If you are not an eligible noncitizen, and therefore ineligible for federal student loans, private international student loans will be your best option.
Most international students will be eligible for a private student loan due to the wide variety of eligibility criteria. Each individual lender will require that you meet a unique set of criteria. Whether you meet that eligibility criteria depends on how the lender chooses to evaluate borrowers.
In general, private student lenders will ask you to provide information such as:
Proof of enrollment
Your student visa
Your tuition bill
Proof of identity
Then, private student lenders will use this information in combination with your credit history to determine your eligibility. Having a U.S. citizen or permanent resident cosigner may help you secure a private student loan.
Importance of a Cosigner
Around 92% of all undergraduate student loans are cosigned. As an international student, most lenders will ask you to have a U.S. citizen or permanent resident cosigner. Having a cosigner will not only help you secure a student loan as an international student, but help you secure better interest rates and terms.
What is a Cosigner?
A cosigner is an individual who would sign onto the loan alongside you. By signing the loan with you, the cosigner takes full responsibility for the loan if you are unable to repay it. While not required, having a creditworthy cosigner can help you secure lower interest rates and better terms on your student loan.
Why Does Having a Cosigner Help?
When you borrow money from a lender, the lender evaluates you based on the level of risk you may bring to them. Lenders want to know that you’re going to pay them back. So, they typically use your credit history to evaluate your past financial performance to determine how likely you are to pay them back, and on time.
If your financial history demonstrates responsibility, you pose less risk to the lender. If your financial history demonstrates irresponsibility, you may be a riskier borrower for a lender.
As an international student, you likely won’t have a financial history in the United States. This makes you challenging to evaluate from a lender’s perspective. Having a U.S. citizen cosigner allows lenders to review their financial history, determine their responsibility, and set the terms of the loan based on that.
So, if you don’t have a financial history in the United States, but your U.S. citizen cosigner does, you can score significantly better rates and terms than if you took on the loan without the cosigner. When possible, you should pursue cosigned loan options before non-cosigned options.
Can You Get Loans Without a Cosigner?
If you don’t have a U.S. citizen cosigner, you aren’t out of luck. You can still get an international student loan without a cosigner. There are lenders that work with students just like you.
First, make sure that you meet the basic eligibility requirements of most private student lenders:
Go to an approved school
Come from a qualifying country
Be enrolled at least half-time in an eligible program
Live in the United States while attending school
Verify your identity
Qualify for a student visa to study in the United States
Each individual lender will have their own unique set of eligibility requirements. Starting with meeting the basics is a good first step.
Can I Get a Student Loan as an International Student with No SSN?
When it comes to private student loans, lenders typically check your credit score. In order to do so, lenders typically need your SSN. As an international student, you likely won’t have an SSN, but don’t worry. There are various lenders that don’t require SSNs.
The easiest way to get a private student loan as an international student with no SSN is to have a U.S. citizen cosigner. If you don’t have access to a cosigner, there are lenders that work with students without cosigners or SSNs.
How Much Can You Get in International Student Loans?
Typically, international student loans will cover up to the cost of attendance minus any other aid you’ve already received. This level of coverage is crucial as an international student because expenses can be higher due to travel and getting settled in your new country.
For example, let’s say you are attending a university for the 2022-2023 academic year with the following expenses:
Tuition: $50,000
Room and Board: $12,000
Campus Health Insurance: $3,000
Books and Supplied: $1,500
Miscellaneous Fees: $750
Transportation: $500
Total Expenses: $67,750
In this example, your total cost of attendance would be $67,750 for the academic year. If you received $30,000 in scholarships, your remaining balance would be $37,750. You would be eligible to borrow up to $37,750 in student loans to cover that remaining balance.
Best Student Loans for International Students
The best student loan will always be the one that works best for you. However, these are our top picks for international student loans.
MPOWER offers non-cosigned student loans to international students. MPOWER does not require borrowers to have a credit history or a cosigner. Instead of using your credit history to determine your eligibility, MPOWER uses information such as your future income potential.
Prodigy Finance offers non-cosigned student loans to international students. Prodigy Finance does not require borrowers to have a high credit score or a cosigner. Prodigy Finance uses information such as your credit history and future income potential to determine your eligibility.
Ascent offers traditional cosigned credit-based loans for international students. With a qualifying U.S. cosigner, international students can be eligible for Ascent private student loans.
College Ave offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with College Ave, borrowers must have a Social Security Number and a U.S. citizen or permanent resident cosigner.
Earnest offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Earnest, borrowers must apply with a creditworthy U.S. citizen or permanent resident cosigner. The borrower must also have a physical address in the United States and a Social Security Number.
Sallie Mae offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Sallie Mae, borrowers must apply with a creditworthy U.S. citizen cosigner.
How to Apply for International Student Loans
To apply for an international student loan, you’ll need to know when you plan to enroll, how much it’s going to cost, and if you’ll have a cosigner.
When you plan to enroll.To apply for a student loan, you’ll need to know where you’re going to school and how much it will cost. Some private lenders have restrictions on what schools they work with and how much they allow you to borrow.
How much it’s going to cost.To apply for a student loan, you’ll need to let the lender know how much you want to borrow. Your school will provide you with the overall cost of attendance, but be sure to factor in additional costs such as travel expenses, transportation, health insurance, and more.
If you’ll have a cosigner.Before applying for a student loan, ask around to see if you can secure a cosigner. If you can, make sure to know all of the individual’s information so you can input it into the lender’s application.
Should I Take Out An International Student Loan?
Whether you decide to fund your education with a private international student loan is ultimately up to you. Before accepting any loan, however, you should exhaust all scholarship and grant opportunities first.
If, after accepting scholarships and grants, you are unable to pay your remaining balance out of pocket, a private student loan may be the next best option. When you’re ready, know that Sparrow has your back the whole way.
Final Thoughts from the Nest
Whether you decide to take out a student loan to fund your international education depends on your unique circumstances. Regardless, know that Sparrow is here to help.
When you’re ready to start the student loan process, start the Sparrow application. Sparrow’s student loan search and comparison process allows you to see all of your student loan options in one place. We’ll even help guide you to the best loan option so you can be confident in your lending decision.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
According to the Institute of International Education, 73% of international students in the United States depend on resources outside the country to pay for their college education. This sentiment is true when it comes to cosigners, too.
Most international students only have access to a cosigner outside the U.S. However, many private student lenders require international borrowers to have a U.S. citizen cosigner.
But what if you don’t have a cosigner in the United States, or a cosigner at all? Don’t worry. There are lenders that work with students just like you. Let’s break down how to get an international student loan without a cosigner.
Options for an International Student Loan Without a Cosigner:
A cosigner is an individual who signs onto a loan alongside a borrower. By signing the loan with you, the cosigner takes full responsibility for the loan if you are unable to repay it.
While not required, having a creditworthy cosigner can help you secure lower interest rates and better terms on your student loan. When possible, you should pursue cosigned loan options before non-cosigned options.
Cosigners are typically a parent or guardian, but if that isn’t an option for you, consider asking a(n):
Extended family member (aunt, uncle, grandparent, cousin, etc.)
Friend
Spouse
That said, don’t ask just anyone. Make sure that you are confident they would be a good cosigner, not just any cosigner.
What Makes an Individual a Good Cosigner
A good cosigner is someone who is trustworthy, financially stable, and creditworthy.
Trustworthy. For someone to cosign your loan, they are doing you a favor. Any missed payment on your end becomes a bad mark on their end, too. So, for the cosigner, they need to be able to trust you to make payments on time and be transparent with them when you can’t.
Likewise, it’s important that you can trust them, too. You may need to talk to your cosigner about a missed payment. Being able to trust your cosigner makes these conversations much easier.
So, there must be a mutual trust between you and your cosigner, regardless of who they are. Only ask someone to cosign your loan if you are confident they would be trustworthy throughout the entire life of your loan.
Creditworthy. A cosigner can provide you with access to better interest rates and terms. On a cosigned loan, the lender looks at your cosigner’s credit history to determine your interest rate. On a non-cosigned loan, the lender is looking at your credit history to determine the interest rate.
If your cosigner doesn’t demonstrate creditworthiness, having them sign onto the loan won’t necessarily help you.Creditworthy cosigners typically have a credit score of 670 or above. In general, the higher their credit score the better.
Financially stable. When signing onto a loan, the cosigner is taking full responsibility to repay the loan should you be unable to repay it. Make sure that the cosigner you select would be able to make these payments if necessary.
Can a Cosigner be a Non-US Citizen?
If you are an international student, your cosigner typically needs to be a U.S. citizen or permanent resident, although there may be a few exceptions. In general, look for a U.S. citizen or permanent resident to serve as your cosigner.
How to Get an International Student Loan Without a Cosigner
If you don’t have a cosigner, don’t worry. There are lenders that work with students just like you. To secure a student loan as an international student without a cosigner, there are a few things you can do.
Meet the Basic Qualifications
To qualify for any international student loan, with or without a cosigner, you need to meet basic eligibility requirements. The basic requirements may include:
Go to an approved school
Come from a qualifying country
Be enrolled at least half-time in an eligible program
Live in the United States while attending school
Verify your identity
Qualify for a student visa to study in the United States
Each individual lender will have their own unique set of eligibility requirements. Make sure you meet this basic list of eligibility requirements first.
Find a Lender that Gives International Student Loans without a Cosigner
MPOWER is an online student lender that offers non-cosigned undergraduate and graduate student loans for international, domestic, and DACA students. When determining your borrowing eligibility, MPOWER will not take into account your credit score. Instead, MPOWER will consider a variety of data points such as your future income potential to determine your creditworthiness.
MPOWER offers student loans with fixed interest rates ranging from 7.52% to 14.98%. MPOWER offers a wide variety of bonuses for borrowers such as their three unique scholarship opportunities:
Global Citizen Scholarship: (1) $5,000 scholarship and (4) $3,000 scholarships.
Women in STEM Scholarship: Scholarships ranging from $2,000 to $5,000 for female international and DACA students at eligible full-time STEM degree programs.
Central America Scholarship Program: Scholarships ranging from $1,000 to $3,000 for students from Central America.
Prodigy Finance is an online student lender that offers non-cosigned undergraduate and graduate student loans for international students. Similar to MPOWER, Prodigy Finance will not take into account your credit score when determining your borrowing eligibility. Instead, Prodigy Finance will consider information such as your future income potential and credit history to determine when making their lending decision.
Prodigy Finance offers student loans with variable interest rates ranging from 7.52% to 12%. Prodigy Finance offers a wide variety of bonuses for international student borrowers such as:
Referral bonuses
Help with moving to the United States
Assistance in securing a visa
Help setting up a United States phone number
Assistance navigating your new home in the United States
To check your eligibility with both MPOWER and Prodigy Finance, complete the free two-minute Sparrow application.
Final Thoughts From the Nest
Navigating the loan process as an international student can be confusing, but Sparrow is here to help. There are high-quality lenders ready to help you through the process of finding a student loan that works for you.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
While studying in the United States can be incredibly exciting, paying for it as an international student without a Social Security Number (SSN) can be confusing. But don’t worry. In this article, we’ll break down the student loan process for international students with no SSN. That way, you can feel confident in your borrowing decisions.
A Social Security Number, or SSN, is a nine-digit number used by the United States Social Security Administration to identify citizens and legal residents. SSNs were once used strictly to track citizens’ employment income to gauge their eligibility for retirement benefits. Now, SSNs are used for a variety of additional purposes such as taxes and banking.
You may see Social Security Numbers referred to as “taxpayer identification numbers.” These two terms are often used interchangeably because SSNs are used to identify individuals on all tax-related documents.
What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a ten-digit number used to identify taxpayers who do not have a Social Security Number. ITINs are intended to be used for federal tax purposes, but are useful during the student loan process.
The IRS will assign you an ITIN regardless of immigration status. The IRS uses information you provide such as drivers licenses, immigration papers, passports, and birth certificates to confirm your identity before issuing you an ITIN. The ITIN you receive can be used to apply for student loans without an SSN.
Why Do Most Student Loans Require an SSN?
Federal student loans are issued by the United States Federal Government. Thus, the aid is intended for U.S. citizens, permanent residents, and eligible non-citizens. In order to qualify for federal aid, the government uses SSNs to ensure borrowers do in fact belong to one of these categories.
When taking out a private student loan, lenders typically check your credit score. In order to check your credit score with the three major credit bureaus, lenders need your SSN. Because the majority of private student lenders use credit scores to determine borrowing eligibility, the majority do require SSNs. However, there are lenders that don’t require SSNs.
Can International Students Get Student Loans Without an SSN?
International students with no SSN can get student loans. In order to qualify for federal student aid, you must meet specific eligibility criteria. For a private student loan, you will have several options.
How to Get Federal Aid with No SSN
You must be considered an “eligible noncitizen” to qualify for federal student aid without an SSN. You are an eligible noncitizen if you identify with one of the following categories:
U.S. National (including natives of American Samoa or Swains Island)
U.S. Permanent Resident with a Green Card (Form I-551, I-151, or I-551C).
You have an Arrival-Departure Record (I-94) from the United States Citizen and Immigration Services (USCIS) that designates you as a:
Refugee
Asylum Granted
Cuban-Haitian Entrant
Conditional Entrant (if issued before April 1, 1980)
Parolee (with specific conditions)
You or your parent hold a T-Visa (for victims of human trafficking)
You are a Battered Immigrant-Qualified Alien (for victims of abuse by your citizen or permanent resident spouse)
You are a citizen of the Federated States of Micronesia, the Republic of Palau, or the Republic of the Marshall Islands.
Undocumented students, including DACA recipients, are not eligible for federal student aid.
When filling out the FAFSA as an eligible noncitizen, you will be asked for your Alien Registration number. The number you provide will be run through the Department of Homeland Security’s database to verify your identity. If they do not have your number on record, they will ask you to provide additional documentation to prove your identity and your student status. You will not be able to receive federal student aid until this process is complete.
If you are an international student who does not identify as an eligible noncitizen, you are not eligible for federal student aid.
Most private student lenders require borrowers to be U.S. citizens or permanent residents, and thus, require an SSN. However, there are several lenders that don’t.
The easiest way to get a private student loan as an international student with no SSN is to have a U.S. cosigner. A cosigner is an individual who signs onto the loan with you. By doing so, the cosigner takes responsibility for the loan should you be unable to make payments.
Having a U.S. cosigner will provide you with a wider selection of lenders to choose from and typically, lower interest rates. If you do have access to a U.S. cosigner, pursue cosigned loan options first.
That said, most international students do not have access to a U.S. cosigner. The good news? There are international student loan options that do not require a cosigner. Non-cosigned international student loans may ask for your ITIN in lieu of an SSN.
Ascent offers traditional cosigned credit-based loans for international students. With a qualifying U.S. cosigner, international students can be eligible for Ascent private student loans.
College Ave offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with College Ave, borrowers must have a Social Security Number and a U.S. citizen or permanent resident cosigner.
Earnest offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Earnest, borrowers must apply with a creditworthy U.S. citizen or permanent resident cosigner. The borrower must also have a physical address in the United States and a Social Security Number.
Sallie Mae offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Sallie Mae, borrowers must apply with a creditworthy U.S. citizen cosigner.
MPOWER offers non-cosigned student loans to international students and does not require borrowers to have a credit history or a cosigner. Instead of using your credit history to determine your eligibility, MPOWER uses information such as your future income potential.
Prodigy Finance offers non-cosigned student loans to international students and does not require borrowers to have a high credit score or a cosigner. Instead, they use information such as your credit history and future income potential to determine your eligibility.
Final Thoughts from the Nest
There are various loan options for international students with no SSN. While federal aid may not be an option for you, private student loans are a great way to fill in the gaps.
To check your eligibility with each of these private lenders, complete Sparrow’s application. Sparrow allows you to search for and compare loan options side-by-side. We’ll show you all of the lenders you qualify with, regardless of whether you have an SSN or a cosigner.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Student loans cover the gap between the cost of college and what you’re able to pay out of pocket. While student loans can cover quite a bit, they do have limits.
There are two main types of student loans: federal and private. The borrowing limit for each type of loan will depend on various factors.
A dependent student is one who relies on another, typically a parent(s), as another source of income. If your parent(s) claim you as a dependent, their income is factored into your Expected Family Contribution. Thus, you may receive less financial aid than if you filed as an independent student.
An independent student is one who does not rely on another person as a source of income. There are specific conditions a student needs to meet to be considered an independent. The student must be at least one of the following:
At least 24 years old
Married
A veteran or member of the armed forces
A graduate or professional student
An orphan
A ward of the court
An individual with legal dependents other than a spouse
An emancipated minor
An individual who is homeless or at risk of becoming homeless
Independent students tend to receive more financial aid than dependent students.
Undergraduate Federal Student Loan Limits
There are two types of undergraduate federal student loans: subsidized and unsubsidized. Federal subsidized loans are given out based on financial need. Federal unsubsidized loans are given out based on the overall cost of attendance (COA) minus any financial aid the student has already received.
How Subsidized Loan Amounts are Determined
When you complete the FAFSA, your financial information will help determine your Expected Family Contribution (EFC). Financial aid staff will subtract your EFC from the overall cost of attendance (COA) at your respective school to determine your financial need. The result of this equation will determine how much need-based aid you are eligible for.
For example, if the COA at the school is $20,000 and your EFC is $9,000, your financial need is $11,000. Thus, you won’t be eligible for more than $11,000 in need-based aid.
How Unsubsidized Loan Amounts are Determined
After need-based aid is given, your eligibility for non-need-based aid will be determined. To do this, financial aid staff will subtract the amount of financial aid awarded so far from the overall COA.
For example, if the COA at the school is $20,000 and you’ve been awarded a total of $9,000 in need-based aid and scholarships, you are eligible for up to $11,000 in non-need-based aid.
While dependent and independent students can borrow both subsidized and unsubsidized loans, independent students are typically able to borrow more in unsubsidized loans.
The borrowing limits for federal undergraduate student loans are as follows:
Dependent Undergraduate Students
First Year: $5,500 ($3,500 subsidized, $2,000 unsubsidized)
Second Year: $6,500 ($4,500 subsidized, $2,000 unsubsidized)
Third Year and Beyond: $7,500 ($5,500 subsidized, $2,000 unsubsidized)
Total Limit Over the Course of Your Entire Education: $31,000 ($23,000 subsidized, $7,000 unsubsidized)
Independent Undergraduate Students
First Year: $9,500 ($3,500 subsidized, $6,000 unsubsidized)
Second Year: $10,500 ($4,500 subsidized, $6,000 unsubsidized)
Third Year and Beyond: $12,500 ($5,500 subsidized, $7,000 unsubsidized)
Total Limit Over the Course of Your Entire Education: $57,500 ($23,000 subsidized, $34,500 unsubsidized)
Graduate Federal Student Loan Limits
As of July 1, 2012, the Department of Education no longer offers subsidized loans for graduate students. Graduate students are, however, eligible for unsubsidized loans.
Graduate students can borrow up to $20,500 in unsubsidized federal loans per year. There is a lifetime limit of $138,500 for borrowing which includes undergraduate loans.
So, let’s say that as an undergraduate student, you borrowed $30,000 in federal student loans. As a graduate student, you would only be eligible for up to $108,500 in graduate student loans.
Important Notes
In order to be eligible for any federal student loan, regardless of year or dependency status, you must complete the FAFSA. For a complete guide on how to complete the FAFSA, check out this article.
Private Student Loan Borrowing Limits
Because each private lender is its own individual entity, each one will have its own unique borrowing limit. Most private student lenders will cover the total cost of attendance. Others have specific limits, some reaching $500,000.
To see what you qualify for with each lender, complete the Sparrow application. The following are the lenders we partner with and their respective borrowing limits:
Refinance limit: up to the total outstanding balance
Final Thoughts from the Nest
Depending on what type of student loan you need, your year in school, and your dependency status, the borrowing limit will vary. To see what you’re eligible to borrow from top private student lenders complete the Sparrow application.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
Federal student loans are only available to United States citizens and eligible noncitizens. Thus, many international students have fewer student loan options when studying in the United States.
For many international students, a private student loan is the best way to pay for college. Many lenders offer loans to international students, but most require a U.S. citizen cosigner in order to be eligible. Luckily, there are a few exceptions.
Let’s break down what makes an international student loan good and the top lenders you can choose from.
What Makes an International Student Loan Good?
When looking for an international student loan, there are several factors to consider. The most important factors are the cosigner policy, the interest rate, and the repayment options.
Cosigner vs No Cosigner
A cosigner is an individual who signs onto a loan alongside the borrower. By signing onto the loan, the cosigner takes full responsibility for the loan should you fail to pay it back. Having a creditworthy cosigner can help you secure a lower interest rate and better terms.
Many international student lenders require borrowers to have a U.S. citizen or permanent resident as their cosigner. However, most international students don’t have access to a U.S. citizen willing to cosign, so they opt for a non-cosigned student loan instead.
Before selecting any loan, you should look for a creditworthy cosigner. Cosigned international student loans tend to have lower interest rates than non-cosigned loans. Thus, you should pursue cosigned private student loan options before non-cosigned options.
Regardless of which loan you select, you should always read lenders’ cosigner policies carefully.
Interest Rate
Each international student loan will have its own unique interest rate and terms. If borrowing a loan with a cosigner, your interest rate will likely be lower. If borrowing a loan without a cosigner, your interest rate will likely be higher.
Because international student borrowers tend to not have a cosigner, the interest rates can be higher. As of March 2022, the interest rates for international student loans from Sparrow’s lending partners ranged from 1.13 percent to 14.98 percent. This range is fairly wide due to various factors such as the type of APR (variable or fixed), whether the loan was cosigned, the country the borrower is from, the borrower’s credit history, and more.
Compare interest rates carefully to select the one that is best for you.
Repayment Options
Similarly to interest rates, each international student loan will have its own selection of repayment terms. While some international student loans don’t require you to make payments while in school, others require immediate repayment.
It’s important to consider whether you will be able to afford to make payments immediately after the loan is taken out. Many students are unable to make payments while in school and prefer a repayment option that doesn’t start until after graduation.
Before selecting an international student loan, read up on the lender’s repayment options. Make sure that the lender’s options align with your desired timeline for repayment.
Our Picks for International Student Loans
The best international student loan is ultimately the one that works best for you. However, the following are our top picks for international student loans.
International Student Lenders That Require a Cosigner
Ascent offers traditional cosigned credit-based loans for international students. With a qualifying U.S. cosigner, international students can be eligible for Ascent private student loans.
College Ave offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with College Ave, you must have a Social Security Number and a U.S. citizen or permanent resident cosigner.
Earnest offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Earnest, you must apply with a creditworthy U.S. citizen or permanent resident cosigner. You must also have a physical address in the United States and a Social Security Number.
Sallie Mae offers traditional cosigned credit-based loans for international students. In order to be eligible to borrow with Sallie Mae, you must apply with a creditworthy U.S. citizen cosigner.
International Student Lenders That Don’t Require a Cosigner
MPOWER offers non-cosigned student loans to international students. MPOWER does not require borrowers to have a credit history or a cosigner. Instead of using your credit history to determine your eligibility, MPOWER uses information such as your future income potential.
Prodigy Finance offers non-cosigned student loans to international students. Prodigy Finance does not require borrowers to have a high credit score or a cosigner. Prodigy Finance uses information such as your credit history and future income potential to determine your eligibility.
How to Apply for an International Student Loan
To apply for an international student loan:
Check your eligibility. In order to qualify for any student loan, you will need:
Proof of identity
Proof of citizenship status
Certification of enrollment at your school
Proof of the cost of attendance
Compare loan options. When selecting an international student loan, it’s important to compare your options side-by-side. Comparing loans allows you to be confident that you’re selecting the one that’s best for you. To see which international student loans you qualify for and compare them side-by-side, complete the free Sparrow application.
Wait to hear back. Verifying an international student borrower can take longer than a U.S. citizen borrower. Most lenders take anywhere from a few days to a few weeks, depending on the time of year and your school’s response time.
Ensure the funds were disbursed. After your school certifies the loan, the lender will let you know. Then, the money will be sent to your school. Be sure to follow up with your school to confirm that the funds were disbursed.
Final Thoughts from the Nest
Private student loans are a great option for international students unable to access federal student loans. By comparing your options, you can select a loan that supports your educational journey.
To find the best international student loan, start here.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
There are two types of student loans: private and federal. While private student loans are provided by private entities such as banks and financial institutions, federal student loans are provided by the federal government. If you think you may need a student loan to pay for college, check your student loan eligibility ASAP.
How to Check Your Eligibility
Private Student Loans: Each private student lender has its own unique eligibility requirements. Therefore, the easiest way to check your eligibility for multiple private student loans at once is to use the Sparrow application. Sparrow will show you the lenders you’re eligible to borrow from and the exact interest rate you’d qualify for with each one.
Federal Student Loans: To check your eligibility for federal student loans, you must complete the FAFSA.
Who is Eligible for a Student Loan?
