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Student Loans Review
Why Apply for Student Loans Online?
Over the past decade, college costs and fees have risen 3.5% faster than inflation each year on average. This means that affording college is harder than ever. Your financial situation might make it necessary to borrow money to pay for college. This is a common situation, but it’s important that you research all of your scholarship, grant and loan options before getting a private student loan.
The best private student loans offer low rates, rate discounts and a variety of incentives. We found Citizens Bank to be the best in our private student loan review. College Ave ranked second and LendKey was third. Private student loans can be confusing, but for many people they can help make college affordable. Read our reviews for help deciding which student loan may work best in your situation.
Student Loan Options
Because of rising tuition and fees, most students will need to look outside of their own families to afford college costs. The first place you should look for help paying for school is scholarships and grants.
Scholarships and grants are free money. If you’ve maximized those opportunities, see if your college offers a work-study program. Work-study jobs are government-subsidized and are available to students who demonstrate financial need. If you’ve exhausted all these options, it may be time to consider a student loan.
If you want to get a student loan, you generally can’t go down to your local bank and take out a loan to pay for college. Student loans are considered higher risk than car loans, house loans and other loans you can get from a local bank. You will have to go to a lender that specializes in student loans or to a bank big enough to offer them.
Before you go to a private bank or lender, though, it’s important that you take advantage of all the resources offered by the federal government. This is because federal loans have lower rates and offer better repayment terms than private student lenders.
Federal Student Loans
The federal government has a robust set of loans that can help students make college more affordable. Federal loans generally have lower, fixed interest rates and can give borrowers more options than private companies to repay the loans. Most federal student loans also don’t require credit checks to qualify.
If you graduate and work in public service – i.e., for the government or a qualifying nonprofit – the federal government also offers loan forgiveness options. Federal loans can also be subsidized, meaning that the government pays the interest on the loan while you’re in school and up through the first six months after you graduate.
To find out which federal loans you qualify for, fill out the Free Application for Federal Student Aid (FAFSA) online. Depending on your need, you may qualify for additional grants or subsidized loans. If you max out your federal student loans and still need assistance, you may want to think about getting a private student loan as well.
Private Student Loans
As a general rule, don’t consider getting a private student loan until you’ve maximized your federal student loan options.
Private student loans are similar to credit card loans. Both are considered unsecured loans – this means that they’re riskier for the banks than secured loans, which have an asset or collateral behind them. For example, a home loan is secured by the home. The only asset behind an unsecured student loan is your future earning potential: your brain, essentially. For this reason, private student loans can have very high interest rates.
At first glance, private student loans might appear to have lower interest rates than federal student loans – but those lowest advertised rates are only for loan applicants who have excellent credit scores. The average college student won’t qualify for these rates or will be forced to sign with a cosigner. Also, many student loan rates are variable rates, which means that they can fluctuate based on changes in the market.
Private lenders have no obligation to offer forbearance periods or to defer payments due to hardship. Some of the lenders we reviewed do offer that – but you’re taking a risk because most forbearance programs are arbitrary, meaning the loan companies can decide whether or not to grant you the forbearance period.
You might need private student loans to fill the gap between federal loan funds and the actual costs of college attendance. We did research on the top private student lenders and came up with some criteria by which you can judge which private student loan is the best for you.
What We Evaluated, What We Found
When we sat down to find the best student loans, we performed in-depth research on major student loan providers and looked for common information that we could compare. We used companies’ loan calculators, called their customer service agents (listening to the same 30 seconds of Vivaldi while on hold gets old fast) and read as much of the fine print as we could (there was a lot). Here’s what we found:
Every student loan, whether federal or private, has a borrowing limit. Federal loan limits depend on whether you are still considered a dependent or if you are considered an independent student. Limits also increase if you’re going to professional or graduate school.
We ranked the private student lenders we reviewed based on the limits they set for undergraduate borrowing. PNC offers the highest loan limit of $225,000. Discover Student Loans and Sallie Mae each offer upper loan limits of $200,000.
You shouldn’t view these loan limits as requirements or even suggestions. The limits are there if you need them, but you should only borrow what you need.
Five of the private student loan providers we reviewed can consolidate federal and private loans. Loan consolidation can be helpful if you have multiple student loans, because it can simplify your loan payments and sometimes get you a better interest rate.
You generally have to be out of school to consolidate a federal loan with a private loan. Also, if you consolidate federal student loans with private loans you can lose out on federal loan offers like loan forgiveness, interest rate discounts and other benefits.
When you consolidate a loan, the company doing the consolidating pays off all the loans involved and gives you a new rate and set of terms. In some cases the consolidated loan can take longer to pay off but may give you a better rate.
Loan consolidation can be an important part of getting a student loan that you should consider before you sign for the money. LendKey, Citizens Bank, iHelp, Discover Student Loans and College Ave all offer federal and private loan consolidation.
Depending on your credit and your work and salary history, you can likely get a better interest rate if you have a cosigner. Many private lenders won’t even let a student sign up for a loan without a cosigner. This means that if a student is delinquent or unable to make payments on the loan, the cosigner is responsible.
There are lots of risks to cosigners of student loans, so if you’re thinking about cosigning a loan, carefully consider the amount of debt that your student is seeking.
