Student Loan Archives - EducationConnection

Being a Student Loan Cosigner Can Be Risky

Posted on June 3, 2024December 17, 2024 by Melanie Datu

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Last night, my daughter ran into my room brimming with excitement about a theatre school in New York City that she absolutely must attend next year. Being the proud ‘drama mama’ that I am, I didn’t simply shoot her down. Instead, we paid a visit to the school’s website. Everything looked amazing, but there didn’t seem to be any mention of tuition or fees.

Intrigued, I searched for the ever-elusive Net Price Calculator that schools are expected to post on their websites.

Surely this would tell me what my daughter’s dream school was going to cost me, right? I punched in our income figures, answered a few general questions, and up popped a number that made me suddenly sick to my stomach.

Even after scoring a potential $4,000 scholarship, and taking out the maximum in student loans ($5,500), our responsibility would be a whopping $35,000 per year. Ouch! The number, however, didn’t seem to deter my daughter. She simply turned to me and said, ‘You can cosign on a private student loan with me, right?’

Technically, the answer is yes. My husband and I both have good credit, but should we help finance this expensive dream? Before co-signing on any student loan, whether for your child or a friend, here are some things you should consider, the risks of being a student loan cosigner.

1. History May Repeat Itself

If the person requesting your help to cosign a private student loan has a history of not following through on promises, doesn’t have a history of making good financial decisions, or can’t seem to save any money, you may want to reconsider signing your name to a student loan agreement. Remember, you are equally responsible for paying back the loan. If the borrower fails to make his/her payments on time, you can be sure the lender will come looking for you.

2. Your Credit Could Be Damaged as a Student Loan Cosigner

You may have great credit right now, but taking out a large student loan could make it more difficult for you to take out other loans or credit cards. If you think you may want to make a major purchase, such as a car or a new home, you may not want to co-sign at this time.

Additionally, you must be prepared to have your credit score lowered should the other person fail to make payments on time. It only takes one missed payment to negatively affect your credit score.

3. The Loan Obligation Goes Beyond the Amount Financed

The amount borrowed is not the amount the borrower will end up paying over the life of the loan. Deferment, forbearance and interest can add a hefty amount to the total cost of the loan.

If you become responsible for repaying the loan, you need to consider that your obligation will include the amount borrowed, accrued interest and any other fees incurred during the course of repayment.

4. The Debt Could Hurt Your Relationship

It’s not uncommon for students to default on their loans. If you decide to co-sign on a student loan, you must be prepared to assume that debt if the borrower fails to make their payments.

If you are financially unable to make the payments, it can have serious repercussions. Not only will your credit suffer, but also your relationship with the other person on the loan. I have seen money pull families apart all too often, so think long and hard before you take out any loans you can’t afford to repay.

5. It’s Very Difficult to Remove Yourself From the Loan

Don’t co-sign a student loan with the expectation that you can simply remove your name at a later date. Although most lenders offer a co-signer release, there are some hoops the borrower must jump through first. One, depending on the lender, he/she must make consecutive, on-time payments. This can be as few as 12 months (Sallie Mae) or as many as 48 (SunTrust). In addition, the borrower must provide proof that he/she meets income requirements and has a satisfactory credit score.

There is no guarantee that even after payments are made on a timely basis that the lender will let you out of your commitment. There are even some cases where a borrower has died and the co-signer was still required to pay back the loan. And forget about bankruptcy; it’s nearly impossible to have student loans discharged. If you sign on the dotted line, expect to share the responsibility for that debt until it is paid in full.

Risks of Being a Student Loan Cosigner

Consider These Tips to Safeguard Your Credit

If you feel confident that your child (or other borrower) is responsible and you want to help by co-signing on a student loan, be sure to consider the following safeguards.

Make sure the student exhausts all federal financial aid options including federal student loans before considering a private student loan.
Encourage the student to diligently pursue scholarships and grant opportunities.
Only borrow what is absolutely needed. Play it safe by not taking out more than one years’ anticipated salary (borrower’s) upon graduation. For example, if you expect your child to earn $35,000 at his/her position, don’t borrow more than $35,000 in total student loans while he/she is in college.
Have the borrower sign an agreement that stipulates he/she will repay any missed payments and/or fees you cover over the life of the loan. This way, if you do end up in court, you may be able to recoup some or all of your losses.
Take charge of the student loan payments. It could be months before a student loan servicer or creditor contacts you about missed payments. By then, the damage to your credit score has already been done. Save yourself the trouble by mailing in the payments or submitting them electronically online. In some cases, lenders offer an incentive for using automatic payments.