Private Student Loans
Private student loans are provided by a lender such as a bank, credit union, state agency, or a school. Each lender has different rates and eligibility requirements. However, in just two minutes, you can check your student loan rate and eligibility with 17+ lenders by using the Sparrow application.
The latest rates from Sparrow’s partners
See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
Compare your personalized, pre-qualified rates from these lenders in minutes.
While each private student lender will have its own unique eligibility, there are a few that tend to be the same across the board:
Enroll in an eligible program:Private student loans can only be used for education costs. Therefore, you’ll need to enroll in an eligible academic program to be considered for private student loans.
Be a U.S. citizen, permanent resident or eligible international student. Most private student lenders will require you to be a U.S. citizen or permanent resident with a Social Security number.
If you are an international student, you’ll be eligible with many lenders if you have a cosigner who is a U.S. citizen or permanent resident. If not, MPOWER and Prodigy also provide student loans to international students without an SSN or credit history.
Federal Student Loans
To qualify for federal student loans, you must:
*Demonstrate financial need (for most programs). Whether or not you must prove financial need depends on the type of student loan. Specifically, to qualify for Federal Direct Subsidized Loans, you’ll need to show financial need. To receive Direct Unsubsidized or PLUS Loans, you do not need to demonstrate financial need.
*Your financial need is calculated based on the information you provide on the FAFSA.
Be a U.S. citizen or *eligible noncitizen. In general, you must be a U.S. citizen or eligible noncitizen to qualify for federal student loans. However, in some cases, legal U.S. residents without citizenship may qualify.
* An eligible noncitizen is a U.S. national, U.S. permanent resident, or an individual holding an Arrival-Departure Record from U.S. Citizenship and Immigration Services under one of the following titles: Refugee Asylum Granted Cuban-Haitian Entrant Conditional Entrant (valid if issued before April 1, 1980) Victims of Human Trafficking (T-Visa -2, -3, or -4 holders) Parolee (with certain conditions)
Have a Social Security number. In most cases, you need a social security number to be eligible. However, there are a few U.S. territories in which you would not need a Social Security number.
Enroll in an eligible academic program. Federal student loans can only be used for accredited or recognized, degree-granting programs. Therefore, if you aren’t attending one of these schools, you won’t be able to receive federal student loans.
Have satisfactory academic progress. Each individual school will have its own academic requirements. Accordingly, if you do not meet those, you can be denied federal financial aid including federal student loans.
Enroll at least half-time (for Federal Direct Loans only). For Federal Direct Loans, you must be enrolled at least half-time.
Complete the FAFSA. The FAFSA collects and processes your financial information to determine your eligibility for need-based aid. In order to qualify for any federal student loans, you must complete the FAFSA.
Meet all qualifications for your specific program. To be considered a student at your respective school, you must meet their enrollment requirements. Generally, this may mean having a high school diploma or GED. You must meet all of your school’s requirements in order to be eligible for federal student aid.
Note: Selective Service registration is no longer required to qualify for federal student loans.
How is Student Loan Eligibility Determined?
Eligibility for private student loans depends on the lender. Each lender looks at your application against a different set of criteria. Check your student loan eligibility across multiple lenders at once. In general, here are the main factors that determine your eligibility:
Eligibility for federal student loans will depend on whether you meet the FAFSA criteria. After filling out the FAFSA, your information will be used to determine if you qualify for federal student loans. Then, it will determine what type of loans you are eligible for and how much aid you are eligible for overall.
What Disqualifies You From Getting a Student Loan?
Student loan applications can be denied for a variety of reasons. The most common reasons are not meeting the basic eligibility criteria for the respective loan. However, there are other ways you can be disqualified from obtaining a student loan.
Private Student Loans
Each private lender has their own unique requirements to qualify for a student loan. Lenders will look at a variety of factors to determine whether you are eligible to borrow from them. This includes, but is not limited to:
Your employment history
Your credit score
Your debt-to-income ratio
Your enrollment status at a qualifying school
If you do not meet the basic eligibility criteria within these categories, you may not qualify for a private student loan with that specific lender.
Federal Student Loans
If you do not complete the FAFSA, you will not be able to receive federal student loans.
Additionally, being convicted of certain crimes can also be cause for disqualification. Drug-related crimes, such as sale of illegal drugs or drug possession, can disqualify you from receiving federal aid in the future.
Is There an Age Limit for a Student Loan?
For many private student loans, you must be at least 18 years old to take out a loan. This number can vary from state to state.
For federal student loans, you must submit the FAFSA. In order to submit the FAFSA, you need an FSA ID. Applicants must be at least 13 years old to obtain an FSA ID. However, there is no upper age limit for federal student loans.
Final Thoughts from the Nest
Federal and private student loans each have their own eligibility requirements. Before submitting the FAFSA or applying for a private student loan, make sure you meet the basic eligibility requirements.
Sparrow’s goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. Accordingly, this may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
You’ve exhausted all of your scholarship, grant, and work-study options. Now, it’s time to start considering student loans to cover that last mile of financial need.
When you look at your student loan options on paper, they may seem suspiciously similar. However, there are various elements to loans that can make them drastically different.
In this article, we’ll break down the key components that make up student loans and provide some helpful tips to ensure you’re getting the best loan possible.
What Is the Difference In These Loan Offers?
If you’re comparing multiple loan offers with the same principal balance, consider the following:
Federal student loans are issued by the federal government. Private student loans are issued by banks and other financial institutions.
When comparing a federal loan against a private student loan, it’s important to consider elements beyond their interest rate. For example, federal student loans typically have greater benefits than private student loans.
No Cosigner vs. Cosigner
Federal student loans do not require a cosigner whereas private student loans often do.
Loan Forgiveness vs. No Loan Forgiveness
Federal student loans have the potential to be forgiven through federal loan forgiveness programs. Private student loans, however, do not have loan forgiveness options. If you opt for a private student loan, you will forgo loan forgiveness benefits.
Greater Repayment Options
Federal student loans typically have greater repayment options than private student loans. While private student lenders do offer a wide variety of repayment options, there are some that are exclusively offered for federal student loans. For example, federal student loans have various income-driven repayment options. It’s important to consider how you plan to pay back your student loans when choosing between a federal and private student loan.
Eligibility Requirements
There are a variety of ongoing eligibility requirements when it comes to both federal and private student loans. For example:
SSN Requirements
In order to be considered for federal student loans, you must have a Social Security Number or an Alien Registration Number. If you are concerned about your Alien Registration Number expiring, you may want to select a private student loan that does not require proof of this information. You may be asked to recertify your Alien Registration Number year over year to secure more financial aid.
State Requirements
Some private student lenders require borrowers to live in specific geographic areas. If you anticipate moving or do not have a residential address in that specific area, you may want to select a different loan option. Be sure to read the fine print about state requirements when comparing two loan offers.
Enrollment Status
Different lenders require different levels of enrollment to be an eligible borrower. Federal student loans require borrowers to be enrolled at least half-time to receive aid. On the other hand, some private lenders require at least half-time enrollment while others require borrowers to be enrolled full-time. If you anticipate dropping below full-time status, you will want to compare lenders’ policies for eligibility based on enrollment status.
Annual Percentage Rate (APR)
APR, or Annual Percentage Rate, is the annual rate of interest charged to borrowers including any fees and additional costs. Note that APR is different from interest rate as it includes the fees and additional costs, as where interest does not.
APR is written as a percentage and represents the amount of the principal you will pay each year. In other words, this is the amount you would be “charged” each year for borrowing the money.
APR is typically perceived as one of the most, if not the most, important element of a loan. However, before simply choosing the loan with the lowest APR, be sure to compare other aspects of the loan such as fixed vs variable rates, the repayment term, and monthly payments.
If you’re getting caught up on the student loan lingo, check out our Glossary as it might help you understand this article better.
Fixed vs. Variable Rate
Interest rates on private student loans will either be fixed or variable.
Fixed interest rates will remain the same throughout the life of the loan. This means that the “cost of borrowing” the money will always remain constant throughout the lifetime of the loan. For example, if you choose a fixed interest rate loan with a 5% interest rate, it will stay at 5% until you’ve paid it off.
Variable interest rates will adjust over time in response to changes in a financial market index known as the London Interbank Offer Rate, or LIBOR. (Don’t get too caught up in what LIBOR is or how it works. Just know that changes in LIBOR result in changes to your loan’s variable interest rate.) This means that the cost of borrowing may shift over time and is totally out of your control.
There are pros and cons to both fixed and variable interest rates.
Fixed Rate
Pros
Remains the same each month allowing you to budget accordingly
Best for people with stable but tight finances
Cons
Can start higher in comparison to variable interest rates
Variable Rate
Pros
Tend to start lower in comparison to fixed interest rates
Good for people who plan to pay their loan off quickly
Cons
Riskier for borrowers since the rate can change every month
If you’re willing to stomach the month-to-month volatility, a variable interest rate could be a good option for you. If not, we recommend sticking with the more predictable option, a fixed interest rate.
Principal
Principal is the amount of money you borrow when you take out a loan. While you’re in school, you cannot borrow more than the total cost of attendance. Your school’s financial aid office will certify the loan to ensure that your loan does not exceed the cost of attendance.
When comparing loans, you’ll want to pay close attention to how much the lender is willing to offer you. For example, if you need $30,000 to pay for the remainder of your tuition bill, but the lender only approved you for $20,000, that loan may not be the best fit.
Repayment Options
Federal and private student loans will have different repayment options. If you are deciding between taking out more in federal loans or private loans, consider how the repayment options differ and how you plan to pay back your loans.
Remember that the sooner you start making payments, the sooner you will be out of debt. Interest on student loans accrues daily, meaning the longer you wait to start repaying, the higher your total cost. (Note that some federal student loans do not accrue interest while you’re in school, so waiting until you graduate to start making payments may be okay. In general, it’s good practice to start paying them off as soon as you can, but again, always read the terms and conditions!).
Monthly Payment
Before you take out a loan, use a student loan calculator to see what your future monthly payment may be. Depending on the interest rate and repayment period, your monthly payments could differ significantly between loans. Calculating this before you even select a loan will help you in the long run.
Our platform is a great place to start. When you submit a Sparrow application, we’ll show you all of your loan options side-by-side. With each option, we’ll help you compare the predicted monthly payments based on the principal balance and interest rate.
Be realistic about how much money you expect to make after graduating, and ask yourself what would actually make sense financially when weighing your options.
Repayment Terms
Repayment terms include all of the conditions involved in borrowing money from that lender. This can include anything from the repayment period to the interest rate to the penalty fee cost. It’s important to review the loan terms carefully for every single loan you look at. You may discover that one loan would require you to pay back your debt in 5 years which may be a dealbreaker for you.
Pay extra attention to the fees and additional costs. While these are typically reflected in the APR, that may not always be the case. If the additional fees are not included in the APR, they may come as a surprise later on. Thus, be sure to check if these additional fees are included before deciding if one is better than the other.
(You know when you sign up for something and it asks if you’ve read the Terms and Conditions? And you just check it off and go? Yeah, this is one of those times you should really read all the terms and conditions.)
Grace Period
A grace period on a student loan is a time when the borrower isn’t required to make payments. The majority of private student lenders do not require payments while in school or for 6 months after you graduate or leave school. On the other hand, some lenders have a 9-month grace period, and others have no grace period.
Be sure to check if the lender offers a grace period, and if so, how long it is.
Cosigner Release Policies
Because federal student loans do not require a cosigner, this element won’t apply if you are comparing federal student loans. If you are comparing private student loans, however, understanding the cosigner release policy is important.
A cosigner is an individual who agrees to sign onto a loan alongside the borrower. Cosigning a loan can provide the borrower with a lower interest rate or better terms. However, cosigning a loan signifies agreement to pay back the loan in the event that the primary borrower does not.
Thus, many cosigners prefer the option to later be released from the loan, and therefore relinquished from their responsibility to pay back the loan. A cosigner release policy allows the cosigner to be released after certain conditions have been met.
The vast majority of private student lenders have a cosigner release policy, but some do not. If you are comparing cosigner release policies, here are a couple things to look out for:
Income Requirements
Having someone cosign your student loan helps you qualify based on their income, credit history, and financial profile. If you hope to remove the cosigner, you will need to meet those income requirements on your own. Thus, you will need to make sure your credit score is up to par and that you have great enough income to afford your loan payments and other expenses.
Number of On-Time Payments Required
Many private student lenders require the primary borrower to have made a specific number of on-time payments before cosigner release is an option. For example, many lenders require 12, 24, 36, or 48 on-time payments before the cosigner release application is even available. Additionally, fixed and interest-only payments made during school may not count towards this overall number of payments. So, if you plan to release your cosigner after graduation, you may need to wait at least a year to be able to do so.
Forbearance
Loan forbearanceoccurs when the borrower requests to pause or reduce loan payments for a limited period of time due to economic hardship or other unforeseen circumstances.
Different lenders offer different options for forbearance, ranging anywhere from 12 to 24 months.
While putting your loan into forbearance isn’t ideal and probably not something you plan to do, it’s important to consider when comparing loan options just in case you need it down the line.
Lender Benefits
Some lenders offer exclusive membership benefits to their borrowers. While lender benefits shouldn’t take precedence over elements such as interest rate, it can be a nice added benefit.
For example, some lenders offer free financial planning, referral bonuses, and member discounts to their borrowers. If it isn’t clear what the lender offers, don’t be afraid to ask. Not all benefits will be clearly advertised.
Autopay Discounts
One of the most common lender benefits is an autopay discount. An autopay discount typically provides borrowers with a small interest rate discount for opting in to automatic debit payments. This means that each month, payments will come out of the borrower’s bank account automatically.
Most lenders offer a 0.25% discount, but some offer up to 0.50%. While it may seem small, a 0.25% interest rate discount can save you quite a bit over the life of your loan.
For example, with a loan of $50,000 at a 5% interest rate and a 10-year repayment period, you would pay $63,639 total by the end of the repayment period.
With the same loan and the same repayment period but a 0.25% interest rate discount, you would pay $62,909. While not a massive difference, the $730 saved could be an extra rent payment or vacation.
Total Cost
Because of interest, you will almost never pay back the exact amount you borrowed; you will almost always owe more.
With most private loans, interest accrues even while you’re in school. This means that even if you took out a loan for $10,000 your freshman year, you will be paying back more than $10,000 by the time you graduate or leave school.
Calculating the total cost, or the amount you can expect to have paid at the end of your repayment period, is a very helpful exercise. It will help you see how much you will end up paying in the long run with each of your loan options.
Where to Compare Student Loans
If you’re looking to compare private student loan options side-by-side, Sparrow is the perfect place to start. Simply fill out our Find My Rate form, and we’ll take it from there. After automating your search, we’ll help you compare the options to select the student loan that works best for you.
Final Thoughts from the Nest
The importance of each of these elements will vary from person to person. For example, repayment options might be most important to you, and that may cause you to take a loan with a higher interest rate. On the other hand, securing the lowest interest rate might be most important to you, and that may cause you to take a loan without a grace period.
Taking these elements into consideration will help you find the loan that works the best for you and your educational journey.
When you’re ready to start comparing offers, start here.
Now it’s time to sift through your financial aid offers and make your decision! Before you accept any aid, it’s important to truly understand what the offer in front of you really means.
We’ll break down the entire process of figuring out your financial aid award letter:
In this blog, we’ll primarily use the term Financial Aid Award Letter, but we want you to know that it can be called a variety of things, such as:
Aid Letter
Financial Aid Package or Aid Package
Merit Letter
Financial Aid Offer
And probably a few more!
This is not to confuse you, but just to make you aware that your institution may use another term.
What is a Financial Aid Award Letter?
A Financial Aid Award Letter is an offer from an institution that contains all the federal, state, and school aid you can access. This can include scholarships, grants, work-study opportunities, andfederal subsidized and unsubsidized loans. If you listed multiple schools on your FAFSA, you will receive financial aid award letters from each school you are accepted to.
When to Expect a Financial Aid Award Letter
The timeline of receiving financial aid award letters can vary. Typically, they arrive in March or April after you’ve received an acceptance from an institution. Some schools are more prompt than others, so make sure to be on the lookout for your award letters and keep track of who you’re still waiting on.
Understanding Your Financial Aid Award Letters
Before we can compare any financial aid award letters, we’ll want to understand what they all mean independently. Each institution will use a different format for their letters, but they will all contain roughly the same information.
Let’s use an example from CollegeCovered as a frame of reference.
In this award letter, you will see three separate sections.
Financial Aid
Estimated Cost of Attendance*
Total Estimated Balance
Financial Aid
This section shows both the scholarships and loans this student was awarded.
Estimated Cost of Attendance
This section shows the total estimated cost of attendance. This particular university broke this cost into two sections — the billable costs (ones that are concrete) and the indirect costs (what they estimate students will spend on other items).
Some of these costs you may not incur. For example, if you are choosing to live off campus, you would not incur the $8,020 per year housing cost. Oftentimes, universities will add campus health insurance to the estimated COA. But, many students choose to opt out of this and remain on a parent’s plan. Thus, the COA ends up lower. If there is a cost listed in the COA that you 100% will not incur, make adjustments where you see fit when examining the aid offer.
*Not all financial aid award letters will show the Cost of Attendance. This is often a category that gets left out. If this isn’t on your financial aid award letter, make sure to call the institution to verify the number or ask for a full breakdown before making any calculations or comparisons. Don’t rely completely on what is online as the information could be outdated.
Total Estimated Balance
This is the amount left over if you accepted all of the financial aid and incurred all of the costs listed in the COA. This is what the institution estimates that you would pay yearly.
Note that this estimated balance will likely not be 100% accurate for you unless you plan to accept all of the financial aid offered to you and incur all of the listed costs.
Figure Out the Net Price
Because the total estimated balance won’t always be what you’d actually pay, we recommend recalculating the net price. To do this, subtract the costs you would incur from the aid you would accept. Make note of these new net prices if they differ from the original calculations.
A Very Important Note:
If you are going to make any alterations to reflect what you’d actually pay, make sure to verify those costs before using them in your calculations. One example of this is housing. If the COA uses on-campus housing in its calculation but you plan to live off campus, don’t use one flat housing estimate across the board for all institutions.
For example, rent might cost $600/month in a small, rural town in Connecticut, but it likely won’t cost that in downtown Boston. Always call the university and ask for an estimate of what the average student spends on something before making your own estimates.
How to Compare Aid Offers
Now that you’ve calculated the net price of each institution, it’s time to take all the information you have and compare aid offers. We recommend the following steps:
Create a spreadsheet with a column for each school.
Record the following information for each school:
The COA
The free aid you won’t have to pay back (scholarships, grants, etc.)
This will give you an idea of the overall cost to attend each school, how much free aid you’ve been awarded at each, and how much you would potentially have to take out in loans for each school.
Is My Financial Aid Offer Good?
Most institutions don’t meet 100% of the student’s financial need. Additionally, most institutions will have loans somewhere in their aid package. So, if your award letter only covers a portion of your need and part of that aid is through loans, your offer isn’t far off from the norm.
On average, institutions meet 86% of student financial need.
The average need-based grant is $28,448.
The average aid package is $29,916 for a school where tuition and room and board total to $40,580.
You may also be able to find information about the average aid awarded at each specific institution via their website. This information can be helpful in seeing how your aid offer compares to their average. Ultimately, you’ll want to ask yourself what makes sense for you individually.
How and When to Appeal a Financial Aid Award
When comparing offers, you may notice that one institution offered significantly more aid than another. This is common and can happen for a variety of reasons.
While it may seem like a solid idea to negotiate the aid offered, experts don’t recommend pitting one institution against another. The only time you should do this is if you’re positive the institution will consider appeals where financial situations haven’t changed.
More often than not, institutions will only accept appeals on aid where a financial situation has changed since the FAFSA was submitted. For example, divorce of parents, death, unexpected medical expenses, and natural disasters are all circumstances that would warrant an appeal of a financial aid offer.
You can typically submit an appeal through the school’s financial aid office website. If you do, be prepared to provide additional information. Some institutions may ask for a detailed outline of your typical expenses, a written statement, or to see the other aid letters you received from other universities.
Accept Aid Intentionally
When you decide to accept aid, always accept it in the following order:
Scholarships/Grants (free money) → Work Study (earned money) → Loans (borrowed money)
Scholarships and grants don’t need to be repaid, so you’ll want to accept those first. (who doesn’t love free money?!) If offered work-study, it’s a good idea to accept that second. While it doesn’t guarantee you a job, work-study would provide you with the opportunity to have a part-time job on campus to help fund your education. Always accept loans last as they need to be repaid and will accrue interest over time, meaning you’ll pay more than what you’re borrowing.
Other Important Notes
Don’t guess on anything. Before accepting any financial responsibility of this scale, it’s important to understand what you’re agreeing to.
Financial aid award letters might have abbreviations or language you’re unfamiliar with. Always contact the institution’s financial aid office to ask what this means if you’re confused.
Final Thoughts
This phase of the college application and acceptance process can certainly be overwhelming. However, it’s one of the most important parts of the process. Understanding the financial responsibility you are about to take on is important, so make sure you take your time deciphering your financial aid award letters before committing to any one institution.
If your financial aid package doesn’t cover your total cost of attendance, it may be time to look into private student loans. When the time comes, we’ve got you covered. Fill out the free Sparrow applicationto see what private student lenders you qualify with.
Buckle up. Sit down. Grab a snack. Take a deep breath.
Whatever you have to do to get ready, do it, because we’re about to give you everything you could ever need to know about the FAFSA.
What is the FAFSA?
FAFSA is an acronym that stands for Free Application for Federal Student Aid. It is a form that collects information to determine a student’s eligibility for need-based aid. This can come in the form of grants, scholarships, work-study, and/or subsidized student loans.
Need-based aid is just as it sounds: financial aid based on financial need. It is given out based on finances not extracurriculars, achievements, or high school performance.
While the FAFSA is primarily used by the federal government to determine federal aid eligibility, it is also looked at by the state government and the majority of colleges and universities.
Who Should File the FAFSA?
We recommended that all undergraduate and graduate students fill out the FAFSA. Even if you think you may not qualify for any financial aid, you should still fill it out for a few reasons:
The FAFSA determines a student’s eligibility for need-based aid, but it can also provide access to non-need-based federal loans. Because federal loans generally come with lower interest rates than private student loans, you’ll want to take advantage of any federal student loans you can get.
Some schools only hand out aid to those who’ve completed the FAFSA. Thus, you could miss out on aid given by your college or university if you don’t fill out the FAFSA.
Many students express resistance to completing the FAFSA, deeming it a waste of time because they don’t need loans. However, filling out the FAFSA is still a critical step in the college process. Not filling it could leave you ineligible for some forms of free money such as scholarships and grants. And who doesn’t like free money?
Think of it this way: Even if you spend an hour filling out the form and get nothing, you’ve only lost an hour of your time. But, if you spend the hour and end up getting $1,000 in aid, in a way you’ve just made $1,000/hour. (Sounds like a pretty sweet wage to us.)
How is My Financial Aid Calculated?
The FAFSA utilizes a specific formula that takes into account your Expected Family contribution, student enrollment status, year in school, and the cost of attendance at the school.
Expected Family Contribution (EFC)
Your EFC is a number calculated by your college’s financial aid office to determine how much financial aid you are eligible to receive.
This number is calculated using a formula established by law and uses information such as your family’s income, assets, and benefits. It also takes into account whether you have another family member in college during the same year.
Oftentimes, people assume EFC is the estimated amount of money you or your family will be able to contribute to your education. However, this is not the case. This number estimates how much you could contribute to determine your eligibility for need-based aid.
Student Enrollment Status
The Student Enrollment Status is a basic understanding of how the student is completing school (full-time, part-time, etc). This gives the federal government an understanding of the student’s expenses for attending school. For example, attending school part-time is typically cheaper than attending full-time.
Your Year in School
You can file the FAFSA if you are a(n):
Undergraduate student
Graduate student
Professional student
Parent of a student (or soon-to-be student)
What differs here is the amount of money you can borrow.
You can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs, as determined by your school, not covered by other financial aid.
Parent of a dependent undergraduate student
You can receive a Direct PLUS Loan for the remainder of your child’s college costs, as determined by their school, not covered by other financial aid.
Cost of Attendance
The Cost of Attendance (COA) is exactly what it sounds like: the total cost of attending at your respective college or university. The COA is an all-inclusive estimate of the total cost of attending that institution. It includes everything from tuition and fees to the cost of books, supplies, and transportation.
There may be elements of the COA that you end up not needing. For example, some universities offer health insurance and include this in the COA. Some students who plan to remain on their parent’s health insurance plan or have their own individual plan will opt out of the university-provided insurance. This would then lower the COA.
That said, the university’s full COA estimate is what will be used in calculating financial aid.
To calculate need-based aid, the the following formula will be used:
Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need
Federal aid will try to meet your financial need and supply non-need-based aid where possible. Non-need-based financial aid, however, will not take into account your EFC as it is trying to assist you financially regardless of how much your family earns.