Most of the private student loan providers we reviewed offer to release the cosigner from the student loan after a certain number of on-time payments have been made toward the interest and the principal. You have to meet specific criteria and fill out forms before your cosigner can be released.
LendKey and Sallie Mae are the best student loan services for cosigners. Both offer cosigner releases after a student makes 12 qualifying payments. Other companies required many more on-time payments before a cosigner could be considered for release. Discover Student Loans doesn’t offer any way for a cosigner to be released from a student loan.
All of the private student loan options in our review offer some form of forbearance. If you lose your job or experience other hardships that render you unable to make payments on your loan, you can apply for forbearance. If you can prove that you need financial assistance, the loan service can choose to put your loan into forbearance and you won’t be required to make full payments on your loan. However, keep in mind that during forbearance, interest still accrues on your loan.
The longest forbearance that we found in our reviews was 24 months, offered by both iHelp and PNC. This amount of forbearance is for the total life of the loan. If you exhaust these months of forbearance, you may face penalties or be considered delinquent if you can’t make your payments.
Maximum Combined Rate Reduction Offers
The best private student loan providers offer discounts on their interest rates if you sign up for automated payments from a checking or savings account. In our reviews, we found that this discount is usually 0.25% off the interest rate.
If you open a checking account, Wells Fargo offers an additional 0.25% discount off your student loan interest rate, and Citizens Bank offers a 0.50% discount if you open a checking account and fund your automatic transfer from that account.
Some of the private lenders also offer other discounts. LendKey only offers the 0.25% discount rate for automated payments, but once you pay off 10% of the principal amount of your loan, you’ll receive a 1% rate discount after that. Discover Student Loans offers a 1% cashback reward on your student loans for every semester or year you get above a 3.0 grade point average. And it gives you a 2% cashback reward of the total amount of the loan when you graduate.
We recommend taking advantage of these special discounts, even if it seems like a hassle or a small amount. These interest discounts can add up over time.
Help & Support
The best private student loan companies have multiple ways to get help with account and payment information. We looked for private student lenders that offer phone, email and chat support on their websites. Out of the nine student loan providers we researched, only Citizens Bank, College Ave, PNC and iHelp offer all three help and support options.
In our tests, all of the student loan providers that offer online chat service provided fast response times, taking an average of three minutes to respond to questions about interest rates, forbearance periods and loan term lengths.
A Note on Paying Back Student Loans
Many student loan providers offer three basic ways that you can pay for your student loans over the life of the loan.
You can choose to defer payments until after you’ve graduated. This means that you won’t be required to pay any interest on your student loan until you’ve graduated and the six-month grace period has ended. If you choose to defer all payments your balance due will still be accruing interest while you’re in school but you won’t be required or expected to make any payments. In the long run, this is the most expensive way to pay back your loans.
The second option for repaying your student loans is to make interest payments while you are in school. These payments can be as low as $25 or can cover the amount of interest that is accruing on the loan. When you graduate and have passed the six-month grace period, you will then begin paying the interest and the principal. This method of repaying can save you a lot of money over the lifetime of your loan.
The third common option for repaying your student loans is to make full payments on both the interest and the principal while you are in school. This option can be hard for most students – after all, the reason you have a student loan is because you need help paying for college. However, if you can make full payments on your loan while you are in school, you can save significant amounts of money over the lifetime of your loan.
Other Things to Consider and Understand
The federal government uses the Free Application for Federal Student Aid (FAFSA) to determine if you are eligible to receive financial aid. You can submit the form online and the Department of Education will determine if you meet the requirements for financial aid. Depending on your financial need, you may be eligible for grants, subsidized loans or unsubsidized loans.
Studies have shown that many students ignore the FAFSA or start but don’t complete the online application. Even if you don’t think you’ll qualify for federal assistance, it’s smart to fill out the FAFSA. As a general rule, you should always maximize federal funding options that are available before turning to private student loan services.
There are two types of interest rates that you can find for student loans: fixed and variable rates. Neither rate is inherently better than the other, but they do have some differences.
Fixed interest rates remain the same throughout the life of the loan, unless you refinance or consolidate your student loan. The lowest fixed interest rates are usually higher than the lowest advertised variable rates. This is because you are trading some flexibility for stability. The fixed interest rate can’t go up and you will know the amount of your payments until you pay off the loan.
Variable interest rates often start much lower than fixed interest rates, but they can also go much higher. This is because variable interest rates are based on an outside, market-influenced rate called the LIBOR. LIBOR stands for the London Interbank Offered Rate and is the interest rate that banks use to lend money to each other. If the LIBOR goes up, your variable interest rate will go up. Similarly, if it goes down, your variable rate could go down as well.
Deciding between a fixed and a variable interest rate for your student loan can be a bit of a gamble. If you want to risk the rate increasing, choosing a variable rate can often mean paying much less interest over the lifetime of the loan. However, if you want to know the exact amount you will be paying for your student loan each month, a fixed rate may be a better choice.
When taking on any type of debt, especially student loans, you should get all the information you can before making a decision. Make sure you study and understand the terms of your loan. Decide which loan features are important to you, which type of rate you want to choose and proceed. The right student loan can help you get a great college education and achieve your dreams.