Although I would love to help my daughter pay for her dream college, taking on a potential debt of $140,000 just doesn’t make financial sense. If she were to default on the loan, we could lose our retirement savings, home and other assets. She may be a little upset with me right now, but I’m confident that we can find another ‘dream’ school that’s a little more within our family’s budget.

Saying no to your child (or a friend) is never easy, but in the end you must do what’s best for your financial security.

How Much Does College Cost?

Posted on May 31, 2024December 17, 2024 by Melanie Datu

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The number one question that students and families ask about attending college is how much does college cost? The cost of attendance or COA is like the sticker price for college. Every year the cost of attendance goes up but merit and need based scholarships and grants may cover part of COA. College expenses could be tuition, fees, housing, books, supplies, transportation and other out of pocket expenses.

According to NCES, the estimated total cost of college at a public institution is $28,297, $49,654at private nonprofit institutions, and $26,261 at private for-profit institutions in 2022 to 2023.

How Much Does College Cost?

Each year for every state the cost of attendance keeps rising. It’s typically cheaper to attend an in state college rather than out of state. According to NCES, out of state students in the U.S. paid an average of $28,297 more in cost of attendance (COA) than in state students in 2022-23.

Also, the average cost of college may vary between public and private institutions along with two vs four year schools. Keep in mind to calculate other costs such as housing, books, supplies, transportation and other personal expenses.

Massachusetts has the highest in state average cost of college which is $67,953. District of Columbia offers the lowest in state average cost of college at $6,152. The chart below shows the average cost of four year college in each state for in state tuition and out of state tuition.

		Public College		Private College
Ranking	State	In State Tuition	Out of State Tuition	In State Tuition	Out of State Tuition
1	Utah	$15,286	$22,244	$16,003	$16,003
2	Wyoming	$14,634	$14,669	N/A	N/A
3	Florida	$15,810	$18,344	$43,140	$43,140
4	Idaho	$17,275	$24,754	$15,963	$15,963
5	New Mexico	$17,516	$21,952	$37,201	$37,201
6	Montana	$17,292	$27,435	$42,910	$42,910
7	North Dakota	$18,362	$13,973	$24,900	$24,900
8	Oklahoma	$17,909	$22,125	$40,136	$40,136
9	South Dakota	$17,459	$13,194	$36,145	$36,145
10	Wisconsin	$18,295	$27,024	$48,660	$48,660
11	North Carolina	$18,264	$23,452	$51,868	$51,868
12	Nevada	$18,293	$23,550	$38,083	$38,083
13	Arkansas	$18,803	$21,981	$33,035	$33,035
14	Georgia	$19,057	$23,345	$44,846	$44,846
15	Missouri	$20,534	$22,812	$40,501	$40,501
16	Mississippi	$19,765	$20,848	$28,712	$28,712
17	West Virginia	$20,011	$22,915	$22,236	$22,236
18	Kansas	$18,803	$21,981	$33,035	$33,035
19	Texas	$18,807	$25,419	$51,236	$51,236
20	Louisiana	$20,622	$23,395	$57,334	$57,334
21	Washington	$21,715	$31,410	$53,857	$53,857
22	Alaska	$22,063	$25,414	$28,427	$28,427
23	Nebraska	$19,851	$21,953	$37,285	$37,285
24	Tennessee	$21,061	$24,381	$42,767	$42,767
25	Indiana	$21,090	$29,269	$49,853	$49,853
26	Alabama	$21,448	$27,145	$27,835	$27,835
27	Iowa	$20,088	$28,257	$47,150	$47,150
28	Maine	$21,126	$30,099	$54,613	$54,613
29	Minnesota	$22,992	$25,238	$46,286	$46,286
30	Kentucky	$22,575	$25,325	$37,019	$37,019
31	Hawaii	$22,264	$32,043	$33,933	$33,933
32	Colorado	$23,061	$31,699	$40,791	$40,791
33	Maryland	$23,008	$27,111	$62,317	$62,317
34	Ohio	$23,552	$26,881	$48,614	$48,614
35	Oregon	$25,397	$34,292	$60,038	$60,038
36	California	$24,349	$34,454	$54,795	$54,795
37	New York	$25,082	$20,304	$60,677	$60,677
38	Arizona	$24,896	$26,025	$23,249	$23,249
39	South Carolina	$23,600	$33,217	$38,477	$38,477
40	Michigan	$25,463	$40,004	$43,305	$43,305
41	Delaware	$25,472	$32,419	$24,358	$24,358
42	Virginia	$26,507	$36,674	$35,742	$35,742
43	Rhode Island	$27,872	$32,910	$64,025	$64,025
44	Illinois	$26,993	$29,350	$50,638	$50,638
45	Connecticut	$28,816	$37,414	$60,408	$60,408
46	Pennsylvania	$27,336	$26,426	$60,218	$60,218
47	Massachusetts	$28,572	$32,291	$67,953	$67,953
48	New Jersey	$28,633	$29,681	$53,717	$53,717
49	New Hampshire	$29,381	$32,035	$33,197	$33,197
50	Vermont	$30,921	$41,914	$64,274	$64,274
51	District of Columbia	$6,152	$13,004	$62,714	$62,714