You can get an estimate of your expected financial aid by using a financial aid calculator. Note that this number will not necessarily be what you receive, but it can give you a general idea of where you might land.
Who is Eligible for Federal Aid Through the FAFSA?
To be eligible for federal student aid provided through the FAFSA, you must:
Qualify for a college or career school education, which usually means also having a high school diploma or GED
Be enrolled, or accepted to enroll, in a degree program
Sign the required statements on the FAFSA, agreeing to use the money only for educational purposes and certifying that you aren’t in default on any other federal aid
Maintain good academic progress in school
Have one of the following citizenship statuses:
US citizen
US national
Green card holder
Refugee, Asylum-granted, Cuban-Haitian, Conditional Entrant, or Parolee
Battered Immigrant Status
T-VISA Holder
How Much Money Can I Get From the FAFSA?
The amount you can borrow in federal financial aid depends on your student status and the amount you qualify for. See the section above on student status for some more details and numbers on that.
The following table does a great job in breaking down the maximum amounts for each category of federal aid and the average amount.
First, you should create an FSA ID (Federal Student Aid ID). Your FSA ID is a username and password combination that allows you to access the FAFSA form electronically. It is also the login that will allow you to manage and sign loan contracts through the myStudentAid app.
Creating your FSA ID ahead of time can save you time when you go to fill out the FAFSA as it can take some time to receive if there are any errors or delays.
Once you have your FSA ID ready to go, you’ll want to collect all the information needed to fill out the FAFSA form. This will make the process a lot easier and smoother. Make sure you have the following information ready:
Your social security number (Always verify this, and never go off of memory. It is crucial that you enter this correctly on the FAFSA form.)
Your parent’s social security numbers (if you are a dependent)
Your Alien Registration number (if you are not a US citizen)
Tax Information such as tax returns including IRS W-2 information
If applying as a dependent, make sure you have your parent(s) tax information as well.
Records of any untaxed income such as child support, veteran benefits, etc.
Information on cash you may have, such as bank account (checking and savings) information, investments such as stocks and bond, ad business assets
While most people opt to complete the form electronically, there are 4 total options for filling it out:
By calling 1-800-4-FED-AID (they print and mail you the form; you mail it back for processing)
When do I file the FAFSA?
The FAFSA will become available to you on October 1st of the year before you plan to attend college. The exact deadline to file the FAFSA will change each year, but it is typically at the end of June.
That said, we recommend applying much earlier than the actual deadline and as close as you can to when the form opens. Most colleges operate on some form of a first-come, first-served basis and will deal out aid based on when the forms were received.
Other Common FAFSA Questions:
Do I have to pay to fill out the FAFSA?
No! As its name implies, it is free to fill out and submit the FAFSA.
Do you need a certain GPA for FAFSA?
To remain eligible for federal financial aid, students must maintain Satisfactory Academic Progress. This generally means obtaining at least a 2.0 GPA on a 4.0 scale (around a C average). That said, you don’t need to have a specific GPA to fill out the form.
Do You Have to Pay Back Aid from the FAFSA?
This depends on the type of aid you get. You will need to pay back any loans you accept, but you won’t have to pay back scholarships or grants.
This is why it’s important to always accept aid in the following order: free money (i.e. scholarships, grants), earned money (i.e. work-study), borrowed money (i.e. federal student loans).
Final Thoughts from the Nest
The FAFSA can seem overwhelming due to its length and complexity. However, preparing ahead of time can make the process more seamless. For the easiest process, come prepared with the information you need and fill it out electronically.
If you find that the financial aid package you ultimately receive doesn’t cover your total cost of attendance, private student loans may be the next step. In that case, make sure to fill out the Sparrow application to see what lenders you qualify with to get the best student loan.
The FAFSA, or Free Application for Federal Student Aid, is the form you fill out to get financial aid from the U.S. Department of Education to help pay for college.
The information you provide on the FAFSA will determine your eligibility for thousands of dollars worth of financial aid. So, due to the nature of it, the form is big and asks for a lot of information. To make it more seamless, we’ve broken down the process of filling out the FAFSA into 6 simple steps.
Understanding FAFSA
FAFSA determines which students receive financial aid and how much they will get. Believe it or not, over 13 million students each year get more than $120 billion in grants when they file the FAFSA. (a.k.a. you better fill out the FAFSA!)
Note: We’re calling this the FAFSA process because you’re truly not finished with it until the final step when you complete entrance counseling. You could also call this the Federal Aid Process.
Completing the FAFSA Process in 6 steps:
Get Informed
Fill it Out
Compare Aid Offers
Reply to Aid Offers
Sign a Loan Agreement
Complete Entrance Counseling
Step 1: Get Informed
The FAFSA collects information to determine your eligibility for financial aid. Your Expected Family Contribution, year in school, enrollment status, and the cost of attendance at the school are used to determine your eligibility.
Expected Family Contribution: A number that indicates a student’s ability to pay for college.
This number is calculated using a formula established by law and uses information such as your family’s income, assets, and benefits.
Your Year in School: The amount you can borrow in federal student loans depends on whether you’re an undergraduate student, a graduate or professional student, or a parent.
Undergraduate student
You can borrow between $5,500 and $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans depending on what year you are in school and your dependency status.
Graduate or professional student
You can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs, as determined by your school, not covered by other financial aid.
Parent of a dependent undergraduate student
You can receive a Direct PLUS Loan for the remainder of your child’s college costs, as determined by their school, not covered by other financial aid.
Cost of Attendance: The price tag (cost) of a year at school. This number includes everything from the basic tuition and fees to the cost of books, supplies, and transportation.
Enrollment Status: This indicates whether a student is full-time, three-quarter time, part-time, withdrawn, graduated, etc.
Step 2: Fill it Out
After you’ve taken some time to understand what you’re actually applying to, you’ll need to sit down and apply. We won’t sugarcoat it – completing the application is quite an endeavor. However, if you come prepared with all the information you’ll need to fill it out, you can bang it out in around an hour.
Make sure you have the following on hand:
Your social security number (Make sure you verify this and don’t just go off of memory. It is crucial that you enter this correctly on the FAFSA form.)
Your parent’s social security numbers (if you are a dependent)
Your Alien Registration number (if you are not a US citizen)
Tax Information such as tax returns including IRS W-2 information
If applying as a dependent, make sure you have your parent(s) tax information as well
Records of any untaxed income such as child support, veteran benefits, etc.
Information on cash you may have, such as:
Bank account (checking and savings) information
Investments such as stocks and bonds
Business assets
Having this information at the ready will help speed up the process of filling out the FAFSA form. You can complete the form here.
Step 3: Compare Aid Offers
After you’ve filled out the FAFSA, the financial aid office at your school will send you an aid offer. Sometimes referred to as an aid letter, this will detail what financial aid you can receive. The offer will include the types of aid you may get from federal, state, private, and school sources. This sum of financial aid is your financial aid package.
Now, it’s a good idea to figure out the net price for each school you applied to. This will help you determine which school will be the most affordable. To do this:
Find the cost of attendance on the aid offer. If you cannot locate it on the aid offer, contact the school’s financial aid office.
Subtract grants, scholarships, and any savings you plan to put towards college from the total cost of attendance . This is known as your net or out-of-pocket cost.
Compare the net costs and amount of debt you would be taking for each school.
Step 4: Reply to Aid Offer
Once you’ve decided where you want to attend, you will want to reply to the aid offer.
Accept financial aid in this order: free money (i.e. scholarships, grants), earned money (i.e. work-study), borrowed money (i.e. federal student loans).
When accepting federal student loans, you want to accept a subsidized loan before an unsubsidized loan. This is because subsidized loans do not start accumulating interest until after you leave school.
Federal loans will typically have more favorable terms and conditions than private loans (interest rates, repayment periods, etc.). Evaluate your federal loan options and accept what makes sense before deciding on a private loan.
A few additional things you will want to be aware of:
Some scholarship and grant programs have specific requirements to remain eligible. If you receive a scholarship that renews year over year, make sure you’re informed of the ongoing requirements.
Accepting work-study is a great idea, but be realistic with yourself. Make sure to balance your time between work and studying.
Step 5: Sign Loan Agreement
Okay, now you’ve decided what part(s) of your financial aid package you want to accept. (deep breath, only 2 more steps…we promise)
To receive federal student loans, you will need to sign a document called the Master Promissory Note (MPN). Signing the MPN signifies you agreeing to repay your loan(s) and any accrued interest and fees to the U.S. Department of Education. It also details the terms and conditions of the loan(s).
Entrance Counseling is the final step in the FAFSA process.
Through entrance counseling, you will learn what a loan is, how interest works, the terms and conditions of your loan, your options for repayment, and how to avoid default. Once you have completed counseling, a record of it will be sent to your school so your loan money can be disbursed.
After completing all these steps, you will have completed the FAFSA process and accepted financial aid. Following each step carefully is the most important part. If you have any questions, make sure to pause and find the answer before proceeding. (now deep breath #2 – you got this!)
You got accepted into your dream school. You’re so excited you can hardly contain it. A few days go by and the reality sets in. How am I going to pay for this?
You log into your school’s payment portal and look at the total cost of attendance. Before you panic, let’s break down all the steps you’ll need to take to pay for college.
Before College
Step 1: Complete the FAFSA
Each year, the U.S. Department of Education offers financial aid to college students. The FAFSA, or Free Application for Federal Student Aid, is a form you will need to fill out to be considered for this aid.
The FAFSA determines which students receive financial aid and how much they get. The information you provide in the form is also used by colleges and universities to determine eligibility for their scholarships and aid programs.
The FAFSA opens each year on October 1st. Students should fill out the FAFSA the year before they plan to start school. For example, if you plan to be in school by October of 2022, you’ll want to fill out the FAFSA in October of 2021.
We recommend that prospective students fill out the FAFSA as soon as they can after it opens. Note that you do not need to know exactly where you plan to enroll to fill out the FAFSA. In fact, you will likely fill out the FAFSA before you even apply to some schools.
Most people elect to fill out the FAFSA online, although there are other ways to complete it. For a more in-depth guide to the FAFSA, check out 6 Simple Steps to Fill Out the FAFSA.
Step 2: Apply for Grants and Scholarships
Grants and scholarships are also known as “free money” because they don’t need to be repaid. They tend to be merit-based, need-based, or a combination of both.
What does that mean?
Merit-based → awarded based on academic achievement or excelling in an interest, trait, or talent
Need-based → awarded based on financial need
The amount of money you can get in scholarships and grants ranges quite a bit. Some grants and scholarships will cover the cost of books, and others will cover the entire cost of tuition. According to Education Data, students receive $7,500 worth of scholarships and grants, on average.
To find college scholarships and grants, you can do the following:
Ask your high school guidance counselor for local resources. Local organizations such as Veterans Clubs, Rotary programs, and small businesses may offer scholarships.
Look to your employer or your parents’ employers. You’d be surprised how many companies offer scholarships!
Research organizations that cater to identities you hold, such as:
Ethnicity-based organizations
Women’s/Men’s Clubs
Volunteer or Service-based organizations (nonprofits, community organizations, civic groups)
Note that deadlines for each scholarship will be different. We recommend making a Google Sheet to track each scholarship or grant you plan to apply to, the deadline, and the materials required to apply.
Step 3: Get a Work-Study Job
After filling out the FAFSA, you may qualify for work-study. Work-study is a federal aid program that provides part-time jobs to college students with financial need. Qualifying for this program doesn’t guarantee you will receive a job, but it does open the door to various job opportunities not all students have.
To read more about work-study, check out this article.
Once you’ve selected which school you want to attend, look through their job portal online to find work-study jobs available to you.
Note: Again, not all students will qualify for work-study. Only those who demonstrate significant financial need based on their FAFSA will be eligible. If you are not eligible for work-study, there will still be other job opportunities you can take advantage of on or off campus.
Step 4: Examine Your Savings
Taking out private student loans is part of the average person’s college experience. But, as much as you can, you want to minimize how much you need to take. Examine your savings and see how much you can put towards paying for college.
Additionally, be smart about what you spend leading up to college. Maybe you just had a high school graduation party and received generous gifts. Instead of spending that money, consider putting it towards paying for college. (Trust me, your 22-year-old graduated self will thank you.)
Step 5: Take out Federal Student Loans
After filling out the FAFSA, you will receive a financial aid package from the schools you applied to. Within these aid packages, you may see grants and federal student loans.
Federal student loans tend to have lower interest rates and more favorable terms in comparison to private student loans. Thus, many students opt to take whatever federal loans are offered to them.
You should remember to accept federal financial aid in the following order: grants/scholarships (free money) → work-study (earned money) → loans (borrowed money)
Loans should always be accepted last after any scholarships, grants, or work-study.
Step 6: Borrow Private Student Loans
The average college student will take out private student loans to cover their remaining balance. But, private student loans should always come after federal loans as they need to be repaid and tend to have higher interest rates.
Each private loan will offer different elements that will vary in importance depending on the person. This means that there isn’t a single best private loan option; it varies by person.
Finding the best private student loan for you is a seamless process on Sparrow. Create an account, and in under 3 minutes, you can compare all your loan options in one place.
Payment Deadline Reminder
May 1st is the deadline for accepting a college’s offer for fall admission and for paying the tuition deposit to enroll.
This deadline is crucial to keep in mind because it impacts other parts of the process of paying for college. Be proactive and do things earlier than you think you may need to.
Every Summer While in College
Register and Pay for Classes
To be considered a full-time student and pay the same tuition rate, you need to make sure you enroll in classes. Try to register for classes as soon as your university will allow you to.
Before enrolling, consult with an advisor to ensure you’re taking the right classes to stay on track to graduating on time. If you plan ahead, you may be able to graduate early which would save you a lot of money in the long run.
Universities will typically send out tuition bills in July or August with the expectation that they are paid by the fall. If you have questions or concerns about when your tuition will be due, reach out to your university’s financial aid office.
Submit FAFSA for Next Year
If you’re using the FAFSA for any financial aid or loans, it will need to be resubmitted every year that you’re in college. This is because your financial situation may change from year to year, thus impacting the amount of money you qualify for.
If you submitted the FAFSA previously, you may be eligible to submit a Renewal FAFSA rather than having to fill out the entire form again. To reapply, simply log into the FAFSA portal online and click FAFSA Renewal.
Find a Job or Work-Study
If you previously qualified for work-study but haven’t accepted a position, check for opportunities for the next school year. If you didn’t qualify when you initially filled out the FAFSA, but your financial situation has changed, you should resubmit the FAFSA as you may qualify now.
If you aren’t eligible for work-study, looking for an on or off campus job may help you pay for college or manage expenses such as books or food.
After You Leave School
Review Your Loan Repayment Plan
Regardless of whether you have federal or private student loans (or both!), you’ll want to review your repayment plan options. Find one that works for you and stick with it!
This is also a good time to determine how you want to allocate funds to make payments. We recommend using the Debt Avalanche method as it is most effective, but this won’t be for everyone. Do some research on the different methods and again, find one that works for you and stick to it!
Find a Job
Most of us attend college with the hopes of finding a job we love. Of course, we hope that it can financially support us as well. You will likely start the job search before graduating, but if you haven’t, post-grad is a great time to start looking.
Use sites like LinkedIn and Indeed to find roles that both suit you and will help you pay off your loans.
Consider Refinancing Your Loans
If your interest rates seem out of this world (and not in a good way), you may want to consider refinancing. Refinancing would allow you to take out a new loan with a lower interest rate to cover all of your initial loans. If the concept of refinancing sounds overwhelming, check out our guide.
Summary
There is no one-size-fits-all solution to paying for college. You may end up with enough scholarships and grants to completely cover your college costs. Or, you may not get as much through the FAFSA as you expected, leaving you to take out more in private student loans.
Either way, there is no one solution to paying for college. This means that however you decide to pay for school, as long as it works for you, you’re making the right decision.
If the cost of the new shoes you just bought is higher than your credit score, let’s chat.
Your credit score impacts your ability to take out loans as well as the interest rate associated with them. If your credit score isn’t as high as you’d like it, or if it isn’t in the range necessary to open a new line of credit, here’s 5 ways you can improve your credit score.
Pay All Your Bills On Time
This one probably sounds like a no-brainer, but making all of your credit payments on time is crucial. Even if you’re just making the minimum payment, paying on time shows lenders that you’re able to keep up with your credit accounts.
Payment history makes up roughly 35% of your credit score1, so making even one late payment could impact your score quite a bit. A few ways to help prevent making late payments include:
Putting a reminder in your phone for a few days before your bill is due every month
Setting up automatic payments so the money comes out directly from your checking account (only do this if you’re sure the money will be there every month to avoid overdraft fees!)
Pay Off Your Debt
This one is also a no-brainer and much easier said than done, but paying off your debt can raise your credit score significantly. You should aim to have around a 30% or less credit utilization ratio. This ratio is the amount that you owe across all credit accounts compared with the total amount of available credit.
Source: Better Pockets
For example, you may have 3 credit cards all with a $1,000 limit. This means your total amount of available credit is $3,000 ($1,000 limit x 3 credit cards = $3,000).
If you owe $100 on the first credit card, $200 on the second credit card, and $300 on the third credit card, you would have a 20% credit utilization ratio ($600 compared to the $3,000 limit).
Paying off the money you owe can help lower your credit utilization ratio which shows lenders that you’re being responsible and not maxing out all of your available credit accounts.
Applying for a new line of credit will cause a “hard inquiry.” Hard inquiries occur when a creditor requests to look at your credit file to determine the level of risk you pose as a borrower.2 This hard inquiry can actually harm your credit score for the first few months after it occurs. If you’re concerned about your credit score, it’s best to stay away from anything that may harm your score even if it’s just temporary.
In the event that you do need a new line of credit and want to shop around for the best offers, it is best to do so in a 45 day period. This is because FICO, the most commonly used credit scoring model, considers similar loan-related inquiries that have occurred within 45 days of each other as a single inquiry in the scoring process.
For example, if you shopped around for a student loan with five different lenders over a period of 45 days, FICO would consider those five hard inquiries as one hard inquiry for credit scoring purposes. FICO is able to process your rate-shopping as exactly that: rate-shopping for one loan, not you attempting to take out five separate loans. As you can imagine, attempting to take out five separate loans would raise some red flags to FICO, as where rate-shopping does not.
Keep Credit Card Accounts Open
Closing any credit card accounts you currently have open, for any reason, may not help your credit score in the way you think. Every time you open a line of credit, it adds to the length of your credit history. Credit history is important in calculating your credit score because it proves to lenders that you’ve been able to manage your credit consistently over time. Thus, even if you don’t use a credit card, keeping the account open can help contribute to proving your credit worthiness.
You may want to consider closing your credit card account, however, if the card has an annual fee that you simply can’t afford.
Pay Attention to the Credit Report
1 in 8 Americans is unaware of their credit score.3 Don’t worry – we won’t let that be you.
Numerous credit card companies, banks, and other financial institutions now offer free credit score reports. If yours doesn’t, you can use the Annual Credit Report to get a free copy of yours every 12 months from each of the three credit bureaus.
Knowing your credit score is important for a variety of reasons. Not only is it important to understand where you are financially, but it’s important to check for errors, fraud, or potential identity theft. If something just doesn’t look right about your credit report, it’s important to inquire. This level of attention to detail could be the determining factor in you qualifying for a new loan or line of credit.
Summary
If your credit score it’s quite where you want it, don’t fret. There are numerous ways to increase it. What’s important is that you remain consistent and dedicated to these methods. If you do, you will notice your score increasing over time.
If you’re worried about how your credit score may impact your ability to take out a student loan, we got you covered there, too. There are lenders that will lend to folks with no credit or bad credit. Check out your options here.
Understanding how credit works may feel impossible.
A great place to start is by learning the difference between a hard and soft credit inquiry. We’ll give you all the ‘deets below.
Important Note
Before we dive in, we want to note that credit inquiries are also often referred to as “credit pulls” or “credit checks.” In this article, we’ll refer to them as “credit inquiries.”
What is a Hard Credit Inquiry?
A hard credit inquiry occurs when a financial institution checks your credit report when making a lending decision. For example, this may happen if you decide to apply for a mortgage, credit card, or student loan.
When doing a hard credit inquiry, lenders are attempting to assess how you have handled your credit in the past. This can include how you’ve managed your debts, whether you’ve made payments on time, or if you seem to have fumbled your way through paying your debts.
To a lender, each new credit application indicates a potential new debt. Thus, your credit score may temporarily drop after a hard inquiry.1 Don’t panic, though. FICO says hard inquiries typically only lower credit scores by 0-5 points. Generally speaking, one hard inquiry won’t cause too much trouble, but several hard inquiries could. (We’ll touch on this below.)
This hard inquiry will remain on your credit report for up to 2 years. Generally, this doesn’t bring down credit scores the whole time. For people that keep up with their debt payments, credit scores tend to come back up within a few months.
What is a Soft Credit Inquiry?
A soft credit inquiry occurs when an individual or company checks your credit as part of a personal curiosity or background check. For example, this may happen if you decide to check your credit score or if an employer checks it before hiring you.
Because these inquiries are not associated with a new potential debt, they will not impact your credit score in any way. Unlike a hard inquiry, a soft inquiry will only be visible to you in your credit report.
How Many Hard Inquiries is Too Many?
How much a hard inquiry impacts your credit score is dependent on your credit health. Lenders see multiple credit applications in a short timeframe as a sign of risk.
Think of it this way: If you applied for 10 credit cards in a one week span, something might be off. It could indicate a need for additional credit, a lack of secure funds, or an inability to pay off other debt. To lenders, this isn’t ideal.
Thus, one or two hard inquiries likely won’t have too much of a hit on your credit score, but having several in a short amount of time likely will.
There are some exceptions to this. For example, having hard inquiries from a mortgage and student loan at the same time likely won’t hit your credit score as hard as if you applied for 10 credit cards in the span of 3 weeks.
So, there isn’t a finite number of hard inquiries that is considered “too many.” Rather, you should try to think about what the hard inquiries are for and how that makes you appear as a potential borrower.
Can You Remove Hard Inquiries?
You can only remove hard inquiries in certain circumstances.
First, you should check your credit report from all three bureaus at least once a year. You can do this for free at AnnualCreditReport.com. (Remember: Because this is a soft inquiry, it won’t impact your score to check it!) Understanding your credit score and where it’s at is the first step to bringing it up.
When looking at your credit report, try to make note of any hard inquiries that don’t seem to make sense. While uncommon, there could be hard inquiries you don’t recognize, and of course, you would want to dispute those.
If you do see one you don’t recognize, reach out to the respective creditor. You should be super careful when it comes to sharing credit information over the phone or online with someone. Always use the contact information in the credit report. This will ensure that the creditor you call is actually who they say they are.
The creditor will then be able to verify the unfamiliar hard inquiry. Oftentimes, it is simply from something we forgot, but it doesn’t hurt to verify it. If the hard inquiry does end up being a result of fraudulent activity, you can:
Report it to law enforcement
Enact a fraud alert or security freeze with your creditor
Dispute the inquiry to have it removed from your credit report
Why Your Credit Score Matters
Your credit score is a large part of your financial wellness, and it takes some time to build. Monitoring changes in your credit score helps you manage it better and keep your score as high as possible.
Deciphering your student aid package is already like reading IKEA furniture instructions. Confusing.
One of the biggest points of confusion for prospective college students is the difference between subsidized and unsubsidized loans. Understanding the difference is important as it impacts your interest, repayment, and overall student debt.
What Are Direct Subsidized and Unsubsidized Loans?
Both Direct Subsidized and Direct Unsubsidized Loans are forms of federalfinancial aid offered by the U.S. Department of Education to support students in paying for higher education.
Neither Direct Subsidized or Direct Unsubsidized loans require you to make payments while in school.
Direct Subsidized Loans
What is a Direct Subsidized Loan?
Direct Subsidized loans are available to undergraduate students who are deemed eligible. The US Department of Education pays the interest on Direct Subsidized loans during certain periods such as:
When you’re in school (if at at least half-time status)
For 6 months after you graduate or leave school (This is called a grace period!)
If you need to defer your loans (postponing loan payments)
During these periods, interest won’t accrue and your principal balance won’t grow (this means that your loan amount isn’t getting bigger – ideal scenario!).
Who is Eligible for Direct Subsidized Loans?
In order to qualify for Direct Subsidized loans, you must meet all of the federal student aid requirements. Filling out the FAFSA will allow you to see if you qualify.
It’s important to note that Direct Subsidized loans are only available to undergraduate students who demonstrate financial need. This is one of the major differences between Subsidized and Unsubsidized loans. Each respective university will determine how much students can borrow in Direct Subsidized loans as the amount cannot exceed the determined financial need.
You are also only eligible to receive Direct Subsidized loans for 150% of your program length. This means that, for example, if you are in a 4-year program, you can only receive Direct Subsidized loans for 6 years (4 * 150%).
How Much Can I Borrow in Subsidized Loans?
There is a limit in how much you can borrow in Direct Subsidized Loans. The following chart breaks down the annual limits which are based on your year in school.
