Be Smart With Student Loans

Learn how to get, refinance or consolidate student loans

Manage Your Student Loans

Many Americans require student loans to complete their higher-education pursuits. Getting a new student loan or refinancing existing student loans requires a thorough understanding of the available options.

Federal student loans offer attractive rates and terms, but carry funding limits and may not be available to all. Private student loans are comparatively less flexible, but can be used to cover expenses when federal loans are insufficient or unobtainable.

If you are one of the more than 44 million Americans with an existing student loan, consider refinancing or consolidating multiple loans — federal, private or both — to potentially reduce interest rates and monthly payments.

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Federal Loan Limit

$57,500 (undergraduate), $138,500 (graduate)

Standard Repayment Plan

10 years

Federal Loan Rates

3.4% to 8.5%

Types of Student Loans: Federal and Private

Federal student loans — like Stafford, Perkins and PLUS parent loans — are backed by the government. They are more flexible and less expensive than private loans, but private lenders are increasingly competitive, especially with the current low interest rates.

In 2017, federal PLUS parent loans carried a 6.31 percent interest rate and 4.3 percent origination fee, where available private student loans offer lower rates and no origination fee. Compare several private student loans with federal loan options before committing.

Federal Student Loans

  • No repayment until graduation
  • Fixed, low interest rates or subsidized interest
  • No minimum credit score or cosigner requirements
  • Extended income-based repayment options
  • Tax deductible
  • Maximum loan amount of $57,500 for undergraduates and $138,500 for graduate students

Private Student Loans

  • Repayment before or after graduation, depending on loan type
  • Fixed or variable interest rates based credit score
  • Minimum credit score of 620 required or an eligible cosigner
  • Extended repayment or deferment options may be available
  • Potentially tax deductible
  • Maximum loan limit depends on credit score and finances

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Eligibility Requirements for Private Student Loans

Here are a few things to be aware of when comparing private student loans.

  • Credit score. Student loan eligibility and interest rates are largely dependent on the borrower’s credit score. Many student loans require a minimum credit score of 620.
  • Cosigner. For many younger students who have not yet established any credit, a cosigner with a strong credit history is required. The cosigner is responsible for repayment if you default on the loan.
  • Field and degree level. Some lenders offer preferential loan terms for students pursuing high-earning careers — such as medical or legal degrees — or graduate-level studies.
  • Citizenship. Loan eligibility, terms and rates may vary for international students.

Personal Loans and Credit Cards

Check out your options first. Using personal loans or credit cards to pay tuition expenses won’t give you the repayment or deferment flexibility compared to federal or private student loans. This can significantly increase your costs over time.

Factors to Consider Before You Borrow

Before you sign up for anything, do your research to cover the following points.

  • Grants and student aid. Make sure you have filled out the Federal Application for Student Aid (FAFSA) and exhausted all university grants and federal student aid options before considering a private loan.
  • Budget and loan amount. Ensure that you are confident in repaying the loan amount. Student loan payments should not exceed 10 percent of your potential monthly net income.
  • Interest rate and variability. Compare the interest rates of several different private and federal loans. Although federal loans typically have lower interest rates, this is not categorically the case, and it is worth shopping around. Some loans also have interest rates that change after graduation.
  • Loan term and first payment date. Student loans that offer low interest rates can have short terms of five years or less for repayment. They may also require payments begin before graduation.
  • Fees. Origination, repayment or late payment fees are often attached to a student loan.
  • Repayment plans and penalties. Identify any deferment or forbearance options, and any penalties, in the event that you cannot make payments on time.

Variable vs. Fixed Rates

Variable interest rates are tied to the prime rate and can increase over time. Don’t be tempted by a low variable interest rate alone, because a higher fixed rate can save you money in the long run.

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Consolidate and Refinance Your Student Loans

Consolidate or refinance existing student loans to obtain a lower interest rate, simplify the repayment process or remove a cosigner. Federal and private student loans can be refinanced together or separately.

Types of Student Loan Consolidation

In debt consolidation, several loans are combined into a single loan and interest rate, with one monthly payment to a single lender. In debt refinancing, a new loan with new rates and terms is taken out to pay off an existing loan. There are federal and private options.

  • Federal direct consolidation. This applies to federal student loans only. Federal consolidation simplifies loan obligations, but does not offer interest rate improvements. You retain eligibility for federal loan repayment or forgiveness programs. There are no federal student loan refinancing programs. Read more about student loan consolidation.
  • Private debt consolidation. A new loan is taken out to pay off one or more existing student loans, leaving you with a single loan obligation. Debt consolidation or refinancing is applicable to federal and private loans. Private lenders may offer lower interest rates when refinancing or consolidating student loans.

Eligibility Requirements for Private Student Loan Refinancing

Here are some factors to consider when refinancing private student loans.

  • Education status. You cannot refinance if you are currently enrolled in school. Not all refinancing requires you to complete a degree program.
  • Credit score. Interest rates depend on credit scores. Refinancing usually requires a stronger credit score than a new student loan, with a typical minimum of 650.
  • Debt-to-income ratio. Lenders generally look for a debt-to-income ratio of 40 percent or less to demonstrate an ability to repay the loan. Demonstration of a stable salary improves your chances of approval.
  • Field and degree level. Some lenders offer preferential loan terms for students pursuing high-earning careers or graduate-level studies.
  • Citizenship. Loan eligibility, terms and rates may vary for international students.

Factors to Consider Before You Refinance

Do some research – and math – before you refinance your student loan.

  • Nullification. If you use a private lender to refinance student loans, you are foregoing any chance of federal student loan forgiveness, income-based repayment schemes or loan deferment.
  • Budget. Ensure your income can cover the new monthly loan payment. If you refinancing a loan over a shorter repayment term, your monthly payment may increase, so compare carefully.
  • Credit score. The primary benefit of refinancing student loans is a lower interest rate. If your credit has improved since you took out the existing loan, refinancing can be prudent.
  • Interest rates and terms. Compare interest rates of several refinancing options to your existing rate. Shorter term loans may have lower rates, while longer-term loans can cut monthly payments but increase total interest costs. Variable interest rates have the potential to significantly increase later on.
  • Fees. Application, origination and prepayment fees are often attached to refinancing options.

Borrow Wisely Tip

Once you refinance or consolidate federal student loans through a private lender, you are no longer eligible for federal direct consolidation, federal loan forgiveness programs or income-based repayment programs the government offers.

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Don’t Default!

Student loan refinancing may prevent you from defaulting on your loans, depending on your credit score and income.

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