Answers to Your Top 5 Questions About Student Loans
When it comes to student loans, you’ve got important questions, and we’ve got timely answers. Here are the top five most frequently asked questions from families who are working through the loan application process, and the answers you need to keep moving forward.
1. When to apply for a student loan?
By the time school acceptance letters come in, be prepared to get serious about applying for loans.
That means around 90 days from your tuition due date, determine the amount of student loans you’ll need.
Road2College founder Debbie Schwartz says that after receiving your college offer letters, and before making your final school choice, families should review finances and be clear on the cost of attendance.
You’ll need to decide what combination of savings and income you’ll use, and how much you’ll have to borrow to make up for any gap. Take out federal student loans first, then if needed, borrow private or Parent PLUS loans.
Her answer, simply put: “As soon as you know what you definitely need!”
2. Student loan limits: What is the maximum amount of student loans you can get?
According to studentaid.gov:
Your college determines what type of loan and the loan amount you’re eligible to receive each school year. There are also annual limits on the amount of subsidized and unsubsidized loans that you may be eligible to receive, as well as the total amounts that you can borrow for undergraduate and graduate study (these are called aggregate loan limits).
Be aware that the actual loan amount you’re permitted to receive each academic year may be less than the annual loan limit. These limits vary depending on what year you’re in (freshman/sophomore/junior/senior), and whether you’re considered to be a dependent or independent student.
If the total loan amount you receive over the course of your education reaches the aggregate loan limit, you’re not eligible to receive additional loans. However, if you repay some of your loans to bring your outstanding loan debt below the aggregate loan limit, you could then borrow again, up to the amount of your remaining eligibility under the aggregate loan limit.
Dependent Undergraduate Student Loan Limits:
- First year–$5,500 overall; $3,500 subsidized
- Second year–$6,500 overall; $4,500 subsidized
- Third year and up–$7,500 overall; $5,500 subsidized
- Total limit–$31,000 overall; $23,000 subsidized
Independent Undergraduate Student Loan Limits:
- First year–$9,500 overall; $3,500 subsidized
- Second year–$10,500 overall; $4,500 subsidized
- Third year and up–$12,500 overall; $5,500 subsidized
- Total limit–$57,000 overall; $23,000 subsidized
- Total limit–$138,500 including undergraduate loans
PLUS Loan Limits
The maximum amount of PLUS loans you can take out? The school’s cost of attendance, less any other financial aid you receive.
State Student Loan Limits
These loans vary by state.
Private Student Loan Limits
The amount of private loans you can borrow varies by lender. Overall, it can’t be more than your school’s total cost of attendance.
3. Can my student get a student loan without a cosigner?
A cosigner is someone who agrees to take responsibility for a loan, along with the original borrower. If the borrower can’t make payments, the cosigner will be expected to step in and make payments for them.
Federal student loans don’t require a co-signer or credit history. But most private student loans require both.
In a recent Facebook Live with us, Melissa Basset of SoFi said the issue of cosigning comes up frequently when applying for private loans: “The private student loan market is credit-based. So there would be a credit evaluation. And usually it will go to the co-signer unless the undergraduate is working full time and has a credit score. But it helps the student build credit, obviously, if it’s in their name.”
Some lenders allow a cosigner to be removed after a certain number of timely payments. You may want to look for this in any loan you choose to cosign.
The borrower can contact the lender after the payments are made and other conditions are met and request that the cosigner be removed from the loan. Once the lender agrees to release the cosigner, the loan will not impact that individual’s credit anymore.
4. Where can I get the lowest student loan interest rates?
Bankrate.com suggests that when you’re researching student loans, check to see if the lender has “a competitive interest rate, flexible repayment terms that meet your needs, generous hardship options, and minimal fees.”
Luanne Lee of Your College Planning Coach says your rates will vary depending on your financial health.
Private lenders look at your credit score, debt ratio, income, assets, whether you’ll defer payments, the repayment term, and if you’re taking a fixed or variable rate. Essentially, the better financial shape you’re in, the shorter the repayment term. Less risk for a lender translates to a lower rate for a borrower.
Ms. Lee notes that for the Federal PLUS loans, everyone is offered the same rate and fee and your credit score and the debt ratio aren’t as important. “They will look at your credit file,” she says, “but as long as you don’t have current late payments, bankruptcy, or federal tax liens in default, you can easily be approved.”
Below are the lenders we recommend as of July 2020. Be sure to go to the lenders’ sites for updated information.
Best Private Student Loan Rates For 2020
|Interest Rate||Interest Rate & Other Discounts||Repayment Options (Monthly)||Cosigner Release|
|4.73% – 11.46% (Fixed)|
1.57% – 10.23% (Variable)
|$250 principal balance reduction benefit and 0.25% discount with autopay||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|3.49% - 12.99% (Fixed)|
1.24% - 11.98% (Variable)
|Auto-Pay (0.25%)||Flat Payment (In-School), Full (principal & interest), Deferred, & Interest-only||Yes||CHECK RATE|
|5.45% - 9.74% (Fixed)|
1.7% - 7.68% (Variable)
|Auto-Pay (0.25%)||Immediate repayment, interest-only, fixed monthly payments in school, fully deferred||Yes||CHECK RATE|
|4.74% - 11.85% (Fixed)|
1.50% - 9.66% (Variable)
|0.25 percentage point deduction for auto debit||Pay now or later: Make interest payments, pay a fixed $25 payment, or defer payments until after school.||Yes||CHECK RATE|
|4.40% - 12.19% (Fixed)|
1.47% - 9.80% (Variable)
|Full (principal & interest), Deferred, Interest-only, Immediate-Repayment||Yes||CHECK RATE|
|4.86% - 8.49% (Fixed)|
2.99% - 6.95% (Variable)
|Autopay (0.25%)||Full payments (Principal and Interest)||Yes||CHECK RATE|
5. Which lender has the best private student loans?
When asked which lender offers the best private student loan, Ms Lee said “I don’t have a favorite lender and would feel very uncomfortable making a public comment on who has the best student loans since they pretty much all have similar terms and the best terms will depend on the financial health of the borrower. My advice to all of my clients on any financial vehicle is to look at the pros and cons of several companies to identify which has the best product that will meet their needs.”
Too often parents and students want a quick answer to this type of question. Unfortunately, the answer lies in doing your own research.
The first step is for potential borrowers to visit lender sites to either get pre-qualified rates or actual rates by applying. Borrowers can apply to multiple lenders within a short-time span (one to two weeks) without impacting one’s credit because credit bureaus assume lenders are shopping for loan rates.
In addition to gathering information on your individual interest rate, borrowers need to also review other loan features, such as a lender’s flexibility with loan term, options for repayment, death or disability discharge, autopay benefits, and cosigner release requirements.
Once you’ve gathered all this information, compare the facts and determine what’s important to you. It can’t hurt to also research customer service ratings. It may take your student 10 years or more to pay off their loans.
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