Year in School
Direct Subsidized Loan Limit
Undergrad Year 1 Annual Limit
$3,500
Undergrad Year 2 Annual Limit
$4,500
Undergrad Year 3 Annual Limit
$5,500
Lifetime Subsidized Loan Max
$23,000
Direct Unsubsidized Loans
What is a Direct Unsubsidized Loan?
Unsubsidized loans differ from subsidized loans in that interest begins to accrue as soon as the loan amount is disbursed (sent out) and you are responsible for that interest. So, if you use a Direct Unsubsidized loan to pay for your freshman year of college, interest will accrue on that loan for the entirety of your college career and beyond.
Who is Eligible for Direct Unsubsidized Loans?
Direct Unsubsidized loans are a tiny bit more flexible than Direct Subsidized loans in that they are available to both undergraduates and graduate students, and you don’t need to provide financial need in order to secure one.
Similar to Direct Subsidized loans, each university will determine how much you can borrow in unsubsidized loans based on the cost of attendance and the other elements of the financial aid package. So, for example, if the cost to attend your university was covered by scholarships and a Direct Subsidized loan, you might not be able to secure a Direct Unsubsidized loan.
How Much Can I Borrow in Unsubsidized Loans?
Unlike subsidized loans, unsubsidized loans don’t have a maximum eligibility period. They do, however, have a borrowing limit just like subsidized loans. This is where things could get a bit confusing, so stick with us.
Unsubsidized loan limits are based on your year in school, but also factor in how much you received in Direct Subsidized loans and your dependent status. So what does this mean?
Let’s use the chart and scenarios below to illustrate this.
Year in School
Dependent Status Students
Independent Status Students
Undergrad Year 1 Annual Limit
$5,500
$9,500
Undergrad Year 2 Annual Limit
$6,500
$10,500
Undergrad Year 3 Annual Limit
$7,500
$12,500
Graduate/Professional Degree Annual limit
N/A
$20,500
Subsidized
$31,000
$57,500 for undergrads$138,500 for graduate/professional students
Scenario 1: Sara, a 1st year undergraduate student who filed as an independent
Sara receives $1,500 in Direct Subsidized Loans
Sara would be eligible for up to $8,000 in Direct Unsubsidized loans
($9,500 – $1,500 = $8,000)
Scenario 2: Michael, a 3rd year undergraduate student who filed as a dependent
Michael receives $2,000 in Direct Subsidized Loans
Michael would be eligible for $5,500 in Direct Unsubsidized loans
($7,500 – $2,000 = $5,500)
Are Subsidized or Unsubsidized Loans Better?
In general, Subsidized loans will be a better option as interest won’t be accruing as it would with Unsubsidized loans.
However, if you aren’t eligible for Direct Subsidized loans because you don’t demonstrate enough financial need, then Direct Unsubsidized loans will be the better option (and your only option likely).
Either way, federal loans in general will likely be the best loan option in comparison to private lending options. Thus, you should take out what you can in federal loans before dipping into private loan options.
Final Thoughts
Federal Direct Subsidized and Unsubsidized loans are great options to explore if you are offered them. If federal loans don’t cover your financial need entirely, it may be time to explore private loan options.
You may have heard the news – the federal student loan forbearance period has been extended again until student loan forgiveness litigation is resolved or debt is forgiven.
If you’re feeling out of the loop after reading that, here’s a quick recap of how we got here:
COVID happened (no further explanation needed)
Loan payments…while in a pandemic? No way.
Federal student loan payments were suspended, without interest, until February 1st, 2022, then later extended again until May 1st, 2022, and again until September 1st, 2022, and again until December 31st, 2022.
Now, amidst a motion to forgive up to $20,000 in student loan debt per borrower, litigation is preventing it from moving forward. As a result, payments have been paused again until 60 days after litigation is resolved or debt is forgiven. If neither happen by June 30th, 2023, payments will resume 60 days after that.
What Does This All Mean?
With President Biden’s executive action to extend the forbearance period, your federal loans will not require payments or accrue interest until 60 days after litigation is resolved or debt is forgiven, or 60 days after June 30th, 2023 if neither occur before then.
Previously, borrowers planned to resume payments on January 1st, 2023. Now, you can hang tight until an announcement is made about when payments will resume.
During this time, payments are not required. However, you can still make payments.
Let’s break down all of the options that come with this extended forbearance.
Pausing Payments
If you want to take advantage of the extended forbearance period and temporarily pause payments on your loan, you don’t need to do anything. The Education Department instructed all federal loan servicers to automatically place all federal loans into a forbearance without interest.
Continue Making Payments
If you want to continue making payments, you absolutely can. If you do, you will pay 0 new interest on your loans during this period. This will save you money in the long run. You can continue making payments as you typically would.
If You’re Behind on Payments
If you’ve been behind on payments and your loans have entered either loan rehabilitation, default, or a separate forbearance, this section is for you.
If you are currently in loan rehabilitation, the original and extended forbearance periods will count towards the nine months included in rehabilitation.
If your loans have ended up in default, the typical collections activities will be suspended until the extended forbearance period is up. You can, however, get a refund for any forced student loan payments made between March 13, 2020 and now.
If your loans were already in forbearance before this period, any interest that accrued will still be added onto your loan principal when repayment begins. No new interest will be calculated during the new forbearance period.
If You’re Working Towards PSLF
The new forbearance period won’t reverse any progress you’ve made towards the PSLF program. As long as you are continuing to work with a qualifying employer and meeting the other requirements, you are all set.
You can choose whether or not you want to make payments during the new forbearance period. If you do, however, it won’t get you ahead on payments.
If Your Income Has Changed
If you experience a shift in income and want to continue making loan payments, we recommend opting for an income-driven repayment plan. This plan will remain in effect even after the forbearance period is up.
If You Have FFEL Loans
If you have FFEL loans, you can receive the no-interest forbearance *if* the government owns the loans. Most FFEL borrowers will not qualify under this, as the majority of FFEL loans are commercially held. You can verify whether or not you qualify by logging into your studentaid.gov account.
Final Thoughts
If you are having any confusion or difficulty navigating this new information, your best bet is to reach out to your loan servicer. Ultimately, they have control over your loan and can provide the best support for your individual needs and situation.
The Parent PLUS loan program was launched in 1980 through the Higher Education Act, giving high-asset families a bit of liquidity to cover their Expected Family Contribution (EFC). Since then, the program has expanded to cover other demographics, providing a wider audience with federally-sponsored college financing.
If you’re considering borrowing a Parent PLUS loan to cover the cost of your child’s education, there are several factors to consider. This guide explains everything you need to know, from the eligibility criteria, to the interest rates, to how to navigate repayment.
A Parent PLUS Loan is a type of Direct loan provided by the U.S. Department of Education that allows eligible parents to borrow money to pay for their child’s education.
Be the biological or adoptive parent (or sometimes stepparent) of an undergraduate, dependent student who is enrolled at least half-time at an eligible school
Have a decent credit history (although there are other additional requirements you can meet to get around this)
Note that grandparents and legal guardians are not eligible for Parent PLUS loans unless they have adopted the student.
The student you borrow for must also:
Be a U.S. citizen or eligible non-citizen
Nothave any previous student loan defaults on their record that haven’t been resolved
Credit Requirements
When you borrow a Parent PLUS loan, your credit history will be checked. To pass, you must not have any of the following on your record within the 2 years prior to applying:
One or more debts that are more than 90 days overdue that total more than $2,085
A collection or charge off
You must also not have any of the following within the 5 years prior to applying:
A loan default
A discharge of debts via bankruptcy
A foreclosure
A repossession
A tax lien
Any wage garnishment
A write-off of a federal student aid debt
Can You Get a Parent Plus Loan with Bad Credit?
If you are concerned about meeting the credit requirements of a Parent PLUS loan, there are some ways to get around it:
Prove extenuating circumstances. If you believe your credit is insufficient due to extenuating circumstances, you can submit adocument to the U.S. Department of Education. The document will require you to detail the circumstances leading to poor credit history. For example, situations of divorce or excessive medical bills may contribute to extenuating circumstances. While this doesn’t guarantee you eligibility, it is always worth a shot.
Obtain an endorser. An endorser is an individual who agrees to sign onto the loan alongside you, taking legal responsibility for the loan just like you. In the realm of private student loans, this is called a cosigner.
Adding an endorser to the loan can help you qualify if your credit is not as established as it could be. Note that the endorser cannot be the child you are borrowing for.
To borrow a Parent PLUS loan, complete the online application. Note that the application will instruct you to complete the FAFSAprior to completing the Parent PLUS loan application.
Parent PLUS loans can cover up to the cost of attendance minus other aid your child receives. For example, if the cost of attendance at your child’s school is $30,000, and they received $10,000 in additional aid, you may be eligible to borrow up to $20,000 in a Parent PLUS loan.
Note that you do not have to accept the full amount given. For example, if offered $20,000, you can choose to only borrow $15,000.
What Are the Interest Rates?
Parent PLUS loan rates change annually. For loans disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is 7.54%. This interest rate is fixed, meaning it will remain the same throughout the life of the loan.
Are There Fees?
Parent PLUS loans do come with a loan fee. This loan fee is a percentage of the amount being borrowed and is deducted from each disbursement over the life of the loan. While the loan fee can and does change, it has remained at 4.228% the last two academic years.
So, for example, if you borrow $10,000, $422.80 will be deducted due to the loan fee, and $9,577.20 will be disbursed to the school. That said, you will still be responsible for repaying the entire $10,000.
Parent PLUS Loan Repayment
Repaying a Parent PLUS loan is the legal responsibility of the borrower – the parent. While you may ask your child to contribute to repayment, it is ultimately your responsibility. Before borrowing a Parent PLUS loan, take the time to understand what that means for you in terms of repayment and to discuss repayment with your child.
Do I Have to Make Payments While My Child is Still in School?
When borrowing a Parent PLUS loan, you will have the option to request adeferment. This deferment would excuse you from making payments while your child is enrolled and for an additional six months after your child graduates.
However, if a deferment is not requested, you will be expected to make payments immediately after the loan is disbursed.
Regardless of whether you decide to make payments while your child is in school, interest will continue to accrue on the loan.
Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.
Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increase over time.
Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.
Income-Contingent Repayment Plan: You make payments that are set based on your income (typically 10-20% of your income). With an income-contingent repayment plan, you will likely pay more over the life of the loan in comparison to the standard repayment plan. Note that you will only qualify for income-contingent repayment if you consolidate your Parent PLUS loans.
What If I Can’t Repay My Parent PLUS Loan?
If you’re struggling to make payments on your Parent PLUS loan, there are a few things you can do:
Refinance the Parent PLUS loan(s) to a private student loan. By refinancing your federal student loan through a private lender, you may be able to score a lower interest rate or longer repayment period, which could in turn, lower your monthly payment.
Switch repayment plans. If you are currently on the standard repayment plan, consider switching to the extended repayment plan. By doing so, your monthly payments will decrease, which may make it more manageable to repay.
Request a deferment or forbearance. Deferment and forbearance both allow you to temporarily postpone payments. You will need to be able to prove financial or other hardship, however, to qualify. Additionally, interest will still accrue during these periods, which could increase your monthly payment after you return to repayment.
Before making any decision regarding your Parent PLUS loan(s), contact your loan servicer. They can help you determine the best course of action to remedy your situation.
Can I Transfer My Parent PLUS Loan to My Child?
Parent PLUS loans cannot be directly transferred to a child. However, you can have your child refinance the loan through a private lender to remove your name from the loan.
Note that each student loan forgiveness program will have its own unique requirements. To ensure you are eligible for a certain forgiveness program, make sure to read its eligibility requirements carefully.
A Parent PLUS loan is a great option for parents who want to help support their children through their education. Before agreeing to any loan, however, it’s a good practice to compare interest rates across all loans. In fact, you may be able to score an even lower interest rate with a private student loan.
The bad news: Unfortunately, there’s several mistakes we see students make when dealing with their student loans.
The good news: We’ve compiled them into a list with steps on how to avoid those mistakes so you don’t make them.
Here we go!
1. Borrowing Too Much Money
These aren’t in any specific order, but this one definitely deserves to be first. Borrowing too much money is a classic student loan mistake.
Just because you can borrow it, doesn’t mean you should. Borrowing money may be a quick fix to pay for your dream school, but it’s important to consider the reality that that money will have to be paid back eventually.
How to Avoid:Think realistically about what it would look like to pay this amount back after you graduate. Always look for grants and scholarships first before even considering student loans.
2. Not Looking Around for The Best Rates
All too often, college students take out a loan at the first lender they find after a Google search. (you can’t see us right now, but we’re screaming)
Once you commit to taking out a loan somewhere, you can’t really back out. So, if you decide to borrow $10,000 from Lender A at an 8% interest rate, only to find Lender B five minutes later who would offer you $10,000 at a 4% interest rate, you’re locked into Lender A. This is why searching for the best rates is crucial.
How to Avoid:We usually save our shameless plugs for the end, but we’re putting it here, upfront: Use Sparrow. In less than 5 minutes, we’ll find the lender with the best interest rate for you, without you having to do the search yourself.
3. Relying on Student Loans for Unnecessary Expenses
Student loans are intended for school-related expenses such as tuition, textbooks, and campus housing. However, students often pull from their available student loan funds to pay for spring break vacations or shopping trips.
While tempting, this isn’t a great use of debt.
How to Avoid:Only use your student loan debt for school-related expenses.
4. Going to Private Loans Before Federal Loans
Private student loans tend to have both higher interest rates and less favorable terms and conditions than do federal loans. While the private loan route may be a bit more simple than the federal route (we get it, the FAFSA is an absolute animal), it ultimately isn’t where you want to start.
How to Avoid:Always exhausted your federal loan options before dipping into private student loans. Be sure to fill out the FAFSA before the deadline, and always examine your aid package carefully to decide which aid you want to accept.
5. Thinking the Federal Aid Options are The Only Options
While exhausting federal aid options first is incredibly important, it’s important to understand that federal aid isn’t the only option. Always pursue aid in the following way:
When looking at your federal student loan options, it’s also important to consider their interest rates and terms. While rare, some private student loan options may have lower interest rates than some federal loan options. Most private student loans, however, will accrue interest while you’re in school. Federal student loans tend to not accrue interest while you’re in school. So, if you opt for a private student loan over the federal student loan that’s offered to you, be sure to check both the interest rates and the terms to determine which option will be better for you in the long run.
Again, be sure to use Sparrow to confirm before making any move to commit to one lender over another.
How to Avoid:Before accepting federal aid, students should apply for any and all scholarships and grants they can get their hands on.
6. Not Taking Advantage of Opportunities to Save Money
Many lenders offer ways to save money on your student debt, but they can be easy to miss. These opportunities come in a variety of forms such as automatic payment discounts and GPA rewards.
For example, Sallie Mae, a large private lender, offers a 0.25% discount on student loans if the borrower opts in to automatic payments.
Similarly, Discover Student Loans offers a one-time cash reward for new borrowers who earned a 3.0 GPA in college or graduate school.
While these may be small bits of money here and there, we don’t miss ANY free money in this house.
How to Avoid:Actively look for opportunities to save money. Contact your lender and ask if they provide any discounts or rewards to borrowers.
7. Never Looking into Refinancing
The idea of refinancing can be scary, but that doesn’t mean you shouldn’t look into it. If your interest rate seems a bit high, or if your credit has improved greatly since you took out the loan, you may be able to secure a refinance loan at a much lower interest rate which would save you money over time.
How to Avoid:Consider refinancing if it makes sense for you. Don’t sit with a loan at a super high interest rate if you feel like you may be able to get lower! Looking into refinancing can’t hurt.
8. Postponing Payments When it Isn’t Necessary
There are options to delay repayment, but you shouldn’t use them if you don’t absolutely need them. Even with a deferment or forbearance, interest will still continue to accrue on some loans. Delaying repayment will only put you in more debt.
How to Avoid:If you can afford to make payments, keep making them. Only request a deferment or forbearance where absolutely necessary.
9. Never Making Extra Payments/Only Paying the Minimum
If you make only the monthly payment, it will take you the full repayment period to pay off your student debt. While that technically works out in the end, you’ll end up paying a lot more in the long run, especially if your interest rate is on the higher side.
How to Avoid:Make more than the minimum monthly payment when possible. Any extra money you can throw at your loans will help hack away at the interest, and eventually the principal balance, saving you money over time.
10. Not Considering the Bigger Picture
When looking into student loans, remember to think about them as a real part of your future. If you choose to accumulate $50,000 in student loan debt, you will eventually have to pay that back. It’s important to be realistic about how this will impact your future self.
Many students blindly agree to student loans year after year without actually knowing how much debt they are agreeing to or how they will actually pay it back.
How to Avoid:Always think about the future and consider how student debt will factor into that.
While it’s a lot to think about, you should ask yourself:
What career do I plan to pursue? Will the average salary for that career support me in making loan payments?
Do I plan to move out immediately after school? Will my career support both rent and loan payments?
Summary
While some of these mistakes are fixable, others aren’t that simple. Thinking ahead when it comes to these mistakes will help prevent you from making them.
As if paying for undergrad wasn’t bad enough, now you have to pay for grad school! (*cries in student debt*)
One of the options you may have for paying for grad school is a Grad PLUS loan. Let’s break down what a Grad PLUS loan is, who is eligible for one, and what it’s like to actually borrow one.
What is a Grad PLUS Loan?
A Grad PLUS loan is a federal loan, funded by the federal government, designed specifically for students pursuing graduate or professional school.
Who is Eligible for a Grad Plus Loan?
In order to be eligible for a Grad PLUS loan, students must:
Fill out the FAFSA
Exhibit creditworthiness
After filling out the FAFSA, lenders will check the student’s credit history to determine eligibility. Students with good credit history often find it easier to borrow from this program. Similarly, students with poor credit history often find it more challenging to borrow from this program.
Having poor credit doesn’t mean you’re out of luck, though. Typically, bringing on a creditworthy cosigner allows students with poor credit to borrow funds through a Grad PLUS loan.
Unlike some undergraduate student loans, demonstrating financial need is not part of the eligibility requirements for Grad PLUS loans.
How Much Can I Borrow in a Grad PLUS Loan?
Grad PLUS loans can cover the entire cost of attendance minus any other financial aid a student has.
For example, if the cost of attendance at your respective grad school was $30,000 and you received $10,000 in university scholarships, you could potentially pay the entire remaining $20,000 through a Grad PLUS loan.
What are the Interest Rates on Grad PLUS Loans?
Grad PLUS loans have a fixed interest rate set by the federal government. This fixed interest rate can shift, however, as the government makes changes to the interest rate each academic year.
The interest rates on Grad PLUS loans do tend to be higher than other federal student loans. For example, for the July 2019 – July 2020 academic year, the rate was 7.08%.1
What Fees are There for Grad PLUS Loans?
One major fee you should be aware of when taking out a Grad PLUS loan is the origination fee. An origination fee is an upfront fee a lender charges to process a new loan. On a Grad PLUS loan, this origination fee tends to be around 4.3% of the total loan amount.
For example, if you are borrowing $20,000 in a Grad PLUS loan, you will pay $860 in origination fees. This fee will show up as part of your outstanding loan balance.
What are the Repayment Options for Grad PLUS Loans?
The typical repayment plan for Grad PLUS Loans is the standard repayment term of 10 years. This operates similarly to federal undergraduate student loans.
You may also be eligible for the typical repayment plans offered by the Department of Education such as the income-driven repayment plan, pay-as-you-earn plan, or graduated repayment plan.
Similar to federal undergraduate student loans, there is a grace period of 6 months after you graduate (or leave school) before payments are required.
It’s important to think realistically when choosing a repayment plan. While it may be ideal to make large payments each month, it may not make sense financially to do so. Pick what makes most sense.
Final Thoughts
As always, you should try to borrow as little as possible, and always look for scholarships and grants first. When loans become the final option, make sure to compare loan rates with Sparrow before jumping into any student loan.
Someone applies for Federal Aid and receives a whopping $0. Or, better yet, they apply with what they believe is a significant level of need and receive very little.
Why is this? Let’s break it down.
Your Expected Family Contribution
When you fill out the FAFSA, you will enter information regarding you and your family’s financial situation. This may include information such as taxed and untaxed income, assets, benefits (such as unemployment), and more. With that, you will also be asked about your family’s size and the number of family members that will be attending college during that same year.
This information is then used to calculate what is known as your EFC, or your Expected Family Contribution. The formula to find your EFC is established by law.
The name of this metric is slightly misleading in that your EFC is not the amount of money you or your family will have to pay for college or the amount you will receive in aid. This metric is used by financial aid staff to determine the amount of aid you are eligible to receive.
The Cost of Attendance (COA)
The next metric used in calculating your aid is your COA, or Cost of Attendance at the school you choose to attend.
At most 2- and 4-year institutions, your COA will be calculated based on the entire school year (fall and spring semester). For career schools or programs that operate on a different structure, such as an 18-month certificate program, the COA may cover a different time period than a year.
If attending at least half-time, the COA will estimate the total of the:
Tuition and fees
Room and board (living expenses and housing)
Books and supplies
Transportation
Loan fees
Miscellaneous expenses
Allowance for childcare expenses
Disability-related expenses
Costs for study-abroad programs
Note that in this COA calculation, there may be expenses you don’t end up incurring. For example, many universities offer their own health insurance. Many students who are still on a parent’s plan will opt out of the university-sponsored insurance, thus, removing the cost of that from the overall COA. However, the university’s estimated COA is what will be used in your Federal Aid calculations.
Need-Based Aid
These two metrics are then used to determine your financial need with a very simple formula:
Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need
The result is then used to determine how much need-based aid you are eligible to receive (pending that you meet other eligibility requirements).
Need-based aid is slightly limited in that you cannot receive more need-based aid than the amount of your financial need.
For example, if your COA was $30,000 and your EFC was determined to be $16,000, your financial need would be $14,000. Therefore, you wouldn’t be eligible to receive more than $14,000 in need-based aid.
After your need-based aid is assessed, your institution will determine how much non-need-based aid you can get, utilizing the following formula:
Cost of Attendance (COA) – Financial Aid Awarded So Far* = Eligibility for Non-Need-Based Aid
*This includes aid from all sources such as your school, private scholarships, etc.
Non-Need-Based Aid is calculated without your EFC in mind. It looks strictly at how much of the COA is not being covered by other financial aid.
Let’s use the same example from above.
If your COA was $30,000 and your EFC was determined to be $16,000, your financial need would be $14,000. Therefore, you would be eligible to receive no more than $14,000 in need-based aid.
Let’s say you were awarded $10,000 in need-based aid. The institution would then do the following calculation to determine your eligibility for non-need-based aid:
$30,000 (COA) – $10,000 (Financial Aid Awarded So Far) = $20,000 (Eligibility for Non-Need-Based-Aid)
These numbers could get a bit more funky-looking if you had private scholarships or other sources of aid, but for simplicity’s sake, this would leave you eligible for $20,000 in non-need-based aid.
Non-Need-Based Federal Aid comes in the following forms:
Direct Unsubsidized Loans
Federal PLUS Loans
Teacher Education Access for College and Higher Education (TEACH) Grants
Crunching the Numbers
All of these different metrics and formulas are used to determine the amount of aid you receive in your aid package. Note that these formulas largely calculate how much you are eligible for and in no way guarantee that you will receive that full amount.
Summary
That was a lot of calculations, but hopefully this gif is entirely unrelatable after reading this.
While you won’t have much of a hand in actually calculating any of these metrics, it’s important to understand how the numbers you see in your aid package got there. For tips on how to navigate your financial aid award letter, check out our blog that breaks it down!
Looking at your student loan balance is like biting into a chocolate chip cookie only to realize it’s actually oatmeal raisin. Can be really shocking when it isn’t what you expect.
With the way interest compounds on student loans, the total debt can increase pretty rapidly before your eyes. Refinancing your student loans could be a viable option to lower your interest rates, monthly payment, and overall money spent. That said, there are several things to consider before making the jump to refinance your student debt.
What Does it Mean to Refinance Your Student Debt?
Put very simply, refinancing your student debt means replacing your current student loans with a new loan with a lower interest rate.
Refinancing could look like this [note: this is a very basic example]:
Loan 1: $10,000 at 7.5% interest rate
~insert magical refinancing here~
New Loan: $10,000 at 5.25% interest rate
Notice that the new loan is for the same amount of total debt, however, the interest rate is lower. This would save you money in the long run as less interest would accrue.
Is Refinancing a Good Idea?
Based on our example, refinancing may seem like a perfect route for you. Still, you should consider the following circumstances about when you should and should not refinance.
When You Should Refinance Your Student Debt
If the savings will be significant. If you can qualify for a better interest rate, it’s a good idea to refinance. A lower interest rate can save you money in the long run as less interest will accrue over time. Note: Contrary to popular belief, you don’t need to have a perfect credit history to qualify for a lower interest rate.