How Much Does it Cost to Study Abroad in College?

The range of programs and countries makes it hard to get an exact bottom line on whether a college overseas is cheaper. Just like in the states, there are private and public colleges. Also, the cost of living varies in different countries and cities.

When you do your math, you want to factor in the expenses that go into study abroad programs. Apart from tuition and fees, you need money for housing, food, travel and transport to and from college. Also, there is insurance to cover medical, dental and travel.

You also want to factor in the exchange rate for US dollars and if you are eligible for financial aid. That said, there are countries that offer free college or very affordable tuition. So, you may be able to satisfy your wanderlust while saving money.

7 Countries with Free College or Affordable Tuition

1. Germany

Tuition is free in most states, but you could pay tuition fees of about $1,793 USD and a semester contribution of up to $418 USD and living costs. The average German student has expenses of $979 USD.

2. Iceland

Tuition is free, but at public universities you pay an annual administration fee which differs at each college. The cost of living for food and housing of about $1,613 per month.

3. Norway

Tuition is free at public universities, but you might have to pay fees of $33 to $65 USD and the cost of living is high. It may be worth checking if financial support is available to offset your living expenses.

4. Austria

If you have a Residence Permit – Student, the average per semester cost is $868 USD. Your housing costs (rent, food, etc.) are additional expenses as well.

5. France

Public universities in France may cost from $178 to $1075 USD per term. You also need at least $514 per month to survive but that is low and varies by region. Paris is usually on the high side.

6. Luxembourg

The University of Luxembourg is the only public university in the country. Here, you need a living budget of $1,405 USD. You also pay a registration fee of $478 for semesters 1 and 2. Then $239 for semesters 3 to 6.

7. Spain

Depending on the cost per credit at Spanish universities, international students might have to pay up to $7,172 USD per year for undergraduate programs. The average student also spends at least $956 USD per year on books alone, and cost of living tends to be high in big cities like Madrid.

Student Loan Identity Theft

Posted on May 24, 2024December 10, 2024 by Melanie Datu

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How to Spot Scams and Protect Yourself from Fraud

If you’re figuring out how to finance college, online resources can help you find student loans and scholarships that may help you afford your education. But how do you know when you’ve encountered a student loan scam?

While there are many legitimate online sources for college financing – including student loans, financial aid, and scholarships – potential scams may make you vulnerable to identity theft and other risks. Let’s go over how to spot a scam and what you can do to protect your sensitive personal information as you finance your college dream.

What Are the Risks of Student Loan Scams?

When applying for loans, students and parents often submit a lot of personally identifiable information to schools and lenders. Cybercriminals use these identifiers to learn as much as they can about you. Once scammers gain access to pieces of information like your Social Security number, driver’s license number, bank account number, and email address, they could potentially steal your identity and use it to commit crimes – at your expense.

Student Loan Identity Theft Scams

Young adults and students between the ages of 17 and 25 are increasingly susceptible to student identity theft. But many students aren’t exactly sure what identity theft is, or how to protect themselves from it.

Identity theft occurs when a thief steals your personally identifiable information in order to commit fraud. Identity thieves may:

Gain access to your bank account
Open new credit cards and accrue debt in your name
File fraudulent tax returns
Buy or rent property while posing as you
Perform other criminal actions

Before applying for, enrolling in, and accepting financial offers, it’s important to understand the risks involved. Make sure you only submit personal information to a trusted source. Authenticating websites, lenders, and awards before submitting your personal information can help you avoid identity theft. Scams That Target Students Besides identity theft, scammers have other means of taking advantage of unsuspecting students. Watch out for these college financing scams that target students (and their parents!) before, during, and after graduation.

