How to Navigate Student Loans in 2020 (and Beyond)
Student loans may have a bad reputation, but that doesn’t discount the fact that so many students need them to graduate from college. Today, 70 percent of college students graduate with a significant amount of student loans.
Over 44 million Americans collectively hold nearly $1.5 trillion of student loan debt — about one in four American adults currently pay off student loans.
That begs the question — how do you handle them before you get started?
What are Student Loans?
If you stop and think about it, what are student loans, really? What do they cover? (Just tuition? Tuition and fees?)
To put it simply, a student loan is a type of loan designed to help students pay for postsecondary education. It can cover tuition, books and supplies and living expenses (including room and board).
Student loans are similar to other types of loans — they must be repaid over time. You’ll need to repay the amount you borrow, plus a fee, called interest. Student loans — particularly federal loans — are different from other types of loans, however. A different set of rules govern the use of federal loans and you’ll find that they’re more flexible, specifically when it comes to repayment.
The student loan application process varies — and is generally different from the process of getting a personal loan. This is largely because there are a few different routes you could go with a student loan.
What are the Different Types of Student Loans?
Did you know that there are two different types of student loans? Federal student loans and private student loans each fills a purpose!
Federal Student Loans
Federal student loans can be divided up into four types: Direct Subsidized loans, Direct Unsubsidized loans, Direct PLUS loans and Direct Consolidation loans.
- Direct Subsidized loans are available for undergraduate students who need to cover the costs of higher education at a college or career school.
- Direct Unsubsidized Loans are for eligible undergraduate, graduate, and professional students. Eligibility is not based on financial need.
- Direct PLUS Loans are for graduate or professional students and parents of dependent undergraduate students. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify.
- Direct Consolidation Loans let you combine your federal student loans into a single loan with a single loan servicer.
- You don’t need a credit history or a co-signer.
- The interest rate on federal loans tends to be lower.
- Federal loans offer extra perks, such as income-driven repayment options and forgiveness opportunities.
To get a federal loan, submit the Federal Application for Federal Student Aid (FAFSA).
Private Student Loans
You can pay for college costs using private student loans — just like federal student loans. However, you don’t get private loans from the federal government that you do with a federal private loan. You tap into a bank, credit union or online lender for private student loans.
- You must get a co-signer and share your credit history.
- You can also get a lower interest rate on federal student loans. You won’t benefit from income-driven repayment options or forgiveness opportunities, however.
- You don’t need to complete the FAFSA to get a private loan, but you should do it anyway. The application is also the key to accessing free financial aid like grants, scholarships and work-study.
How to Choose the Right Student Loans
Choosing the right student loan is kind of like shopping for a college. You have to evaluate your experience with lenders (just like you shop for colleges) and also check out costs (in this case, interest rates.)
The first thing you need to do as a savvy consumer? Ask lots and lots of questions. In fact, that’s the first step.
1. Ask as many questions as you can.
Here’s a list of questions you may want to ask when you’re shopping for a student loan:
- What is the interest rate?
- Is the rate I receive based on my credit?
- What is the loan term?
- What would my monthly payment be if I borrow $X,XXX?
- When would my first payment be due?
- How are loan funds disbursed? To you or the school?
- What steps do I need to take to complete an application?
- How long does it take to process an application?
- Are there loan limits?
- Who is eligible for this loan?
- Do I need a cosigner?
- What deferment options are available to me?
2. Examine interest rates.
Don’t just go with the first lender you Google on the internet. You also don’t have to march to your local bank because your Grandpa first opened an account there in 1955.
Student loan interest rates may cost you a lot of money over the long term — it’s best to find interest rates as low as possible so you can save more.
Also check to see whether they’re variable or fixed. Variable rates may change monthly or annually until your loan is paid off. In addition, some loans have different rates while you are in school vs. after you graduate and start repaying your loan. Also ask about:
- Repayment fees
- Origination fees
- Default fees
- Late payment fees
3. Choose federal student loans first.
Opt for federal student loans instead of private loans first. They’ll offer you the most flexibility. For example, let’s say you want to become a teacher. Under the Teacher Loan Forgiveness Program, you must teach full-time for five complete and consecutive academic years in a low-income school or educational service agency. If you meet these qualifications, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized Loans and your Subsidized and Unsubsidized Federal Stafford Loans.
4. Decide how much to borrow.
Deciding how much to borrow just might be your biggest challenge — but it’s also one of the most important considerations.
- Make sure you know the full costs to attend the college or university. (Check into all fees, including fees like biology lab fees and more. Some colleges don’t disclose every fee right away.)
- Subtract scholarships and grants from the total cost to get the remainder.
- Apply federal loans to the remainder first.
- What’s left over? Determine whether your parents’ income or other family members’ monthly income can cover some of the month-to-month expenses — a tuition payment plan is super for that!
- After you do that, how much is left over now? (See how it’s a giant subtraction problem?) Consider using your own work-study money or other money to fill in some gaps.
- Take the rest out in private loans.
5. Keep track of it all.
It’s easy to lose sight of what you’ve borrowed over the years. Sometimes it becomes a pattern:
- Subtract scholarships from total cost. Check.
- Add Grandma’s money. Check.
- Borrow. Check.
It becomes so rote that you forget to figure out how much you’ve borrowed! Before you know it, you’ve borrowed $80,000. What happens when you wake up sometime around your sophomore year and say, “Oh, crap, I need to get a job!”
Keeping track of things transforms your full financial picture — and your full loan amount in the long run.
Nervous that you’re racking up crazy amounts of loans? You still have a few options:
- Apply for more scholarships — yes, you can apply for scholarships when you’re still in college. (Have a goal to cash your last scholarship on your way home from your college graduation — why not?!)
What to Do During COVID-19
Curious about how COVID-19 has changed people’s student loan repayment options?
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides relief measures through September 30, 2020:
- Suspend loan payments
- Stop collections on defaulted loans
- Set interest rates to 0% for a period of 60 days
Why are we showing you this if you haven’t graduated? This is another great example of why you should opt for federal student loans first. Federal loans are always your best chance of flexibility.
Get the Best Student Loans for You
Feeling stuck? Bummed out that you need to take out student loans at all? Don’t be. The fact that you need student loans at all means that you’re doing something awesome for yourself — you’re planning to go to college.
You’ll earn more than triple than the lowest level of education (less than a high school diploma) with a doctoral and professional degree — the highest level of educational attainment. Workers with at least a bachelor’s degree earned more than the $907 median weekly earnings for all workers.
Furthermore, during COVID-19 is a great reminder that the higher your education level, the lower your unemployment rate — the unemployment rate was 3.6 percent, according to the U.S. Bureau of Labor Statistics.
Check out the best student loans through Benzinga.