If you have student loans with high variable interest rates. Variable interest rates are just as it sounds – they vary. It is challenging to predict what payments will be with a variable interest rate because it’s always changing. Whether your variable interest rate is currently high or low, it may be a good idea to refinance if you can secure a lower fixed rate.
If the economy supports low interest rates. Interest rates are impacted by economic factors. If the rate environment is good, rates may be lower, and it may be a good idea to take advantage of that.
If your finances have improved. If your financial situation has improved since you first took out your loans, you may qualify for a better interest rate on a new loan. This could be in the form of a higher paying job or improved credit score — both of which will help you secure a lower interest rate.
When You Should Not Refinance Your Student Debt
Believe it or not, there are situations where it isn’t a good idea to refinance your student loan debt.
If you’re planning to pursue student loan forgiveness. If you are pursuing a program such as Public Service Loan Forgiveness, you should not refinance your student debt as it would make you ineligible for the program.
If you have Federal Loans and may experience a drop in income. When you refinance federal student loans, you lose the option to participate in federal repayment programs such as income-driven repayment and federal loan relief options. These may be important to you if you have volatile income or are planning to be unemployed.
If you’ve declared bankruptcy recently. It is significantly more difficult to refinance your student debt if you have declared bankruptcy. While not impossible to refinance under these conditions, many lenders will require around 4-10 years to have passed since the bankruptcy filing before lending.
If you’ve had to default on student debt. Defaulting on a student loan is a red flag to private lenders as it tells them that you may not be able to make consistent loan payments. This may make it more challenging to find a lender to refinance with.
Questions to Ask Yourself Before Refinancing
With that in mind, you should ask yourself the following questions before deciding to refinance your student debt.
1. What is my current interest rate, and what could I qualify for?
Take a good look at the interest rates assigned to the loans you currently have, and compare them to the interest rates you’re likely to qualify for. Is there a big difference?
While there’s a chance that the interest rate might be the same, or maybe even worse, recent data has shown that refinance rates for well-qualified borrowers are hitting all-time lows. In the beginning of May 2021, borrowers with credit scores of 720 or higher were seeing interest rates of 3.6% on a 10-year fixed rate refinance loan1 [hint: this is a good rate!].
Borrowers refinancing at such low rates are likely saving thousands of dollars over time. If you think you’d qualify for a lower interest rate, refinancing may be a good decision!
2. Is my income stable?
Financial stability is important for a few reasons:
Credit evaluation
Available repayment options/Ability to make payments
Credit Evaluation
If you’re looking to refinance your student debt, you will be seeking a new loan entirely. Part of the process of securing that new loan is being evaluated by the lender to determine your interest rate and loan terms. Your credit score and financial history will factor into those elements of your loan. If this area isn’t up to par, you might not be able to receive a better loan than what you already have.
Available repayment options/Ability to make payments
If part of your plan to refinance your student debt involves federal loans, you will want to make sure that you’re able to make payments without the federal repayment options. Plans like income-driven repayment aren’t available with private student loans. If that is a necessity to you and your financial health, you may want to reconsider refinancing federal loans.
3. What is my reason for refinancing?
Knowing your goals and intentions with refinancing is important so that you can ensure your new loan aligns with these goals. Most often, people refinance to reduce the overall amount paid over time. Others are more focused on securing a lower monthly payment and don’t mind a longer repayment period.
Either way, it’s important to make sure that you’re clear on your goals for refinancing so your new loan can help support those goals.
4. What does my credit history look like?
When you go to get a new loan, lenders will review your credit score, income, and any other outstanding debt to develop an idea of your likelihood to pay back the loan. The stronger you look to the lender, the more likely you are to get a competitive interest rate and loan terms. If you don’t look so hot (financially, of course) to the lender, you may not be able to refinance with the terms you were hoping for or without a cosigner – neither of which are ideal.
Final Thoughts
Refinancing certainly has its pros and cons, and ultimately, isn’t for everyone. Before refinancing, make sure you are clear on why you’re doing it. When you’re ready to go ahead and refinance, check out Sparrow’s application to simplify the process.
The longer your loans sit, the more interest accrues. The more interest that accrues, the more your overall debt grows. The more your overall debt grows, the larger your payments. (You see where this is going…)
Here’s a comprehensive list of things you can do to pay off your student debt faster, helping you save money over time.
Consolidate and Refinance
Refinancing your student loans means replacing your current student loan(s) with a new loan with a lower interest rate. When you refinance more than one student loan, you can also consolidate them into one loan, meaning one monthly payment.
This can look like:
Loan 1: $10,000 at 6% interest rate
Loan 2: $24,000 at 7.25% interest rate
– refinance and consolidate –
New Loan: $34,000 at 3.25% interest rate
Note that the overall loan amount is still the same, however, the interest rate is significantly better and thus, will accrue less interest over time, meaning less money spent.
You should only refinance loans where you can secure a lower interest rate. If you can get a lower interest rate, refinancing can be one of the most effective ways to reduce student debt.
Apply Raises and Bonuses
As you establish yourself professionally within your career, you may receive a raise or bonus. Oftentimes, this extra chunk of change is put towards a physical object like a TV or better car. Putting this money towards your student loans will likely be a better option in the long run.
Think of it this way: If you’ve been fairly comfortable financially under a $50,000 salary, continue operating under a $50,000 salary even if you get a raise to $60,000. Putting the extra $10,000 a year towards your student loans can make a massive dent in your student debt over time.
Cut Back on Extra Expenses
Take some time to think about where all of your money goes each month. Creating a simple expense tracker in Excel or Google Sheets can be a great way to see this information all in one place. Then, think critically about the necessity of each of these expenses.
Does coffee 5 times a week make sense and align with my financial goals? Can I cut that back to 2 times a week?
A $3 coffee 5 times a week is $15 a week. If you did this 50 of the 52 weeks in a year, you’d be spending $750 a year on coffee.
Do I need cable TV or can I live comfortably with just Netflix?
The majority of adults living in America pay $51-$100 a month on cable television1. This amounts to $612-$1200 per year.
Let’s say you did both of these and cut out coffee and cable. You’d save a potential $1,950 per year. If your loan payment was $200/month, this could quite literally take over half a year off your repayment period.
Reminder: If getting coffee 5 times a week brings you immense joy, you don’t have to remove it from your life! Think of what doesn’t bring you joy and try to reduce how much you spend in those areas first. Or, simply adjust your habits to support your financial goals, too. You might love getting coffee 5 times a week, but if changing that to 2 times a week still brings you joy and supports your financial goals, it may be the best option.
Make More Than the Minimum Payment
Take whatever your monthly payment is and add a little bit more to it. Even if you can only afford an extra $20-$30 a month, it all adds up over time.
A tip for doing this without even thinking? Set up your bank account for an automatic transfer to savings that aligns with when you get paid. Then, every time your paycheck hits your bank account, this extra bit will be taken out as if it was never there. (Out of sight, out of mind, right?)
Utilize a Chunk of Cash
This won’t be accessible to everyone, but occasionally we get a cash windfall from picking up a side hustle, a refund, or a generous gift. You may be tempted to spend it on the pair of shoes you’ve been eyeing or a vacation with your friends, but putting it towards your student loans could help keep you on the fast track to financial freedom.
A fairly common example of a cash windfall is our yearly tax refund. While this amount varies for everyone, this can be a great chunk of change to throw down on your student loans. Fact of the matter is, it might not be money you were relying on or factoring into your monthly budget as it’s challenging to know just how much you’ll be getting in tax returns. This makes it a prime bit of money to direct right to your student debt.
Pick Up a Side Hustle
The amount of money you generate from a side hustle will vary depending on what side hustle you pick up and how much time you’re able to put towards it.
This can be anything from:
Selling old clothes on sites like Poshmark, Curtsy, Mercari, and Facebook Marketplace
Dog walking
Babysitting
Working for InstaCart or DoorDash
To:
Starting a side business on Etsy
Starting a seasonal landscaping business
Flipping furniture
USA Today found that the average side hustle generated between $507 and $746 per month3. This is massive when thinking about student loan payments. Being able to throw an additional $750 a month towards your student loans will make a great impact over time.
Make Payments Every 2 Weeks
Interest on student loans accrues daily. So, by the time you get around to your monthly payment, your loan has already accrued quite a bit of interest.
Making your payments biweekly instead of monthly can help you get ahead of the interest. Simply divide your monthly payment in half, and then pay that amount twice per month.
Summary
While you may not be able to do all of the strategies we listed above, at least 1 should apply to you. Even throwing 1 strategy into the mix can help you pay off your student debt faster.
If you feel ready to refinance your student debt, we’re here to help.
You may be wondering what the difference is between scholarships, grants, work-study programs, and loans. The four main types of financial aid differ in terms of structure and eligibility. Here is the basic information you need to know about the different types of financial aid:
The Basics: Comparing Financial Aid Options
Scholarships: Financial aid you don’t need to pay back. Based on academic or other achievement.
Grants: Financial aid (generally offered by the government) that you don’t need to pay back. Based on financial need or specific criteria (underrepresented demographics or specific academic interests).
Work Study: Program that allows students to work part-time to earn money for educational expenses. Based on financial need and availability of positions.
Loans: Borrowed money that must be repaid with interest. Based on lender and type of loan.
Which Type of Financial Aid is Best?
When considering financial aid offers, you may be comparing all of these types of aid at once. What we always recommend is accepting aid in the following order:
Scholarships and/or Grants (free money)
Work-Study (earned money)
Loans (borrowed money)
Scholarships and grants are the best option as they don’t need to be repaid. However, it’s unlikely that you’ll cover the entire cost of college with just scholarships and grants.
If offered work-study, it’s a great idea to accept that second. This money is earned, meaning that you don’t need to repay it over time.
Loans should always be accepted last, with federal loans accepted first before dipping into private loans. This is because private loans will need to be repaid with interest, which could rack up the principal balance quite a bit. Your eligibility and rates vary based on lender and type of loan. Find the best student loan rates.
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Scholarships come from a variety of sources such as local organizations, charities, businesses, colleges and universities, the government, and various foundations.
Who is Eligible for Scholarships?
Eligibility for scholarships vary based on each scholarship’s specific criteria.
Some scholarships are strictly merit based, meaning that you don’t need to demonstrate any level of financial need to be considered. Others are strictly need-based and ask applicants to prove financial need in order to qualify.
That said, there are scholarships for nearly everything you could imagine. From the Asparagus Club Scholarship to the National Potato Council Scholarship, there’s something for everyone.
Each scholarship will require a different application process. Some may require you to complete an application or write an essay, and others may just require you to submit basic demographic information.
Grants
Grants are a similar type of financial aid to scholarships. They both typically don’t need to be repaid and they can come from a variety of sources. Oftentimes, when going through the college financial aid process, most students see grants come up when examining their federal aid.
So, while grants can come from your college or a local nonprofit, we’ll frame this section around federal grants as the non-federal grants don’t differ too much in nature from scholarships.
Where Do Grants Come From?
Federal grants come from the U.S. Department of Education in the following forms:
We won’t dive deep into each one because that could be its own blog in itself.
Who is Eligible for Grants?
Similar to scholarships, the eligibility requirements for grants vary for each specific one. While some non-federal grants may be awarded strictly for merit, almost all grants from the federal government require you to demonstrate some level of financial need.
There may also be things you need to do to maintain your eligibility if the grant is intended to be renewed every so often. For example, a grant that issues $5,000 per academic year for tuition costs may ask you to resubmit your financial information to determine whether you still demonstrate the financial need necessary to be eligible.
Work-Study
Work-study is a federal aid program that provides part-time jobs for undergraduate and graduate students with financial need. The money they earn from these jobs allows them to pay for educational expenses.
While qualifying for work-study does not guarantee a student a part-time job while in school, it does mean that there are federal funds dedicated to paying that student should they decide to participate in a work-study job.
Where Does Work-Study Come From?
Work-study is provided by the federal government via federal student aid. After filling out the FAFSA, students may see work-study as part of their financial aid package.
Who is Eligible for Work-Study?
To be eligible for this type of financial aid, you must first plan to enroll in a college or career program. Additionally, you must submit the FAFSA and demonstrate financial need.
Work-study is available to both part-time and full-time students, as well as undergraduate, graduate, and professional students.
Loans
The last type of financial aid is a loan. They are often referred to as “borrowed” money. With loans, you borrow an amount from a source and must pay it back over time with interest. Your eligibility and rates vary based on lender and type of loan. Discover the best loan option for you.
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Federal loans come from the federal government and generally have lower interest rates, better terms and conditions, and more flexible repayment plans.
Private student loans come from a private lender such as a bank or other financial institution. Private loans generally have higher interest rates, less favorable terms, and a less flexible repayment plan, however, they are valuable because they can fill in any gaps where the cost of attendance isn’t covered by other aid.
Who is Eligible for Loans?
Student loan eligibility varies based on your lender and type of loan. Submit one personalized form and find out what loans YOU qualify for in minutes.
A scholarship is a form of financial aid given to a student to support paying for their education. Scholarships are typically awarded based on academic or other achievement.
Scholarships come in a variety of sizes and structures. For example, some scholarships may award students $100 to pay for books while others may award $10,000 for tuition costs. Sometimes scholarships are one-time checks, and other times they provide funds on a more consistent basis.
Scholarships, unlike loans, do not need to be repaid. However, it is always important to read the fine print when accepting a scholarship. Some scholarship programs require additional work, engagement with the program, or service after the program concludes.
Summary
This was a LOT. *virtual high-five for getting to the end of this*
It may be overwhelming attempting to absorb all of this information about the various financial aid options. The good thing is that there are various options. Of course, start with seeking out scholarships and move up the ladder until private loans are the remaining option.
And when/if you do get there, know that we’ve got your back here at Sparrow, where you can compare loan rates in the click of a button!
Even thinking about your student debt can be overwhelming, but knowing how you’re going to pay it off is important.
Let’s review the 3 main strategies for paying off debt and their general effectiveness.
1. (Least Effective) The Shotgun Approach
The Shotgun Approach is where you pay just a bit more than the minimum payment each month on all of your debts. When you think about it, this may seem quite effective because you’d be making progress on all of your debts at once.
In reality, this isn’t as effective of a strategy, and frankly isn’t recommended, because it will take you much longer to get rid of any single debt. Additionally, your loans are likely not all at the same interest rate. With the Shotgun Approach, you’d be throwing money towards your loan with a lesser interest rate when you could be throwing larger chunks of money towards your loan with a higher interest rate.
Pros:
You would make progress on all of your loans.
Cons:
It will take you a lot longer to pay off any one debt.
You won’t be throwing as much money as you could towards your debt with the highest interest rate.
You will likely pay more over time.
Bottom Line: This isn’t a very effective method, and we don’t recommend it.
2. (Medium Effectiveness) The Debt Snowball Approach
The Debt Snowball Approach is the second most effective method and operates under the following steps:
Look at all of your debts, and find the one with the lowest balance.
Calculate your monthly minimum payments.
Pay that minimum monthly payment on every loan you have.
Put all extra money you have into the smallest debt you owe until you pay it off. Once you pay off that loan, the monthly payment you’ve allotted for it is now “extra” money in your pocket.
Roll over that “extra” money to your next smallest loan.
Continue this process until all debt is paid off from smallest balance to biggest balance.
Source: Moolanomy, Dave Ramsey’s Snowball Approach
The Debt Snowball approach is ranked at medium effectiveness because it is a proven method for paying off student debt, however, it isn’t the best. Your largest student loan will accrue interest rapidly as it compounds. So, you could save yourself some money over time by opting for the Debt Avalanche method which we’ll discuss next.
Pros:
The initial psychological boost from paying off a loan in full could help you with paying off the others.
This method is effective for people who might not have as much money right after graduating. You can start small with payments on your smallest loan and work your way up as your career stabilizes financially.
Cons:
Your largest debt will be accruing interest while you pay off your smallest debt, which could increase fairly rapidly depending on your interest rate.
Bottom Line: It’s okay, but we wouldn’t recommend.
3. (Most Effective) The Debt Avalanche Approach
The Debt Avalanche approach has been deemed the most effective strategy for paying off student loan debt. It operates with the following steps:
Look at all of your debts, and find the one with the highest interest rate.
Make the minimum monthly payment on each debt you have.
Pay extra on only the highest interest rate until the debt is paid off. This will allow you to get rid of the highest interest rate first.
Source: JackieBeck.com
Pros:
Your loan with the highest interest rate would be paid off first, saving you a decent amount of money in the long run.
You will save more money in the long run with the Debt Avalanche approach in comparison to other repayment strategies.
Cons:
This method isn’t the best habit-former.
This method can be intimidating and less motivating. Starting with paying off your largest balance could leave you feeling like you aren’t making much progress.
Bottom Line: This is by far the best option for debt repayment due to its ability to save you money in interest.
The Difference Between Debt Snowball and Debt Avalanche
The Debt Snowball and Debt Avalanche approaches might sound pretty similar. So what is the difference?
In very simple terms, the Debt Snowball method is focused on lowering the number of loans you have and the Debt Avalanche method is focused on lowering the overall amount you will owe. While both are useful strategies and effective in their own regard, one method might be easier or more effective for you personally.
The Debt Snowball method focuses more on maintaining motivation and the overall balance size as where the Avalanche Method focuses on saving money on interest.
Source: Art of Thinking SMART
Which Method Should I Use?
It might be confusing trying to decide which method to use, and ultimately, it comes down to which one fits your financial goals best. While we definitely recommend the Debt Snowball or Debt Avalanche methods over Debt Shotgun, there are pros and cons to each one. You may find that you need the psychological boost of Debt Snowballing, or that saving money on interest with the Debt Avalanche method makes most sense for you.
With both the Debt Snowball and Debt Avalanche methods, there are free worksheet templates online to help you break down the payments over time. This can help you visualize what each method would look like to decide whether one fits your financial goals better.
Either way, having a strategy in general and sticking to it will set you up for success.
Forbearance, deferment, and forgiveness all have some element of not making payments on your student loan. If deciphering the difference seems a bit challenging, read on as we break it down!
What is Loan Forbearance?
Loan forbearance provides you the opportunity to suspend loan payments temporarily for no more than 12 months at a time. Typically, people choose to do so in times of severe financial stress.
While payments are postponed, you will not be responsible for paying the interest that is accruing. When the forbearance period ends, you will be responsible for that interest however.
Federal Student Loan Forbearance
With a federal loan servicer, you can request a general forbearance for up to 12 months for a Direct, FFEL, or Perkins loan. If your financial hardship continues after the 12 month period, you can request an additional forbearance of up to 12 months. Borrowers are allowed 12 months of forbearance at any given time, but can only request forbearance up to 3 years total.
Whether or not you are granted a forbearance is at the discretion of the loan servicer. Oftentimes, for situations such as unexpected major medical expenses, unemployment, or intense financial difficulty that prevents the borrower from making loan payments, forbearance will be granted.
You can request a general forbearance by calling the loan servicer or filling out a form online, however, the specific process may differ from lender to lender.
Private Loan Forbearance
Private lenders are generally less flexible when it comes to forbearance. This makes sense with what we know about private lenders (less favorable loan terms, higher interest rates, etc.) in comparison to federal loans.
Some private lenders will grant you forbearance for similar circumstances that prevent you from making loan payments. However, these forbearance periods typically come in 2 month increments and cannot exceed 12 months total (quite different from federal forbearance!). Additionally, private lenders may charge a fee for each month you are in forbearance.
What is Loan Deferment?
Similar to loan forbearance, loan deferment allows you to temporarily postpone loan payments.
The difference between loan forbearance and deferment is that in deferment, you may be responsible for still paying the interest that accrues during the deferment period.
For example, even if you aren’t paying your typical $125/month loan payment, you will still be required to keep paying the $25/month in interest. (random numbers just for example’s sake!)
Federal Student Loan Deferment
Some federal loans will require you to pay interest during the deferment period, and others will not. Here’s a full breakdown1:
Federal Loan Types That Will Not Require You to Pay Interest in Deferment:
Direct Subsidized loans
Subsidized Federal Stafford loans
Federal Perkins loans
Subsidized portion of Direct Consolidation loans
Subsidized portion of FFEL Consolidation loans
Federal Loan Types That Will Require You to Pay Interest in Deferment:
Direct Unsubsidized loans
Unsubsidized Federal Stafford loans
Direct PLUS loans
Federal Family Education Loan (FFEL) PLUS loans
Unsubsidized portion of Direct Consolidation loans
Unsubsidized portion of FFEL Consolidation loans
With a federal loan deferment, there are various circumstances that would make a borrower eligible, such as:
Cancer treatment deferment
Economic hardship deferment
Graduate fellowship deferment
In-school deferment
Military service and post-active duty student deferment
Parent PLUS borrower deferment
Rehabilitation training deferment
Unemployment deferment
You can request a federal loan deferment by submitting a request form to your loan servicer.
Private Loan Deferment
Private student loan deferment is a bit more complicated. Many lenders do offer some form of deferment, although it doesn’t look quite like it does for federal loans.
Many private lenders will offer assistance programs first such as relief while in school. Even with that, the interest on the loan will continue to accrue and capitalize at the end of the deferment period. You can lessen this interest by paying interest-only payments while it accrues, however, this isn’t always accessible if deferring for financial reasons.
To defer a private student loan, you’ll need to contact your individual lender as the process varies. Typically, it will require the submission of a form to see if you are eligible.
What is Loan Forgiveness?
Loan forgiveness has become an especially hot topic ever since President Joe Biden announced his desire to forgive a portion of the federal student loan debt.
Loan forgiveness means that you are no longer required to repay some or all of your loans. (Yup, free of student debt.)
Loan forgiveness programs have existed well before Biden’s announcement of such and come in a variety of forms, typically via federal student loan programs such as:
We won’t do a deep dive into each one of these as some are fairly uncommon in comparison to the others. One of the most common forgiveness programs, however, is the Public Service Loan Forgiveness Program (PSLF).
Public Service Loan Forgiveness Program (PSLF)
The Public Service Loan Forgiveness Program offers loan forgiveness for borrowers with federal Direct Loans that pursue employment by a government or not-for-profit organization. Borrowers that are accepted will only be responsible for making 120 qualifying monthly payments on their loan while working full-time for their qualifying employer. After those payments, PSLF forgives the remaining loan balance.
It’s important to note that not everyone who applies will be granted loan forgiveness. Some resources state that only 2.41% of applicants are granted forgiveness through the PSLF program2.
Federal vs. Private Loan Forgiveness
When discussing loan forgiveness, people are often referring to federal loan forgiveness. At this time, there aren’t many, if any, systems in place for private loan forgiveness.
Summary
While we all certainly hope that moves are made in regards to forgiving our student debt, forbearance or deferment might be the most viable option if experiencing financial hardship that prevents you from making loan payments.
Neither deferment nor forbearance will impact your credit score as both are done with the approval of your lender. So, know that whatever decision you make, it will be okay. We’ve got your back.
You make a loan payment. The total debt goes down.
Then you come back the next day. The loan amount is back up to where it was before your payment.
Having some deja vu?
This is because of interest. Let’s break down what interest is, how it works, and why your total loan balance may be going up so quickly.
What Is Interest?
Interest is essentially the amount you pay a lender to use their money to pay for college. When a lender decides to give you money, they make a profit off of the interest paid over time on top of the original loan amount.
Most lenders understand that students will not be able to make loan payments while in school and often don’t require payments until a few months after you leave school. However, this does not mean that interest isn’t accruing on the overall debt amount. This means that the amount you owe can go up, and fairly rapidly if you don’t pay close attention to it.
How Does Interest Work?
It’s one thing to understand the concept of interest, but it’s another thing to really understand how it’s calculated. Let’s break it down.
(As a refresher before we get started, principal is the initial amount you agreed to pay back. Interest is the price you pay to borrow that money. For example, if you borrowed $30,000 to pay for college, and your loan balance is currently $40,000, $30,000 of that is principal, and $10,000 of that is interest.)
When you make a required monthly loan payment, you’re making a payment on the interest before any money goes toward reducing your principal. Whatever is left over after paying the interest is then put towards the principal balance. Over the life of your loan, the interest paid will go down each month, which subsequently allows you to put more towards your principal.
To break this down even further, we’ll use an example with some simple numbers.
Say you borrowed $100 from a lender some years ago, and your balance is now $120. You owe $100 in principal and $20 in interest. If you make a $10 payment towards your debt, you will be paying $10 towards the interest on your debt, bringing your overall total debt down to $110. However, the amount you just paid hasn’t chipped away at actually paying back what you initially borrowed. You simply paid part of what the lender is charging you to borrow that money.
How Does Interest Compound?
Interest is typically compounded daily. So what exactly does that mean?
The annual interest rate is divided by 365 (the days in the year) to get your daily interest rate. That is how much your interest will compound daily. The kicker is that if you aren’t making loan payments, the interest is compounding on a larger and larger amount.
This is what that can look like: (Get ready for some *quick maths.*)
Let’s say you borrowed $10,000 from a lender with a 5% interest rate.
Your daily interest rate would be roughly 0.014% (5% ÷ 365).
