Has your soon-to-be college student chosen the school they’d like to attend in the fall? Or, are they just starting to think about the application process? Either way, it’s never too early to research ways to pay for college.
Student loans, federal and private, are one common method that students and their families use to help them afford college. If you’ve never taken out a student loan before, or you just want more information about the options, it can be difficult to know where to start.
We’re here to help you make sense of the student loan information parents need to know.
Not All Loans Are Created (or Repayed) Equally
When you think about different types of loans, you might think of a car loan, a home loan, and maybe a personal loan. When it comes to student loans, there are two main options:
• Federal loans – Provided by the federal government
• Private student loans – Handled by individual lenders with varying terms
Federal Student Loans
After scholarships, grants, and other gifted money opportunities, it is recommended that you first look for additional funding through federal student loans .
These are loans through the U.S. Department of Education, they have eligibility requirements and come in a few forms:
• Direct Subsidized loans – These are for undergraduate students and are based on financial need.
• Direct Unsubsidized loans – Undergraduates, graduate students, and professional students can apply for these loans; they are not based on financial need.
• Direct PLUS loans –These are for graduate and professional students and parents of dependent undergraduates. They are not based on financial need and a credit check is required.
• Direct Consolidation loan – This option combines all your federal loans into one loan payment under a single loan servicer.
All federal loans have fixed interest rates and are set by Congress each year on July 1st. For most students (Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans), federal loan repayment starts six months after graduation (also known as a grace period).
You can get federal student loans by submitting your Free Application for Federal Student Aid (FAFSA) .
Private student loans
Private student loans come from different institutions: banks, credit unions, and online lenders. Many private student loans mirror the terms and repayment periods of federal student loans, but not always. Differences include:
• Credit checks – Most federal student loans don’t require a credit check (except PLUS loans); it’s required for private student loans and you’ll need to meet the lenders credit and other eligibility requirements to qualify.
• Repayment start date – Some lenders might offer loan repayment that starts after you graduate from college, but it’s not always the case. Some lender programs require repayment while you’re still in school.
• Interest rates – Federal student loans have fixed interest rates that don’t change over the life of the loan; private student loans offer fixed or variable interest rates.
• Repayment terms – Federal loans have long repayment terms—from 10 to 30 years, depending on your plan. Private student loans also vary in term length, but might not be as long. This could cause you to have higher monthly and interest payments.
• Loan forgiveness – Some federal student loans offer forgiveness options for certain career paths, or after a period of time has passed; private student loans aren’t required to offer this option to borrowers.
How Parents Can Help
If your college kid has explored all the options for scholarships, grants, gifts and has taken out all the student loans they can and they still need money to afford school, you can take out a Direct PLUS loan for them.
A Direct PLUS Loan is commonly referred to as a parent PLUS loan when made to a parent, and as a grad PLUS loan when made to a graduate or professional student. To get a PLUS loan, you can’t have an adverse credit history (there may be exceptions to this rule if you meet other eligibility requirements) and you must complete the FAFSA before applying.
Before you apply for a loan for or with your child, you can review your credit history annually for free at AnnualCreditReport.com to make sure it’s in top shape to take out a loan. It’s good to note that this free annual credit report does not show credit scores, only history.
Forgiveness Can Happen (But That Doesn’t Mean It Will)
Some student loan repayment plans, like income-driven plans, give graduates the opportunity to have their loans forgiven after a certain number of years. If you are seeking student loan forgiveness, it is recommended to have a thorough understanding of how the program works and to review your account annually to confirm all is in order.
Depending on which industry and sector your student goes into, there might be other chances to get loans forgiven. A qualifying employer includes a government organization , a 501(c)(3) organization, or a not-for-profit organization that is not a 501(c)(3) organization that provides a qualifying public service as its primary purpose.
A qualifying employer never includes a partisan political organization, a labor union, or a for-profit organization. However, it does include AmeriCorps and Peace Corps volunteers.
Some of these jobs include:
• Public Service
• Nurses, doctors, and other healthcare professionals
• Lawyers(public interest)
• Armed forces members and veterans
Keep in mind that forgiveness isn’t guaranteed and it’s important to always make at least the minimum payments every month.
Regardless of circumstance, paying back student loans is vital. Grace periods help, but you may still struggle when the time comes to start repayment. However, not paying your student loans could have some serious consequences, including:
• Credit rating – On-time payments have one of the biggest impacts on your credit rating. Delinquent student loan payments can have a negative effect on your credit.
• Default – If you are having trouble making payments call the organization that notified you, explain your situation and discuss your options. Generally, delinquent payments after 90 days are reported to the credit bureaus. When a loan is considered to be in default can vary depending upon the loan program parameters. For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months).
• For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any scheduled payment by the due date. Consequences of student loan default include but are not limited to – negative credit rating, loan due and payable in full (loan acceleration), loss of deferment, forbearance, loss of eligibility for other benefits.
• Forgiveness – Regardless of repayment plan, one of the keys to forgiveness is making qualifying loan payments as defined under the program.
Keep in mind that borrowing a loan using your credit and income for your child impacts your credit history.
Considering SoFi Private Student Loans
Working on covering the cost of your child’s tuition? If you have exhausted all of your federal student loan options, private student loans might be next on your consideration list.
Another option to explore is student loan refinancing. However, refinancing a federal student loan would eliminate it from federal protections, like income-driven repayment plans, deferment, or forbearance.
SoFi’s private student loans offer flexible repayment plans, no origination fees, and no late fees. Not only that, but the application is all online and takes just a few minutes.
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Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.