On day 1, your total loan debt would be $10,000.
On day 2, it would be $10,001.40.
For day 3, your interest would be calculated based on this new amount of $10,001.40, meaning…
Day 4, your total loan debt would be $10,0002.80.
At the end of a year, you would have accumulated a decent chunk in interest.
This compounding takes place when you are in school and beyond, so, you can imagine how this number can increase so rapidly if you aren’t making payments while in school.
How Much Interest Will I Pay?
This will vary from person to person depending on your total loan amount and the interest rate.
The average student loan accrues $26,000 in interest over the course of 20 years1. This interest ends up being around 67.1% of the average borrower’s total cost of repayment. This means that over half the amount paid over time is strictly from interest.
For a specific calculation based on your individual loan information, we recommend using Sallie Mae’s Accrued Interest Calculator.
What is Considered a High Interest Rate?
This might lead you to ask about what is considered to be a good interest rate. The reality is, interest rates vary greatly by lender and type of loan. So, it’s hard to say what is good and what isn’t.
Generally speaking, anything at or above 10% is considered a very high interest rate for student loans. Interest rates at 7% and below is a much better place to be.
Between 2006 and 2021, the average federal student loan interest rates were:2
4.66% for undergraduates
6.22% for graduate students
7.27% for parents and grads who take out PLUS loans
In May 2018, the average private loan interest rates were:3
6.17% for borrowers with 5-year variable-rate loans with a cosigner and beginning repayment immediately
7.64% for borrowers with 10-year fixed-rate loans with a cosigner beginning repayment immediately
How Can I Lower the Amount of Interest that Accrues?
The best way to prevent your total debt amount from rising so rapidly is to make at least the minimum monthly payments. On top of that, you can also save on interest by making biweekly and surplus payments.
If possible, you should always aim to pay off the interest that has accumulated to keep the loan at its initial amount.
Final Thoughts from the Nest
Interest is almost always part of taking out a student loan. Making educated decisions about what loans you take out and the interest rates associated with them is the most important piece to this equation. Always be sure to compare your loan options before agreeing to any one lender.
If you already have a student loan and struggling to make payments or think you may be able to get a lower interest rate, it may be time to consider refinancing.
Federal student loans have various repayment options. While the best repayment option for any loan is the one you can commit to paying consistently and on time, there are options that will allow you to pay less interest or less money overall.
Standard Repayment
The standard payment plan is available to all borrowers and is great for those who want to pay off their debt in the shortest period of time. With a standard student loan payment option, you would make equal monthly payments for 10 years. You’ll pay less interest and pay off your loans faster than you would on other plans.
Subsidized and Unsubsidized Federal Stafford Loans
all PLUS loans
all Consolidation Loans (Direct or FFELP)
Pros of Standard Repayment:
Shorter repayment period compares to other options
Less interest over time
Cons of Standard Repayment:
You may have higher monthly payments compared to the other options
Your monthly payment would remain the same even if your income dropped
Income-Driven Repayment
Income-driven repayment plans use your income to determine your monthly payment amount. This amount is typically 10-20% of your income and can be as low as $0 if you’re unemployed. With income-driven repayment plans, your loan term is extended, usually to around 12-25 years. When this term is up, the remaining balance you owe will sometimes be forgiven. (However, you would be required to pay taxes on the forgiven amount, so you aren’t totally off the hook there.)
There are various income-driven repayment plans. Each of these options has its own specific requirements in order to qualify, but they’re all ideal for people whose monthly income is too low to pay the standard monthly repayment.
There are 5 different income-driven repayment options offered by the government for federal student loans.
Pay As You Earn Repayment Plan (PAYE)
Revised Pay As You Earn Repayment Plan (REPAYE)
Income-Based Repayment Plan (IBR)
Income-Contingent Repayment Plan (ICR)
Income-Sensitive Repayment (ISR)
Pay As You Earn Repayment Plan (PAYE)
The PAYE plan makes your monthly payment 10% of your discretionary income. The payments are reevaluated every year and updated if your income or family size changes for any reason. If you haven’t repaid your loan in full after 20 years, the remaining balance will be forgiven.
Eligible Borrowers:
If you are a new borrower from either on or after October 1, 2007 and received a Direct Loan disbursement on or after October 1, 2011
Eligible Loans
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidated Loans not including PLUS loans made to parents
Revised Pay As You Earn Repayment Plan (REPAYE)
The REPAYE plan makes your monthly payments 10% of your discretionary income and is recalculated every year in the same way the PAYE plan is. For undergraduate loans, your remaining balance will be forgiven after 20 years, and for graduate loans, 25 years.
Eligible Borrowers:
Any Direct Loan borrowers with an eligible loan type
Eligible Loans:
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidated Loans not including PLUS loans made to parents
Income-Based Repayment Plan (IBR)
An IBR plan sets monthly payments at either 10% or 15% of your discretionary income, neither amounting to more than what you would pay under the 10-year standard repayment plan. Payments are reevaluated every year based on changes in income and family size. Depending on when you received your first loan, your remaining balance will be forgiven after either 20 or 25 years. It’s important to note that you may have to pay taxes on this forgiven amount.
Eligible Borrowers:
Those with high debt relative to their income
Eligible Loans:
Direct Subsidized and Unsubsidized
Subsidized and Unsubsidized Stafford Loans
All PLUS loans for students
Consolidation Loans not including PLUS loans made to parents
Income-Contingent Repayment Plan (ICR)
The ICR plan sets monthly payments at whichever is lesser: 20% of discretionary income OR the monthly payment you’d have on a plan with a fixed payment over 12 years, adjusted to your income. Payments are reevaluated and updated based on changes in your income, family size, and the amount of your Direct Loans. Outstanding balances are forgiven after 25 years.
Eligible Borrowers:
Any Direct Loan borrower with an eligible loan type
Eligible Loans:
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidation Loans
Income-Sensitive Repayment (ISR)
The ISR plan sets monthly payments based on your annual income with the caveat that the loan be paid in full within 15 years.
Eligible Borrowers:
Only for FFELP Program loans
Eligible Loans:
Subsidized and Unsubsidized Stafford Loans
FFELP PLUS Loans
FFELP Consolidation Loans
Pros and Cons of Income-Driven Repayment
Pros of Income-Driven Repayment:
Your monthly payments would likely be more affordable
Your monthly payments would decrease if your income decreased, so you wouldn’t be locked in to paying a certain amount each month even if an unforeseen circumstance arose in relation to your finances
Cons of Income-Driven Repayment:
The amount you pay could be more than the standard repayment plan depending on the plan you choose
You may pay more in interest with a longer repayment period
These repayment options have various elements needed to qualify which could make them inaccessible to some borrowers
Graduated Repayment
Graduated repayment plans allow borrowers to start their payments off at a lower amount and gradually increase to the full payment over a 10-year period. This plan is ideal for people who plan to start their career at a lower income level or who don’t plan to dive into full-time work immediately after graduation.
Eligible Borrowers
All borrowers are eligible for this plan.
Eligible Loans
Direct Subsidized and Unsubsidized Loans
Subsidized and Unsubsidized Federal Stafford Loans
all PLUS loans
all Consolidation Loans (Direct or FFELP)
Pros of Graduated Repayment:
The 10 year repayment period allows you to pay off your loans faster compared to other plans
Your payments might align better with the entry-level wages many new graduates experience
Cons of Graduated Repayment:
You would pay slightly more over time in comparison to the standard repayment plan as more interest would accrue while you’re making smaller payments
You could be in a tough spot if your income doesn’t grow over time as you expect
Extended Repayment
Extended repayment options are available to all borrowers except those with Federal Direct Loans or Federal Family Education Loans that owe less than $30,000. This option allows for either a fixed or graduated payment, leading to full repayment by the end of a 25 year period.
This option is ideal for borrowers who have a hefty total loan amount and need a smaller monthly payment.
Eligible Borrowers
If you’re a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans.
Eligible Loans
Direct Subsidized and Unsubsidized Loans
Subsidized and Unsubsidized Federal Stafford Loans
all PLUS loans
all Consolidation Loans (Direct or FFELP)
Pros of Extended Repayment:
Lower monthly payments in comparison to other plans
You have the option to choose either fixed or graduated payments
Cons of Extended Repayment:
There is no option for loan forgiveness as with the income-driven repayment options
The longer repayment period would cause you to pay more interest over time in comparison to the other plans
So Which Option is Best for Me?
This is a big question, and it may be overwhelming to try to find the answer.
Our answer? The option that you can commit to paying both consistently and on time. Missing loan payments could hurt your credit score and thus your ability to engage in other life milestones such as financing a home or purchasing a vehicle.
You can use the government’s Loan Simulator to figure out which plans you may qualify for and how much you’d pay monthly and in the long run under each plan.
For the 2021-2022 academic year, the average interest rate for federal student loans was 3.73% for undergraduates, 5.28% for graduate students, and 6.28% for parents and graduate students taking out PLUS loans. While it’s challenging to determine the average for private student loans simply due to how much the interest rates vary, they tend to be even higher.
Finding ways to lower your student loan interest rate could lower your overall monthly payment and save you money over time. Here’s how to lower your student loan interest rate for both federal and private student loans.
Can I Get a Lower Interest Rate on My Federal Loans?
Interest rates on federal student loans are set by Congress each year and are technically considered law. Unfortunately, this means that borrowers of federal student loans can’t negotiate their way into a better interest rate.
However, you may be able to get a small reduction on your interest rate by opting into automatic payments. If you agree to make payments on your loan through autopay, a system that automatically takes the monthly payment amount straight from your bank account, you may be able to secure around a 0.25 to 0.50 percentage point reduction in your interest rate.
If you’re confident this method wouldn’t send you into a spiral of overdraft fees, it may be a good option to enroll in auto-debit payments to save you a bit of interest.
Note: Be sure to check with your federal loan servicer to see if they offer interest rate discounts for setting up autopay.
Can I Get a Lower Interest Rate on My Private Loans?
Interest rates on private loans are set by the lender themselves and based on a variety of factors such as your credit score and income. This means that the rates are not set in stone as with federal student loans. Private lenders may be open to negotiation or reevaluating your interest rate.
Proactive Steps to Lower Your Private Loan Interest Rate
If you’re thinking about taking out a private student loan, there are a few things you should do beforehand that will help you secure a lower interest rate when you apply:
Take a Look at Your Credit Score
Interest rates are calculated based on a variety of factors, one of which being your credit score. Ensuring you have a solid credit score before applying for a private loan will help you get a lower interest rate.
Although each lender is different, in general, private lenders look for credit scores around 660 or above. While you can still get a private loan with a bad credit score, your interest rates will be higher. If your credit score isn’t great, don’t worry. There are things you can do to raise it.
Find Someone Willing to Cosign
A cosigner is someone who signs onto the loan alongside the borrower, agreeing to pay back the loan if the borrower doesn’t. Having a cosigner with a good credit score can help you secure a lower interest rate on your private loan because lenders will assume less risk. Given that most young people have a limited credit history, cosigners are very common for private student loans. In fact, around 90% of undergraduate students use a cosigner for their student loans.
The only “risk” to having someone cosign is that they are technically equally responsible for the loan, meaning that if you fail to make payments on the loan, it could hurt their credit score.
Compare Interest Rates Carefully
As always, before jumping into any private loan, it’s important to compare multiple private lenders to find the lowest rate. Complete Sparrow’s application to compare real rates from more than 10 different lenders to make sure you’re getting the best rate possible.
Lowering Your Interest Rate If You Already Have a Loan
If you already have a private student loan, you can lower your interest rate by:
Opting Into Automatic Payments
As with federal loans, many private lenders also offer a discount for opting into an autopay system. While the rate may only drop by 0.25 to 0.5 percent, every bit makes a difference.
Even if you only saved $10 a month from this decrease in interest, that would be $1,200 over the course of a 10-year repayment.
Refinancing Your Student Loans
If you have a stable income and plan to pay off your student debt quickly, you should consider refinancing for a lower interest rate.
Refinancing your loan is the process of taking out a new loan with a lower interest rate to pay off the loan you currently have. By doing this, you can reduce your payments and save on interest.
Borrowers can also choose to consolidate their federal student loans through a Direct Consolidation Loan. The new interest rate will be the average of the rates on the loans you are consolidating. However, you’ll want to consider some of the benefits associated with federal student loans that you’d be giving up, such as income-driven repayment, the possibility of loan forgiveness, and other federal borrower protections.
Negotiate with the Lender
This method won’t guarantee you any savings in interest, but it’s always worth a shot. Look around online for private lenders offering competitive interest rates and present it to the lender you’re already working with. The lender might be willing to make alterations to the rate you previously agreed upon in an effort to keep you as a customer.
Final Thoughts from the Nest
Finding a way to lower your student loan interest rate is one of the best ways to save yourself money in the long run. While not all methods will work for everyone, it’s likely that if you’re trying different approaches, you’ll find at least one that will work.
We wanted to know what financial regrets college students had so you can avoid them.
So, we asked the realest of the real. The best people we know…Our friends.
Here are their top financial regrets from college.
1. Not Thinking More About Savings
This was by far the most popular response, and it went both ways: saving too much and not saving enough.
Some students/grads wished they hadn’t panicked as much about money and instead, just budgeted to have a better understanding of where they were financially. Often, they missed out on experiences they wouldn’t have again because they felt the need to save every single dollar.
On the other hand, several students expressed that they didn’t save enough or at all. While they might have worked while in school, most of their money went out the window. By graduation, they were left with very little to show for all their working hours.
How to Avoid:Make a budget or expense tracker. While it may be tedious, keeping track of all the money that comes in and goes out will help you see where you’re at financially. If that seems a bit overwhelming, commit to moving 10-20% of each paycheck over to your savings to start.
This will help ease your mind when it comes to understanding your finances because you’ll be able to see exactly where your money is going. Then, you’re able to give yourself a budget for fun things while also saving some too.
For budgeting, we recommend Mint, and for automated savings, we recommend Acorns.
2. Spending Money on the Wrong Things
So many students from our poll expressed regret associated with spending money on more material objects like late night food or clothing rather than experiences like attending a game or concert on campus.
The reality is, once you graduate, the only thing you can take with you are the memories. Sure, grabbing food late at night is fun, but so is being able to spontaneously agree to Uber off campus with your friends because you have the money to do so.
How to Avoid: Before purchasing material items, ask yourself if it’s completely necessary or if you’ll use it more than 30 times. For example, pencils for class are a material item but completely necessary, and you’ll use them more than 30 times. A $50 Halloween costume, however, isn’t necessary, and you’ll probably only wear it once. Ditch the costume and save the coin for something more meaningful.
3. Not Understanding Loans
This regret showed up in two ways in our poll: not understanding the difference between loan options and agreeing to one loan option without knowing about the others.
This is definitely an overwhelming part of the college process, and we don’t blame anyone for not knowing the difference between loans or fully understanding how they work.
That said, taking the time to answer these questions before agreeing to borrow from any one lender will likely save you a ton of time and money in the long run.
How to Avoid:Take a bit of time to read a few articles, watch some YouTube videos, or listen to some podcasts that explain the difference between loan options. Don’t commit to any one lender unless you feel confident in that decision.
4. Buying Every Textbook
*cue the sad tunes*
As a former college student myself, it took me a full two semesters to realize that buying books from the campus bookstore was costing me way more money than it should. I was also shocked to learn that I didn’t actually need to purchase every single book that was recommended to me.
My first semester, I purchased every book on every syllabus and probably didn’t open half of them. The folks in our poll shared a similar sentiment.
On average, college students pay more than $1,200 per year for textbooks.1 This is an exorbitant amount of money that is largely unnecessary to spend.
How to Avoid: When you get your syllabi the weeks leading up to classes, you may see books listed as “required.” Unless you get an email from the professor restating that requirement prior to class starting, we recommend waiting to get it until the first day of class. More often than not, professors won’t need you to have the book on the first day and will give you some time to get it.
This will allow you to look at all of your options before buying it from one place. Always do an initial google search for “[Book Title or ISBN] free pdf.” You will be surprised how many books are already online for free! If that doesn’t yield any promising results, we recommend using Slugbooks.com which will allow you to enter the book title or ISBN and compare prices across all online options.
Summary
The financial aspect of college is hard. There’s no way to sugarcoat it. But, by sharing financial regrets, we hope we can prevent you from making the same mistakes.
So, from one college student to another, cheers to making informed financial decisions.
It is always recommended that students exhaust all scholarship options before accepting any federal financial aid or loans. But where do you look for scholarships?
Sallie Mae is one of the most well-known private student loan companies in the game. To support students in making smart financial decisions, Sallie Mae also offers a free Scholarship Search tool.
After registering, the tool will send you customized alerts to notify you of new available scholarships that match your unique profile. You can also manually search for scholarships that match your interests, skills, and activities.
And wait – it gets better! All students registered with Sallie Mae’s Scholarship Search tool will be automatically entered to win $1,000 in their monthly sweepstakes.
Scholarships.com is one of the most established scholarship websites, having reported nearly $19 billion in scholarships. The site allows you to create a profile then uses that information to match you with scholarships you should apply to.
You can also search by college, state, and a variety of other areas to narrow down your search.
Chegg is well-known for it textbook rentals and homework help, but it’s also a great resource for scholarships. In total, Chegg offers more than 25,000 scholarships and tutors to help review students’ scholarship essays.
Fastweb is a unique scholarship search engine, claiming to have over 1.5 million scholarships in its database. Similar to how Scholarships.com works, you can create a profile and the tool will find the scholarships that best match your background. Fastweb will even email you those matches along with the deadlines so you can keep up and never miss a scholarship!
Niche.com provides insight on colleges and universities using over 140 million reviews and ratings from real students and families. The site also offers a wide variety of scholarships, using a similar matching process to Scholarships.com and Fastweb.
Niche will pair students with scholarships that match their background, interests, and qualifications. A large majority of the scholarships on Niche are also no-essay (oh yeah!).
Cappex provides a wide variety of scholarship opportunities, but what makes it most unique is its Calculator Tool. The tool allows students to calculate their chances of getting into prospective schools. While not the end-all-be-all, the tool is helpful because it can allow you to see whether or not you might get into schools that offer more scholarship money and how much additional leg work you might need to do.
Cappex’s database offers more than $11 billion in scholarships, allowing students to search via a variety of factors.
Insider Tips from the Nest:
Create a new, separate email account just for applying to scholarships. This is important for a few reasons:
Your regular email won’t be flooded with scholarship emails.
You can put all of your essays and application materials into folders (like on Google drive!) and keep them in one place.
You won’t have to individually unsubscribe from every single scholarship website after you’re done, you can just log out of the email!
Summary
Beyond scholarship websites, you should always check your high school’s website (if applicable) as well as the website of your prospective schools. Each school will handle scholarships differently, though, so always ask a staff member for guidance!
Your student loan debt increases every single day because interest compounds daily. If you are looking to pay off your debt faster, making monthly payments won’t be most effective.
Here’s two simple hacks that can help you pay off your student debt faster.
You’re Paying Off Your Debt Inefficiently
If you’re making monthly payments on your student loan debt, you aren’t making the most efficient payments possible. Now, we aren’t saying monthly payments are a bad thing, but you could be paying more efficiently – and why wouldn’t you want to do that?!
Lenders determine a specific repayment period and divide the total principal amount plus the interest the loan will accrue into monthly payments. Borrowers then make those monthly payments overtime and pay off their loan.
However, with student loans, interest accruesdaily. This doesn’t align super well with monthly payments. You could be making monthly payments on your loans for years without making a dent in the principal because it’s hard to really get ahead of the interest.
Monthly payments work, but we want to give you the best options, not just the ones that work, so we can all make the smartest financial decisions.
Let’s break down the two main things you can do instead to pay off student debt faster.
Biweekly Payments
Biweekly student loan payments are simple.
If you typically pay $500 once a month, you would instead pay $250 twice a month.
Because there are 52 weeks in a year, you would end up making 26 payments (or 13 full months worth of payments) instead of the 12 you’d make with monthly payments. Not only does this mean an additional payment, but you’re able to keep up with the interest which means paying down your loan faster.
Continuing with the example of $500 monthly payments, biweekly payments would look like this:
Monthly Payments:
$500/month
x 12 months
$6,000 total
Biweekly Payments:
$250 every other week
x 26 weeks (52 weeks / 2)
$6,500 total
Paying more each year would save you both money and time as you’d pay your loan off faster than your initial repayment period.
Here’s another example from StudentLoanPlanner for a $50,000 loan with a 5.7% interest rate:
Another pro of biweekly payments? Most people get paid biweekly, and thus, making biweekly payments works great with their budget (keeping the money out of sight, out of mind!)
Surplus/Greater than Minimum Payments
This may sound fairly obvious, but putting any extra money you can onto your loans could save you thousands of dollars over time.
If you pay only the minimum monthly payments on your loan, it will take you the full repayment period. However, if you added even an additional $100 a month to your payments (or $50 every biweekly payment!), you could save yourself some serious coin.
Let’s look at some numbers to conceptualize just how big of a difference this can make
Total Current Balance: $50,000 at a 5% interest rate
10-year repayment plan
Minimum Monthly Payments: $530
Total Paid Over 10 Years: $63,639
10-year repayment plan
Minimum + $100 Extra/Month: $630
Total Paid: $60,820
Time Saved: ~1.9 years
Now, imagine if you were able to add $200 or maybe even $500 on some of those months instead of $100. Incorporating surplus payments can save you a lot of money and time.
Summary
Making monthly payments is a good way to pay off student debt, but making biweekly surplus payments is even better. If you’re struggling to allocate funds in your budget to this extra bit of money, due to high interest rates or unfavorable loan terms, it might be time to consider refinancing your student debt.
The term “refinancing” is one we hear a lot in the realm of student loan repayment, but how many of us know what it actually means?
Refinancing is actually surprisingly easy to understand: a lender will pay off your existing loans and give you a new one with a lower interest rate or shorter repayment plan. It’s basically a chance to swap your current loan for a better one, with better terms.
In the long run, the goal of refinancing is to help save you money. And the best part is, you are allowed to refinance as many times as you like, free of cost. Most lenders allow you to refinance both your federal and private student loans.
Let’s say you took out a student loan of $50,000 at an interest rate of 5% during undergrad and you plan on paying it off over the next 10 years at a monthly rate of around $530. By the time you finish paying it off, you will have actually paid $63,640 — the original $50,000 plus $13,640 in interest.
On the other hand, if you refinance at an interest rate of 2.5% over the same ten-year period, you can reduce your monthly payments to $471, and pay only $6,562 in interest, saving $7,078 over the lifetime of the loan.
Most lenders require you to have a good credit score (in the mid 600s). Lenders also want proof of a stable income and cash flow to support your new loan.
If your credit score has improved since taking out your original student loan, you may be well-positioned to refinance.
If your credit score is poor, you may struggle to find a lender willing to help you refinance because you will be viewed as a higher risk. If this sounds like you, consider adding a creditworthy cosigner to your application to increase your changes of qualifying for a lower rate.
Change in interest rate and loan term
Before you refinance your student loans, consider the change in interest rate and loan term. A lower interest rate means you will pay less interest each month, resulting in a lower total payment.
The loan term dictates how long you will be paying back the loan. A shorter term typically means a higher monthly payment, but allows you to get out of debt faster. On the other hand, a longer term usually means a lower monthly payment, but increases the amount of interest that you have to pay throughout the lifetime of the loan.
Type of loans
When you refinance, you are essentially applying for a private loan. If you already have private loans, refinancing is a great way to decrease the amount of interest you pay on your loans.
If you have federal loans, however, you’ll want to weigh the reduction of your interest rate with the loss of federal student benefits that you’ll miss out on when you refinance with a private lender, such as:
Income-driven repayment plans
Income-driven repayment plans readjust the amount you pay as your income falls. This keeps your repayment from ever totaling more than 10% of your monthly income, and it can help you stay financially secure.
Loan forgiveness
Federal student loans have some loan forgiveness options, such as the Public Service Loan Forgiveness and Teacher Loan Forgiveness. When you refinance a federal student loan, you lose access to all these long forgiveness programs.
Deferment and Forbearance
Federal student loans include deferment and forbearance which allow you to postpone your loan payments if you suffer severe financial hardship. But if you refinance, you’ll likely lose these protections.
Am I Eligible to Refinance My Student Loan?
While everyone’s situation is different, here are some of the qualities that will make you well-positioned to refinance your student loans.
You’ve graduated or are no longer in school.
You have a high-interest private or federal student loan
You earn a steady flow of income
You’ve kept up with your loan payments and have a credit score in the mid/high 600s or above.
You do not work for the government, and you do not foresee the need for an income-driven payment plan.
If this describes you, then you are in good shape to refinance your student loans, and will likely save a substantial amount by doing so. If you answered yes to some of these and not others, you should consider refinancing only your private student loans.
Situations Where it Makes Sense to Refinance
Here are some situations where it would make sense:
You have a private student loan with a high interest rate
If you’ve got a private student loan with a high interest rate, you should try refinancing as soon as possible. That will maximize your potential savings.
If you can lower your interest rate (even by just a half of a percentage point), it could save you thousands of dollars throughout the lifetime of the loan. If you previously refinanced your loans, you can refinance again to lock down an even lower rate. Since refinancing is free, you are almost guaranteed to save money.
Want to compare all your student loan refinancing options? Complete the free Sparrow application to compare personalized rates from over 15 premier lenders.
Your finances improve
Credit score and income are the two main factors that determine the interest rate on your private student loans. If your credit score increases or you get a pay raise, it could be a great time to shoot your shot at refinancing your student loans. Refinancing to a shorter repayment plan at a lower interest rate will allow you to pay off your loans faster and save money in the long term.
In order to refinance, you generally need a credit score at least in the high 600s and enough income to consistently pay your debts and other expenses. If you don’t meet those criteria, you could refinance with a cosigner who does.
You have a federal student loan but don’t plan on using of the federal protections
If you don’t plan on taking advantage of federal loan benefits, such as income-driven repayment and Public Service Loan Forgiveness, refinancing might be a good option for you. Only refinance your federal student loans if you know you can get a lower rate. There is no reason to refinance your loans unless you end up paying less in interest.
You have a creditworthy cosigner
A cosigner is a person – such as a parent, close family member or friend – who pledges to pay back the loan if you do not. If you can find a cosigner with strong credit and high income, you’ll have a better chance of qualifying for a low interest rate. This could end up saving you thousands of dollars of interest expense over the lifetime of your loan.
How to Prepare For Refinancing
1.Explore all private loan options.
Determine if the private loan being considered will have a fixed or variable interest rate. A fixed interest rate remains the same throughout the lifetime of the loan, while variable rates will likely fluctuate throughout the lifetime of the loan depending on interest rates set by the banks.
Although a variable rate may be lower at certain points throughout the loan, they are largely unpredictable. On the other hand, fixed-rate offers more stability since you’ll know exactly how much you owe each month. Both can be good options depending on your circumstance and the movement of variable rates.
2. Know where you stand.
A strong credit score will almost certainly be required. While most lenders want to see scores in the mid-to-high 600s, aiming for 700 or higher will help with both the approval process and the rate you will qualify for. This means you will need to know where they stand before starting the process.
3. Carefully examine your credit report and score.
There are a number of sites that allow you to check your credit report for free. If there are mistakes, you will need to take the time to correct them before you start the process of applying for refinancing. If your score is not where it needs to be, you will need to take steps to improve your score before starting on the path to refinancing.
4.Shop around for the best rates.
Some borrowers may be concerned about damaging their credit score by having too many hard inquiries over a short period of time. Luckily, we’ve built a free tool that allows you to see what rates you’ll qualify for without impacting your credit score.
It is no secret that the cost of education has increased dramatically over the last several decades. At the current rate, the cost of college doubles every nine years. The rapid increase in the cost of education has forced generations of Americans to rely on student loans to afford a degree. Unsurprisingly, almost 70% of students in the Class of 2019 took out student loans.
Since borrowing affects most students in the US, it is important to know how the student lending industry operates. In this article, we’ll break down everything you need to know about student loans.
What is a Student Loan?
A student loan is money borrowed from the government or a private lender, designated for educational purposes. Typically, these loans cover the cost of tuition, books, supplies, and room-and-board.
While it is best to avoid debt, many financial professionals classify student loans as “good debt.” That’s because a college education is seen as an investment in yourself that helps increase your lifetime earning potential. In other words, the career earnings unlocked by a college degree are worth more than the loan. On average, college graduates earn more money and have better job security across their professional careers than those with only a high school diploma.
Federal student loans are provided by the U.S. Department of Education, while private student loans and student loan refinancing are supported by banks, credit unions, non-profits, and other private lenders.
Of the three types of debt, federal loans usually have the lowest interest rates and most flexible repayment options. With that said, the particular loan that is best for you depends on your financial need, year in school, and credit history.
Federal Student Loans
After you’ve exhausted grants, work-study, and scholarships, you should turn to federal student loans to pay for college.
To apply for federal student loans, you must fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA is the go-to form that determines your eligibility for federal financial aid.
To receive federal support, you must be a U.S. citizen, have a valid social security number, have earned a high school diploma, and be enrolled at an eligible college or university.
The FAFSA is available starting Oct. 1 the year before a you plans to enroll. For example, if you are enrolling for the 2022-23 school year, the FAFSA will be available on Oct. 1, 2021.
The FAFSA is accepted, reviewed, and distributed on a rolling basis. You should complete the FAFSA form as early as possible. The earlier you apply, the better your chances are for receiving financial aid awards.
Benefits of Federal Student Loans
Federal student loans come with many benefits and protections that are not typically offered with private student loans. Designed to reduce the burden of repayment, these advantages include:
Federal student loans typically have lower interest rates than private loans. Rates for new federal loans are also fixed, meaning they’ll stay constant during the entire loan term.
2. No credit check
Unlike private student loans, most federal loans do not require you to have credit history. The only type of federal loan that requires a credit check is Direct PLUS, which is available to graduate students and parents. This makes federal student loans the best option if you have a limited credit history.
3. No cosigner requirement
Federal student loans do not require cosigners. This means you do not need to rely on a relative for financial help, making the process much easier for those legally and financially independent.
There is one exception: if you are a graduate student or parent applying for a Direct PLUS loan and have a poor credit history, you may not be eligible without an “endorser,” which is similar to a cosigner.
4. Forbearance and deferment options
Federal student loans offer forbearance and deferment options if you face economic hardship. Forbearance and deferment allow you to postpone your student loan payments for up to three years.
5. Income-driven repayment
Federal student loans offer a repayment plan that is based on your income. With income-driven repayment, you pay a percentage of your income each month — or $0 if you have no income.
6. Loan forgiveness
The Public Service Loan Forgiveness program allows you to have loans forgiven after at least 10 years of public service and 120 qualifying monthly payments.
Loan forgiveness is also available after you have made qualifying monthly payments in an income-driven repayment plan for 20 to 25 years.
We’ll break down what you need to know about each of the loans below.
Direct Subsidized Loans
Who can get Direct Subsidized loans?
In order to qualify for Direct Subsidized loans, you must be an eligible undergraduate student who demonstrates financial need.
How much can you borrow?
Your school determines the amount you can borrow. The amount you borrow may not exceed your financial need.
If you are an undergraduate student, the maximum amount you can borrow with a Direct Subsidized loan ranges from $5,500 to $12,500 per year depending on your year in school and your dependency status (whether you are a dependent or independent student). The maximum amount you can borrow per year increases every year you are in school.
What’s the interest rate on Direct Subsidized loans?
The interest rate for Direct Subsidized loans is 3.73% for 2021-22.
Is there an origination fee?
When you take out a Direct Subsidized loan, you will be charged an origination fee — a fee meant to offset a lender’s cost for issuing a loan. The origination fee is deducted from the loan disbursement before you or the school receives the funds. Currently, the origination fee on Direct Subsidized loans is 1.057%, but it changes each year on October 1st.
So for example, if you borrow $12,500 in Direct Subsidized loan, 1.057% (or $132) will go to the federal government, while the remaining $12,368 will go to your school (and then you).
Who will pay the interest?
The U.S. Department of Education pays the interest on a Direct Subsidized loan:
while you’re in school at least half-time,
for the first six months after you leave school (referred to as a grace period), and
during a period of deferment (a postponement of loan payments).
Thoughts from the Sparrow Nest
The low interest rate and generous grace period make Direct Subsidized loans the preferred option if you need to borrow money for school. But remember, Direct Subsidized loans are only available to undergraduates who can demonstrate financial need, and the amount of money you can borrow with Direct Subsidized loans is capped at $12,500. This means that, even if you do qualify for Direct Subsidized loans, you might need to look elsewhere to fund the gap in your education financing.
Direct Unsubsidized Loans
Who can get Direct Unsubsidized loans?
Direct Unsubsidized loans are based on merit, not financial need. They are made eligible to undergraduate, graduate, as well as professional students.
How much can you borrow?
Your school determines the amount you can borrow based on your cost of attendance and other financial aid you receive.
The maximum amount you can borrow each academic year in Direct Unsubsidized loans ranges from $5,500 to $12,500 for undergraduates, depending on your year in school and your dependency status. Direct Unsubsidized loans have an annual limit of $20,500 for graduate or professional students.
What’s the interest rate on Direct Unsubsidized loans?
The interest rate for Direct Unsubsidized loans is 5.28% for 2021-22.
Is there an origination fee?
Similar to Subsidized loans, when you take out a Direct Unsubsidized loan, you will be charged an origination fee — a fee meant to offset a lender’s cost for issuing a loan. The origination fee is deducted from the loan disbursement before you or the school receives the funds. Currently, the origination fee on Direct Unsubsidized loans is 1.057%, but it changes each year on October 1st.
So for example, if you borrow $20,000 in Direct Unsubsidized loan, 1.057% (or $211) will go to the federal government, while the remaining $19,789 will go to your school (and then you).
Who will pay the interest?
When you take out a Direct Unsubsidized loan, you have a 6 month grace period. Unlike with Direct Subsidized loans, however, you are responsible for all interest charges on unsubsidized loans, from the moment you take out the loan until the day you pay it off.
Thoughts from the Sparrow Nest
Direct Unsubsidized loans are a great choice for undergraduate who have exhausted their Direct Subsidized loans. They’re also the preferred option for graduate and professional degree students who need federal funding. That is because of the relatively low interest rate and higher borrowing limits.
With that said, if you meet the financial need requirements to qualify for subsidized loans, you’ll pay less over time than you would with unsubsidized loans. Unlike with Direct Subsidized loans, you are responsible for all interest charges on Unsubsidized loans, from the moment you take out the loan until the day you pay it off.
Direct Subsidized Loans vs Direct Unsubsidized Loans
Subsidized
Unsubsidized
Qualification
Need-based
Merit-based
Annual borrowing limit
$5,500 – $12,500, depending on your year in school and dependency status
$5,500 – $12,500, depending on your year in school and dependency status
Interest while in school
Government pays interest while you’re in school
Interest accrues while you’re in school that you must eventually pay
Eligible borrowers
Undergraduates only
Undergraduate and graduate or professional degree students
Direct PLUS Loans
What are the different types of Direct PLUS loans?
There are two types of Direct PLUS loans: Grad PLUS loans and Parent PLUS loans.
Grad PLUS loans allow graduate and professional students to borrow money to pay for their own education. You can use Grad PLUS loans to cover any costs not already covered by other financial aid or grants, up to the full cost of attendance.
Parent PLUS loans allow parents of dependent students to borrow money to cover any costs not already covered by the student’s financial aid package, up to the full cost of attendance. The program does not set a cumulative limit to how much parents may borrow. Parent PLUS loans are the financial responsibility of the parents, not the student.
Who can get Direct PLUS loans?
While most federal student loans are need or merit-based, Direct PLUS loans are based on a credit check. If you have a poor credit history, you will have a harder time qualifying and might require an “endorser” (essentially a cosigner, who pledges to pay back the loan if the primary borrower cannot). Even if you have an adverse credit history, you may still be able to receive a PLUS loan if you meet additional requirements.
How much can you borrow?
The maximum PLUS loan amount you can receive is the cost of attendance (determined by the school) minus any other financial aid received.
What’s the interest rate on Direct PLUS loans?
The interest rate for Direct PLUS loans is 6.28% for 2021-22.
Is there an origination fee?
Similar to Subsidized and Unsubsidized loans, when you take out a Direct PLUS Loan, you will be charged an origination fee — a fee meant to offset a lender’s cost for issuing a loan. The origination fee is deducted from the loan disbursement before you or the school receives the funds. Currently, the origination fee on Direct PLUS Loans is 4.228%, but it changes each year on October 1st.
So for example, if you borrow $12,500 in Direct PLUS Loan, 4.228% (or $528) will go to the federal government, while the remaining $11,971 will go to your school (and then you).
Who will pay the interest?
Direct PLUS loans are not subsidized, which means that interest accrues while you are enrolled in school. Direct PLUS loans also do not have a “grace period,” which means you must start repaying PLUS loans as soon as you or the school receives the loan funds.
Thoughts from the Sparrow Nest
Direct PLUS loans can be a good option for parents and grad students, alike.
If you’re a parent, you should take out PLUS loans if you need the safety net or want the benefits these loans offer, such as income-driven repayment plans and Public Service Loan Forgiveness.
If you’re a student, you should take out PLUS loans to pay for grad school only after you have maxed out the borrowing limit on lower-interest unsubsidized loans.
Federal Student Loan Interest Rates
Loan Type
Borrower Type
Interest Rate
Origination Fee
Direct Subsidized Loans & Direct Unsubsidized Loans
Undergraduates
3.73%
1.057%
Direct Unsubsidized Loans
Graduate or Professional Students
5.28%
1.057%
Direct PLUS Loans
Parents and Graduate or Professional Students
6.28%
4.228%
Note: The interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS loans first disbursed on or after July 1, 2021 and before July 1, 2022. Rates and fees are subject to change.
Federal Student Loan Repayment Plans
Federal student loans offer several repayment options depending on the loan type. These options include:
Check out the information below for a complete breakdown of the different repayment options for federal student loans.
Standard Payment
The standard payment plan is available to all borrowers and is great if you want to pay off your debt in the shortest period of time. With a standard student loan payment option, you would make equal monthly payments for 10 years. You’ll pay less interest and pay off your loans faster than you would on other plans.
Eligible Borrowers
All borrowers are eligible for this plan.
Eligible Loans
Direct Subsidized and Unsubsidized Loans
Subsidized and Unsubsidized Federal Stafford Loans
All PLUS loans
All Consolidation Loans (Direct or FFELP)
Pros of Standard Repayment:
Shorter repayment period compares to other options
Less interest over time
Cons of Standard Repayment:
You may have higher monthly payments compared to the other options
Your monthly payment would remain the same even if your income dropped
Graduated Repayment
The graduated repayment plan allow you to start your payments off at a lower amount and gradually increase to the full payment over a 10-year period. This plan is ideal if you plan to start your career at a lower income level or do not plan to dive into full-time work immediately after graduation.
Eligible Borrowers
All borrowers are eligible for this plan.
Eligible Loans
Direct Subsidized and Unsubsidized Loans
Subsidized and Unsubsidized Federal Stafford Loans
All PLUS loans
All Consolidation Loans (Direct or FFELP)
Pros of Graduated Repayment:
The 10 year repayment period allows you to pay off your loans faster compared to other plans
Your payments might align better with the entry-level wages many new graduates take on
Cons of Graduated Repayment:
You would pay slightly more over time in comparison to the standard repayment plan since more interest would accrue while you’re making smaller payments
You could be in a tough spot if your income does not grow over time as you expect
Extended Repayment
The extended repayment plan is available to all borrowers except those with Federal Direct Loans or Federal Family Education Loans (FFEL) that owe less than $30,000. This option allows for either a fixed or graduated payment, leading to full repayment by the end of a 25 year period.
This option is ideal if you have a hefty total loan amount and need a smaller monthly payment.
Eligible Borrowers
If you’re a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans.
Eligible Loans
Direct Subsidized and Unsubsidized Loans
Subsidized and Unsubsidized Federal Stafford Loans
All PLUS loans
All Consolidation Loans (Direct or FFELP)
Pros of Extended Repayment:
Lower monthly payments relative to other plans
You have the option to choose either fixed or graduated payments
Cons of Extended Repayment:
There is no option for loan forgiveness as with the income-driven repayment options
The longer repayment period would cause you to pay more interest over time in comparison to the other plans
Income-Driven Repayment
Income-driven repayment plans use your income to set a monthly payment. This amount is typically 10-20% of your income and can be as low as $0 if you’re unemployed. With these plans, your loan term is extended, usually to around 12-25 years. When this term is up, the remaining balance you owe will sometimes be forgiven. However, you would be required to pay taxes on the forgiven amount, so you are not totally off the hook.
There are 5 different income-driven repayment options offered for federal student loans. Each of the income-driven repayment options has its own specific requirements in order to qualify, but they’re all ideal for people whose monthly income is too low to pay the standard monthly payment.
The PAYE plan makes your monthly payment 10% of your discretionary income. The payments are reevaluated every year and updated if your income changes for any reason or if your family size changes. If you have not repaid your loan in full after 20 years, the remaining balance will be forgiven.
Eligible Borrowers:
If you are a new borrower from either on or after October 1, 2007 and received a Direct Loan disbursement on or after October 1, 2011
Eligible Loans
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidated Loans not including PLUS loans made to parents
2. Revised Pay As You Earn Repayment Plan (REPAYE)
The REPAYE plan makes your monthly payments 10% of your discretionary income and is recalculated every year in the same way the PAYE plan is. For undergraduate loans, your remaining balance will be forgiven after 20 years, and for graduate loans, 25 years.
Eligible Borrowers:
Any Direct Loan borrowers with an eligible loan type
Eligible Loans:
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidated Loans not including PLUS loans made to parents
3. Income-Based Repayment Plan (IBR)
An IBR plan sets monthly payments at either 10 or 15 percent of your discretionary income, neither amounting to more than what you would pay under the 10-year standard repayment plan. Payments are reevaluated every year based on changes in income and family size. Depending on when you received your first loan, your remaining balance will be forgiven after either 20 or 25 years. It is important to note that you may have to pay taxes on this forgiven amount.
Eligible Borrowers:
Those with high debt relative to their income
Eligible Loans:
Direct Subsidized and Unsubsidized
Subsidized and Unsubsidized Stafford Loans
All PLUS loans for students
Consolidation Loans not including PLUS loans made to parents
4. Income-Contingent Repayment Plan (ICR)
The ICR plan sets monthly payments at whichever is lesser: 20% of discretionary income OR the monthly payment you’d have on a plan with a fixed payment over 12 years, adjusted to your income. Payments are reevaluated and updated based on changes in your income and family size. Outstanding balances are forgiven after 25 years.
Eligible Borrowers:
Any Direct Loan borrower with an eligible loan type
Eligible Loans:
Direct Subsidized and Unsubsidized
Direct PLUS loans for students
Direct Consolidation Loans
5. Income-Sensitive Repayment (ISR)
The ISR plan sets monthly payments based on your annual income with the caveat that the loan is paid in full within 15 years.
Eligible Borrowers:
Only for FFELP Program loans
Eligible Loans:
Subsidized and Unsubsidized Stafford Loans
FFELP PLUS Loans
FFELP Consolidation Loans
Pros and Cons of Income-Driven Repayment
Pros
Cons
1.) Your monthly payments would likely be more affordable
2.) Your monthly payments would decrease if your income decreased, so you would not be locked into paying a certain amount each month even if you fall into economic hardship
1.) You may pay more in interest with a longer repayment period
2.) The total amount you pay could be more than the standard repayment plan depending on the plan you choose
3.) You must meet certain requirements in order to qualify
Private Student Loans
Private student loans can help you pay for college after you’ve exhausted scholarships, grants, and federal loans.
Private loans are made by private lenders such banks, credit unions, non-profits, and online lenders, and have terms and conditions that are set by the lender. Private student loans typically have higher interest rates and less flexible repayment options compared to federal student loans.
Who Can Get a Private Student Loan?
To qualify for a private student loan, you’ll need to attend an eligible school, as well as meet any age, education, or citizenship requirements. You’ll also need to meet a lender’s criteria for credit and income, or apply with a cosigner who does.
While most private student loans are credit-based, there are a handful of private student loans that are future-income-based. These are great for students who cannot meet the credit requirements and do not have access to a qualified cosigner.
How Much Can You Borrow?
Private student loans have a higher borrowing limit compared to federal loans. Private lenders allow you to borrow up to your school’s cost of attendance. With that said, it is wise to only borrow what you need — and what you can afford to repay.
How are Interest Rates Determined?
The interest rate on your private student loan depends on a few main factors:
Most private student loans are credit-based. That means the lender looks at your history of borrowing money and paying it back on time. They want to know how creditworthy, or how responsible you are with credit, before approving your student loan application.
In general, a higher credit score leads to a lower interest rate. The reverse is also true — a lower credit score leads to a higher interest rate.
Type of interest rate (fixed vs variable)
Most private lenders allow you to choose between a fixed and variable interest rate.
A fixed interest rate stays the same for the life of the loan. This means you’ll have a predictable student loan payment each month.
A variable interest rate fluctuates throughout the life of the loan depending on economic conditions. Variable interest rates often start out lower than fixed rates but can change, so your monthly student loan payments may vary considerably from month to month.
In general, fixed student loan interest rates are a better option than variable rates. That is because fixed rates always stay the same, so you will know exactly how much you need to pay each month. If you’re unsure which rate to choose, go with fixed; it is the safer option and allows you to budget accordingly. If you’re comfortable taking a risk to potentially save on interest, consider a variable rate.
Loan term
Loan term, also called loan duration, is the length of time you’ll have to pay off your loan. Private student loan terms usually range between 5-20 years, with plenty of options in between. Keep in mind that the longer your loan term, the more time interest accrues — this leads to higher total cost.
A simple way to think about is:
The shorter the loan term, the higher the monthly payments. If you’re making high monthly payments, the faster the loan will be paid off and the lower the total cost, since interest has less time to accrue.
On the other hand, the longer the loan term, the lower the monthly payments.If you’re making low monthly payments, the slower the loan will be paid off and the higher the total cost, since interest has more time to accrue.
What is a Cosigner?
If you cannot qualify for a student loan on your own, most private lenders will encourage you to apply with a cosigner. A cosigner is a person – such as a parent, close family member, or friend – who pledges to pay back the loan if you do not. This can be a benefit both to you and your lender since many many college-bound high school students have not had time to build up their own credit. However, it is risky to be the cosigner because if the student is unable to pay the loan back, the cosigner is responsible to pay on their behalf.
Private Student Loan Repayment Plans
While repayment options depend on the lender, most private lenders offer some variation of the repayment plans below.
Repayment Option
Terms
Pros
Cons
Immediate Repayment
Make full payments as soon as the loan is disbursed, while you’re still in school.
You will minimize the interest you pay, resulting in the greatest savings. Because you’re paying down both interest and principal while you’re still in school, you’ll already have made a good start on repaying your loan by the time you graduate.
For many students, it is not realistic to make full monthly payments while still enrolled in college.
Interest-Only Repayment
Pay only interest while you’re in school.
Your monthly payments will be more manageable, and your loan balance will not grow while you’re in school.
You will not make any progress paying down your loan balance while you’re a student. But at least you will not owe more than you borrowed when it is time to start making full payments.
Partial Repayment
Pay $25 per month while you’re in school to reduce accrued interest.
You can keep your loan balance in check, and reduce the total amount repaid.
You’ll still owe more than you borrowed when you graduate, but your loan balance will not grow as quickly.
Deferred Repayment
Do not make any payments while you’re in school. Begin repayment after graduation or 6 months after graduation.
You will not have to make payments while you’re in school.
You will likely pay the highest overall cost since unpaid interest will be added to your principal amount at the end of your grace period.
Are there any discounts or fees on private student loans?
Auto-pay discount
Many lenders allow you to get an interest rate reduction by signing up for automatic payments. The autopay discount generally starts at 0.25% but can go up to 2%, depending on the lender.
Origination fee
An origination fee is a you must pay to offset a lender’s cost for issuing a loan. Private loans rarely have an origination fee, but all federal loans do (although at different rates: 1.057% for federal subsidized and unsubsidized and 4.228% for Federal PLUS).
Prepayment penalty
A prepayment penalty is a fee you would have to pay if you want to repay your loans early. It is not allowed on any student loans, federal or private.
Application fee
There is generally no cost to apply for private student loans.
Student Loan Refinance
What is Student Loan Refinancing?
Student loan refinancing is when a lender pays off your existing loans and gives you a new one with a lower interest rate or repayment plan. In the long run, this saves you money since you’ll be paying less interest.
Refinancing could look like this [note: this is a very basic example]:
Loan 1: $10,000 at 7.5% interest rate
Loan 2: 13,000 at 8.25% interest rate
~insert magical refinancing here~
New Loan: $23,000 at 5.25% interest rate
Notice that the new loan is for the same amount of total debt, however, the interest rate is lower. This would save you money in the long run since less interest would accrue.
Example of Refinancing Student Debt
To contextualize this information, let’s look at an example. Let’s say you took out a student loan of $36,405 at an interest rate of 4.66% during undergrad and you plan on paying it off over the next 10 years at a monthly rate of around $380. By the time you finish paying it off, you will have actually paid $45,614.52–the original $36,405 plus $9,208.42 in interest. On the other hand, if you refinance for an interest rate of 2.59% over the same ten-year period, you can reduce your monthly payments to $344.69, and pay only $4,956.52 in interest, saving $4,251.50 over the lifetime of the loan.
What Do I Need to Refinance?
Generally, you need a strong credit score (mid-high 600s), a stable income, or a qualified cosigner to refinance.
Should I Refinance My Loans?
You should refinance your loans if it will save money. Generally, a lower interest rate and shorter repayment plan will lead to extra savings.
When You Should Refinance
If the savings will be significant. If you can qualify for a better interest rate, it is a good idea to refinance. You do not need to have a perfect credit history. As long as you can get that lower interest rate, you’re likely going to save some coin.
If you have student loans with high variable interest rates. Variable interest rates do just as they’re called – they vary. It is challenging to predict what payments will be with a variable interest rate as it is always changing. Whether your variable interest rate is currently high or low, it may be a good idea to refinance if you can secure a lower fixed rate.
If the economy supports low interest rates. Interest rates are impacted by economic factors. If the rate environment is good, rates may be lower, and it may be a good idea to take advantage of that.
If your finances have improved. If your financial situation has improved since you first took out your loans, you may qualify for a better interest rate on a new loan.
When You Should Not Refinance
If you’re planning to pursue student loan forgiveness. If you are pursuing a program such as Public Service Loan Forgiveness, you should not refinance your student debt as it would make you ineligible for the program.
If you have Federal Loans and may experience a drop in income. When you refinance federal student loans, you lose the option to participate in federal repayment programs such as income-driven repayment and federal loan relief options.
If you’ve declared bankruptcy recently. It is significantly more difficult to refinance student debt if you have declared bankruptcy. While not impossible to refinance under these conditions, many lenders will require around 4-10 years to have passed since the bankruptcy filing before lending.
If you’ve had to default on student debt. Defaulting on a student loan is a red flag to lenders as it tells them that you may not be able to make consistent loan payments.
How Many Times Can I Refinance?
You are allowed to refinance as many times as you like, free of cost.
Final Thoughts from the Sparrow Nest
Our goal is to bring simplicity, choice, and transparency to an otherwise inefficient and opaque lending process. We hope this guide helps.
Around 43 million Americans owe a grand total of $1.7 trillion on their student loans and unfortunately, this number is projected to increase to roughly $2 trillion by 2022.
We all know $1.7 trillion is a massive number, and it’s important to recognize it as what it truly is: a crisis. The weight of student debt permeates every aspect of our lives.
This shouldn’t scare anyone away from their dream of pursuing a college education, but it is crucial to evaluate the vast impact of the crisis in which we’re living.
Here’s What You Need to Know About How the Student Debt Crisis Affects You:
Student loan debt impacts more than just the individuals desperately praying for their payments to disappear.
While there are various ways student loan debt impacts the economy, we’ll focus on three ways that impact the college student and recent graduate demographic most:
Shifting the Economic Power Away from Students and Recent Graduates
Since the 1980s, the cost of a college education has increased rapidly. A degree that cost roughly $53,000 in 1989 now costs around $104,000. The worst part? Wages haven’t increased at the same rate. This makes it harder and harder for college graduates to pay back their student loans.
As a result of this, students are increasingly disempowered when it comes to investing in a college education. Students hardly benefit from a rise in the cost of education, and rather, lenders, investors, and universities do. This leaves students in a tricky position, often forced to choose between taking out loans for a stronger education or opting for a lower-cost option that feels like less of a fit.
Lowering the Rates of Homeownership
Between 1970 and 2017, the rate of homeownership for Americans aged 20-34 has dropped nearly 10%. While there are various contributors to the drop in homeownership, the student debt crisis is a central factor.
To put it simply, holding an abundance of student debt prevents people from purchasing real estate. Knowing that you have upcoming loan payments can prevent you from being able to save for a down payment on a new home, or from getting into another monthly payment with rent.
While this isn’t as applicable to current college students, it is a large concern for almost everyone’s long-term goals (while it was nice during COVID, few people plan to live at the ‘rents’ place forever). Whether you plan to sell your first home and make a profit or leverage the equity for other expenses, homeownership is a sound financial decision. Not only does it mark a step in fully embracing one’s independence and freedom as an adult, but it helps support the long-term goals of both the individual property owner and the surrounding community.
Shifting Timelines of Typical Life Milestones
Regardless of any internet memes you see poking fun at the differences in generations, there are stark differences between today’s college students and those in our parents’ generation. Due to the increase in student loan debt, current borrowers are (practically) forced to delay traditional life milestones such as purchasing their first car or home, getting married, having children, and even retirement.
Roughly 21% of young millennials are waiting longer to get married and another 21% are delaying having kids due to their student debt. What may be most concerning is that roughly 40% of younger millennials are putting off saving for retirement. While perhaps not a pressing issue at a young age, this does raise concerns for the ability to retire down the line and could impact future generations as they prepare to support the generations before them.
Inequality Impact
There is substantial evidence highlighting the various disparities in the amount of student debt accumulated across racial and ethnic groups.
According to EducationData.org, “Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates.” While this figure is important to understand, we must consider how this impacts the milestones we previously discussed.
The impact of student debt goes well beyond the payments and impacts how people engage in the world around them. This is crucial to understanding how deep the inequalities created by student loan debt truly go when left unchecked.
Hanson, M. (2021, June 9). Student Loan Debt by Race [2021]: Analysis of Statistics. EducationData.
Mental Health Impact
If you are a current student or recent graduate, you may be one of the individuals already feeling the mental health impact of student loan debt.
Psychologists have studied the relationship between student loan debt and mental health and have concluded that “student debt has been linked to depression, anxiety, and even thoughts of suicide.” This oftentimes comes from the feeling of being stuck or stagnant in one phase of life, or circumstance, due to one’s student loan debt.
While this doesn’t mean that everyone with student loan debt will experience mental health issues, it is becoming increasingly prevalent. In a survey of college counseling directors, 95 percent said that significant psychological problems are a major, increasing concern for their students
Currently, 1 in 4 young adults between the ages of 18-24 have a diagnosable mental illness. However, we can expect this number to worsen should the student debt crisis continue growing at its current rate.
What Can We Do About the Debt Crisis?
It may feel like we just dropped an absolute bomb on you, and in some ways, we probably have. The student debt crisis is serious, and we do need to think critically about how we can repair such a broken system. With that said, there are positive things happening to fix it.
Politicians are Recognizing the Crisis
More and more politicians are coming forward and recognizing the vast impact of the student debt crisis and sharing their plans to address it.
Acts are Being Proposed
Acts such as Elizabeth Warren’s Student Loan Fairness Act have been proposed to alter and improve the interest rates tied to federal loans.
Schools are Stepping Up
Many universities have announced plans to provide free or low-cost education to low-income students. For example, the University of Michigan created their High Achieving Involved Leader Scholarship to provide a 4-year education free of tuition and fees to qualified low-income students.
Big Tech is Getting Involved
Major tech companies, including Google, Amazon, Microsoft, and IBM, have started offering their own certification programs for a fraction of the cost of a traditional college degree. Their goal is to create standardized skillsets and equip students with the essential skills they need to get a job in high-paying, high-growth career fields. Best of all, the programs do not require a degree or any prior experience to be eligible.
Sparrow is Here to Help
If federal student loans don’t cover your education costs, a private student loan could help. We want to help you find the loan that fits your needs best, saving you both time and money. With Sparrow, you can compare personalized offers from multiple lenders to find the right student loan for you.
At the end of 2020, the United States reached a new high of $1.7 trillion in student debt. It’s hard to conceptualize just how much $1.7 trillion is, but what we do know is that it’s really, really, really big.
How Many People are Impacted by Student Debt?
The $1.7 trillion in student debt is held by around 44.7 million Americans. This might seem like a lot, but it isn’t incredibly surprising when we consider the fact that in recent years, around 69% of college students took out student loans and graduated with an average of $29,900 in student debt, including federal and private debt.
How does this $1.7 trillion break down? Let’s see.
Federal vs. Private Student Loan Debt
Student loans are typically one of two types: federal or private. Federal loans are dealt by the government, and private student loans come from private lenders such as financial institutions and banks.
Federal student debt makes up about $1.57 trillion of the total student loan debt. This amount is spread across 42.9 million borrowers and various loan types.
Private student loans make up around $132 billion of the grand total.2 While this number is only a fraction of the federal loan debt, it’s important to remember that private interest rates tend to be much higher. Thus, this loan debt has just as much, if not more, of an impact.
Student Loan Debt By Degree Type
As of 2019, college graduates obtaining a master’s degree held the most debt. The following details the breakdown of which degrees held what percentage of the overall student loan debt.3
Associate’s Degree: 7%
Bachelor’s Degree: 29%
Master’s Degree: 36%
Professional/Doctoral Degree: 20%
Demographic Breakdown of Student Loan Debt
By Age
Believe it or not, the 25-34 years-old age group holds the most student loan debt. Here’s the breakdown:4
When we break it down by race, we can begin to see some startling disparities.
Black and African American college graduates owe an average of $25,000 more in student loan debt than White college graduates. That said, 54% of all student loan debt is held by White/Caucasian student borrowers. This means that even while holding less of the overall student loan debt, Black and African American college graduates still carry more in student loan debt.
Federal student loans have more repayment options than private student loans, allowing us to see just how much of this debt is in repayment versus forbearance and so on.
As of January 2021, federal student loan debt was broken down the following way:5
$14.7 billion in repayment, across 0.4 million borrowers
$114.4 billion in deferment, across 3.2 million borrowers
$887.4 billion in forbearance, across 22.2 million borrowers
$43.7 billion in a grace period, across 1.7 million borrowers
Student Debt for the Public Service Loan Forgiveness Program
The Public Service Loan Forgiveness program (PSLF) grants eligible federal loan borrowers forgiveness on a portion of their loans after making 120 qualifying payments and working for a qualified employer. Borrowers in this program typically won’t throw lump sum payments at their debt as they know it will eventually be forgiven after making minimum payments.
This means that the debt levels for people in this program can look a bit different.
In total, there are around 1,378,000 borrowers in the PSLF program. The average balance forgiven is $76,906.6
One common trend amongst all of these categories is the fact that student loan debt is rising, and it’s rising steadily. Over the past few years, student loan debt has continued to jump by billions each year. Regardless of degree, program, age, or year, student loan debt is on the rise for us all.
This might sound scary, but we want you to know that if you’re reading this, you’re already ahead of the game. Being informed on what student debt looks like is a great place to start. Now, it’s all about making smart financial decisions when it comes to your loans. (fun fact: we’ve got you covered on that)
A 2019 study showed that most Americans live with some financial regret. One of the highest-ranked regrets was related to choices surrounding student loans.
Trying to figure out the difference between student loan options will leave you with gray hair by age 25. The truth is, there are tons of different options available, and it’s incredibly important to understand the differences to make the best decision for your education. The best place to start is understanding the differences between federal and private student loans.
So take a deep breath, and don’t worry. No gray hairs here. We’ll give you everything you need to know.
Who Issues the Loan?
Federal
The federal government issues these loans. Federal tax dollars paid by US citizens each year fund federal student aid programs
Private
Banks and other financial institutions issue private student loans.
Who is Eligible for the Loans?
Federal
In order to become eligible for federal student loans, you must meet the following requirements:
Demonstrate financial need: Financial need is calculated by taking the difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). While COA varies from school to school, your EFC does not change based on the school you attend.
Be a U.S. citizen or eligible noncitizen: some legal U.S. residents without citizenship may qualify.
Have a valid Social Security number: with the exception of students from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau.
Be registered with Selective Services: if you’re a male (you must register between the ages of 18 and 25).
Be enrolled or accepted for enrollment in an eligible degree or certificate program: You are not eligible to borrow federal loans unless you attend an eligible program.
Be enrolled at least half-time to be eligible for Direct Loan Program funds: most programs require you to be enrolled at least half-time.
Maintain satisfactory academic progress in college or career school: You must meet the standards for satisfactory academic progress toward a degree or certificate offered by your institution. Check with your school to find out its standards.
Complete and sign the Free Application for Federal Student Aid (FAFSA) form: FAFSA is used to determine your financial need.
Show you’re qualified to obtain a college or career school education: You must have a high-school diploma or a recognized equivalent such as a General Educational Development (GED) certificate.
Private
Not everyone will qualify for private student loans. Private lenders evaluate applicants based on a variety of factors, typically including the financial history and credit history of the applicant and/or the cosigner (if applicable). If the private lender deems you to be too risky of a borrower, they may not issue you a loan.
Applying with a cosigner who has a strong credit score could improve your chances of qualifying and allow you to access lower interest rates.
How Much Can You Borrow?
Federal
The amount you can borrow in federal loans depends on your student status.
A parent can also borrow a maximum of $20,500 in Direct Unsubsidized Loans per academic year via a Direct PLUS Loan.
Graduate/professional students can also borrow a Direct PLUS Loan, however, the amount varies from person to person depending on the cost of attendance at their respective institution and the financial aid they received.
To see how much money you can receive in federal loans, you will need to fill out the Free Application for Federal Student Aid (FAFSA). This is essentially an application that gives the federal government an idea of your expected financial need.
Private
The amount one can borrow in private student loans varies by lender. Typically, borrowers are able to fill the remaining balance they owe after accepting scholarships and/or federal loans with private student loans. Regardless, the amount you borrow from any private lender cannot exceed the total cost of attendance at your institution.
What are the Interest Rates?
Federal
Congress sets the interest rates on federal student loans. The rates vary based on the loan type and the disbursement date of the loan (the date the funds are paid to the student or school directly).
The table below provides interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2021, and before July 1, 2022.
Loan Type
Borrower Type
Fixed Interest Rate
Direct Subsidized Loans & Direct Unsubsidized Loans
Undergraduate
5.50%
Direct Unsubsidized Loans
Graduate or Professional
7.05%
Direct PLUS Loans
Parents & Graduate or Professional Students
8.05%
Interest Rates for Direct Loans First Disbursed on or After July 1, 2023, and Before July 1, 2024
All federal student loans have fixed interest, meaning that the rate will not fluctuate for the life of the loan. Perkins Loans (regardless of the first disbursement date) have a fixed interest rate of 5%.
The interest rate on private student loans is based on a variety of factors. Most private lenders look at your financial history and credit score to assess the risk you pose as a borrower, which is reflected by the interest rate they offer you.
The lower your credit score, the more risk you present as a borrower — this means a higher interest rate. Similarly, the higher your credit score, the less risk you present as a borrower — this leads to a lower interest rate.
Unlike federal student loans, private student loan interest rates can be fixed or variable. You can use Sparrow to compare real interest rates from more than 15+ different lenders to ensure you’re getting the best rate possible.
When Do I Have to Start Paying the Loan?
Federal
Federal loans will go into repayment if you graduate, go below part-time student status, or leave school entirely. If you have a Direct Subsidized, Direct Unsubsidized, or Family Educational Loan, you will have a 6-month grace period before you are required to make consistent payments.3
It is important to note that Direct Unsubsidized loans and PLUS loans will accrue interest while you are in school. Direct Subsidized loans will not accrue interest while you are in school. So, while payments won’t be required until after the grace period, interest may be accruing depending on the loan type.
Private
Private loans typically don’t require consistent payments until after you leave school. Most lenders will implement a similar grace period to federal student loans, usually around 6 months after graduation. However, private student loans will accrue interest while in school, starting immediately after disbursement.
Is There an Advantage of One Over the Other?
Federal Loans
Private Student Loans
Pros
1. Typically don’t require good credit or a cosigner. 2. Come with additional benefits such as loan forgiveness programs and income-driven repayment options. 3. Interest rates tend to be lower than private loans.
1. Higher borrowing limit, up to 100% of the cost of attendance 3. You can apply online in a couple of minutes 2. Lowest interest rates on the market, if you have excellent credit.
Cons
1. There is a cap to how much you can borrow in federal student loans. 2. Not all students will qualify for subsidized student loans.
1. You may need a cosigner to qualify for a private student loan. 2. Not accessible to borrowers who lack a strong credit score or creditworthy cosigner
Final Thoughts
There’s a lot to understand about federal and private student loans, but the good news is that if you’ve made it to this point in the article (shoutout to you!) you’re already one step closer to making an educated decision when it comes to your loans.
During his 2020 presidential campaign, President Joe Biden emphasized time and time again his plan to cancel student debt. This has sparked a conversation about what this really means and whether or not we should actually do it.
If you happen to be one of the 43 million Americans whose student debt is part of the national total of $1.7 trillion, this may sound like music to your ears. However, there are pros and cons to canceling student debt that are important to consider.
*Article as of December 2022. For updated information on President Biden’s student debt cancelation actions, please visit the rest of our blog.
What Does Student Debt Cancellation Really Mean?
Canceling federal student loan debt would relieve borrowers of the obligation to pay back federal student loans.
Biden’s Proposed Plan
Biden’s presidential campaign focused largely on changes in higher education and student debt.
Biden has supported the immediate cancellation of $10,000 of federal student loan debt per person as part of COVID-19 relief.
Democrats and progressives alike have been advocating for student borrowers and asked Biden to cancel $50,000 of federal student debt per borrower instead of his planned $10,000. While ambitious, politicians such as Senator Chuck Schumer and Senator Elizabeth Warren believe it is possible and warranted.
However, Biden previously stated that he doesn’t believe he has the authority to cancel such large sums of student loan debt. In some interviews, Biden even suggested that he disagrees with canceling such large amounts.
However, in August 2022, Biden announced a plan to cancel up to $20,000 in student loan debt per borrower. Due to litigation surrounding the action however, it is currently on hold.
Specific Areas of Forgiveness
In Biden’s federal student debt plan, he proposed forgiveness in the following ways:
For those who earn less than $125,000/year.
For undergraduate student loans. Graduate students’ debt would not be canceled under Biden’s proposed plan.
For those at public colleges and universities, as well as private HBCUs and minority-serving institutions.
People with private student loans would not be impacted or relieved of their debt under this plan.
Free Tuition
In Biden’s American Families Plan, he proposed making college tuition-free for some schools such as:
Community colleges
Minority-serving institutions such as HBCUs
It’s important to note that this plan covers tuition and tuition only, meaning you would still have to pay the additional costs like room and board, meal plan, and fees.
Increased Support for Public Servants
Biden plans to provide more student debt support to people pursuing public service by:
Forgiving up to $50,000 and immediately canceling $10,000 for each year someone completes an eligible form of public service. People in this category would be eligible for 5 years of this loan forgiveness.
Making changes to the current Public Service Loan Forgiveness Program (PSLF). His changes would allow more loans to qualify for forgiveness and for specific amounts of forgiveness after 5 years of public service. Biden’s additions would not replace the current PSLF program.
Larger Pell Grants
The Pell Grant is a form of need-based federal financial aid that typically does not have to be repaid. It is meant to help eligible low-income students pay for college costs, including tuition, fees, room and board, and other educational expenses. As of 2021, the maximum Pell Grant is $6,495 and the minimum is $650.
In Biden’s 2022 budget, he requested to increase the maximum amount for Pell Grants by $400.
Income-Driven Repayment
In his campaign, Biden proposed a new income-driven repayment plan for federal student loans. It includes:
Undergraduate loans only. Graduate student loans would not qualify for this repayment option.
Automatic enrollment. Everyone would be automatically enrolled in this plan and would need to opt-out on their own if they didn’t want to participate.
Untaxed forgiveness. Current loan forgiveness programs typically tax the amount you are forgiven. Under Biden’s plan, the amount owed in student loan debt would be forgiven tax-free after 20 years.
$0 monthly payments. If you make less than $25,000 per year, your monthly payments would be $0 under Biden’s proposed plan.
What Does This Mean for People with Private Student Loans?
Biden does not have the authority to cancel private loans. His plans focus on federal student loans, as they are owned by the government.
Private lenders provide money to borrowers on their own terms separate from the government. If you have private loans and student debt forgiveness does happen, your private student loans will remain as is.
The Pros and the Cons
In no way is this an exhaustive list of the pros and cons of canceling student debt, but these are the main arguments for and against it:
The Pros
Any amount of student loan forgiveness would benefit those in debt.
It could stimulate the overall economy. If borrowers were able to divert some of their money from making student loan payments to things like buying a house, it could lead to overall economic growth.
It could help alleviate some of the disparities caused by student loan debt. There are racial and ethnic disparities within the student debt crisis, and canceling even some student loan debt could help even the playing field.
The Cons
Student debt cancellation does nothing to address the root of the problem: the high cost of a college education in today’s world.
Some say it could lead to an incredibly privileged class of recent college graduates.
Final Thoughts
The answer to whether or not we should cancel student debt really comes down to how you personally weigh the pros and cons in your mind. What we do know is that there has been a lot of talk surrounding the topic and many politicians and companies are stepping forward in support of student debt cancellation.
Let us all take a moment of silence to thank our student loans for getting us through college. How could we ever repay them?
Jokes on us, we have to repay them.
In all seriousness, understanding your student loan repayment plan options is incredibly important, especially with private student loans. When you take out a private loan, interest starts to accrue as soon as the amount is disbursed. So, if you’re using a private loan to pay for your education, it will accrue interest the entire time you’re in school.
While every private lender has its set of repayment plans, there are four main repayment plans that have become quite common across the industry.
Immediate Repayment
Interest-Only Repayment
Partial Repayment
Deferred Repayment
In this article, we’ll break down the four main repayment plans for private student loans, and provide some suggestions that could save you money in the long run by minimizing the interest that accrues.
Immediate Repayment
Opting for immediate repayment means you would make full payments as soon as the loan is disbursed, including while you’re still in school.
Benefits of Immediate Repayment
By making full payments right away, you will be able to minimize the interest you pay, resulting in the greatest savings.
You will be able to get a good head start on repaying your loan by the time you graduate as you would’ve already paid a decent chunk in both interest and principal.
Downside of Immediate Repayment
For a majority of students, it just isn’t realistic to make full payments while still enrolled in college.
Interest-Only Repayment
Similar to immediate repayment, interest-only repayment requires you to make some payments while still in school. The difference is that you’re only paying interest rather than the full payment.
Benefits of Interest-Only Repayment
The monthly payments may be more manageable as they’d be only for the interest.
Your loan balance won’t grow while you’re still in school.
Downside of Interest-Only Repayment
You won’t actually be paying down your loan. Because the interest compounds, your payments would prevent you from owing more than you borrowed when it’s time to make full payments, but you won’t actually be paying off any of the initial loan amount.
Partial Repayment
Partial repayment is similar to immediate and interest-only repayment in that you make payments while in school, however, partial repayment may be more manageable depending on your overall loan amount.
Partial repayment requires you to pay a set amount, typically around $25, per month while still in school to reduce the accrued interest. (This could get confusing to differentiate partial repayment from interest-only repayments. Interest-only repayments would cover the entire monthly interest, as where partial repayment would only cover part of the monthly interest.)
Benefits of Partial Repayment
You can keep your loan balance in check and reduce the total amount repaid.
Your loan balance won’t grow as quickly in comparison to not making any monthly payments while still in school.
Downside of Partial Repayment
You would still owe more than you borrowed by the time you graduate.
Deferred Repayment
Deferred repayment is the only repayment plan that doesn’t require you to make payments while still in school. With this plan, payments would likely start after the grace period ends, typically 6 months after graduation.
Benefits of Deferred Repayment
You won’t have to make any payments while you’re still in school.
Downside of Deferred Repayment
You will likely pay the highest overall cost. Unpaid interest will compound and add to your principal amount at the end of your grace period.
So What Should I Do?
Making full or partial loan payments while in school could save you thousands of dollars over time and is certainly recommended. But at the end of the day, the best private loan repayment plan is the one that works within your budget.
Check out the table below for a quick breakdown of the four main repayment plans offered by private student lenders.
Private Student Loan Repayment Plans
Repayment Plan
Terms
Pros
Cons
Immediate Repayment
Make full payments as soon as the loan is disbursed, while you’re still in school.
You will minimize the interest you pay, resulting in the greatest savings. Because you’re paying down both interest and principal while you’re still in school, you’ll already have made a good start on repaying your loan by the time you graduate.
For many students, it’s not realistic to make full monthly payments while still enrolled in college.
Interest-Only Repayment
Pay only interest while you’re in school.
Your monthly payments will be more manageable, and your loan balance won’t grow while you’re in school.
You won’t make any progress paying down your loan balance while you’re a student. But at least you won’t owe more than you borrowed when it’s time to start making full payments.
Partial Repayment
Pay $25 per month while you’re in school to reduce accrued interest.
You can keep your loan balance in check, and reduce the total amount repaid.
You’ll still owe more than you borrowed when you graduate, but your loan balance won’t grow as quickly.
Deferred Repayment
Don’t make any payments while you’re in school. Begin repayment after graduation or 6 months after graduation.
You won’t have to make payments while you’re in school.
You will likely pay the highest overall cost since unpaid interest will be added to your principal amount at the end of your grace period.
Final Thoughts
Understanding the different repayment plans for private student loans is crucial in making informed decisions about how to manage your debt. While there are pros and cons to each plan, making full or partial payments while in school can help minimize the overall cost of your loan. Ultimately, the best repayment plan is the one that fits your budget and financial goals. By taking the time to research and compare your options, you can make a plan that works for you and help set yourself up for a financially stable future.
What Does Student Debt Cancellation Really Mean?