New and Current Students

For brand new or first-generation college students, figuring out how to pay for college can be overwhelming. As you navigate the world of college financing for the first time, be aware of potential scams like:

Advance Fee Scams: This is where a student loan lender offers a lower interest rate and better loan terms if you pay an advance fee for their services. Don’t fall for this; legitimate public or private lenders never ask you to pay upfront. If expenses are incurred, these would be totaled into your monthly repayment schedule.
Scholarship Scams: Just like advance fee scams, scholarship scams may ask you to pay money upfront to search or apply for scholarships. That’s a big red flag. Legitimate scholarship sites don’t cost anything, and you should be able to find plenty of scholarships to apply to, free of charge.

Recent Graduates and Young Professionals

Just because you’ve already graduated college doesn’t mean scammers will stop targeting you. As recent graduates and new professionals start tackling their college debt, they may be vulnerable to other types of scams, such as:

Loan Consolidation Scams: This is when scammers contact recent graduates offering low consolidation rates in return for an administrative or service fee. Instead of consolidating your loans, these fake lenders collect money from you and do nothing. Remember that you should never pay to consolidate your student loan debt. Consolidating government loans is a free service offered by the Office of Federal Student Aid. And, while private consolidation loans may charge something called an origination fee to refinance loans, this is relatively rare and would be included in the overall cost of your loan, not charged upfront.
Debt Elimination Scams: If it sounds too good to be true, it probably is. While there are a few rare cases in which student loan debt may be forgiven, most borrowers have to pay back their student loans in full. Some exceptional circumstances may include the death of the borrower, institution closure, and falsified enrollment documentation resulting from identity theft. In addition, eligible students may have some of their loans forgiven through federal loan forgiveness programs, if they meet very strict requirements. But if you are approached by an individual or company offering to eliminate your student loan debt, it’s a scam.

6 Tips to Help Student Protect Their Personal Information

You don’t have to fall prey to scammers and identity thieves who target college students. These tips may help you stay safe and protect your bright future as you finance your educational goals.

#1: Protect Sensitive Physical Records and Data

The danger isn’t just online. Keep physical documents like your Social Security card, passport, medical documents, and birth certificate in a safe place.

#2: Use Caution on Public Networks

It’s best to avoid exchanging personal or sensitive information through a public or unsecured Wi-Fi network, like the one at your favorite coffee shop. If a cybercriminal is monitoring a public network, your data could be intercepted and used against you.

#3: Stay Safe on Social

Don’t share private information over social media…especially the answers to the security questions for your sensitive accounts! Even seemingly harmless information, like the name of your pet or the street you live on, can help cybercriminals gain access to your accounts. Then, they can change your passwords and lock you out.

#4: Browse and Apply Safely

Use security software to protect yourself when browsing online or submitting information over the web. ID theft monitoring services, such as LifeLock, are always helpful, especially when exchanging personal information, applying for loans or scholarships, and shopping online.

#5: Defend Your Devices

A nabbed phone or laptop may be all it takes for a criminal to steal your identity. Always keep an eye on your devices and make sure they’re locked when not in use.

#6: Watch for Suspicious Activity

Keep an eye on your personal and financial records, including your credit report and bank statements, for signs of fraudulent charges or unauthorized activity. You may also want to watch your email spam folder, to learn if your email address is on an internet email list (making it easy for cybercriminals to find).

5 Steps for Student Identity Theft Recovery

By taking every precaution as you prepare for and finance your college education, hopefully you can avoid this worst-case scenario. But if you do become the victim of identity theft, it’s important to take action right away. Here are the steps you should take if you believe your identity has been stolen:

#1: Determine the Type of Identity Theft You Experienced

Criminals use different strategies to gain access to sensitive financial and government records. A thief can drain or open bank and credit card accounts, collect government benefits and tax refunds, or even use a stolen ID to evade police. Before reporting fraud, gather as much information as possible about the specifics of your case.

#2: File a Police Report

Immediately documenting your case is the best way to limit the damage done. Obtaining a police report will also help you establish credibility when reporting identity theft to lenders and major credit bureaus.

#3: Notify the Federal Trade Commission (FTC)

You can complete and submit their form on the FTC website.

#4: Enable Fraud Alerts on Your Credit Files

Identity theft should be reported to all of your lenders, plus the three major credit bureaus: Equifax, Experian, and TransUnion. After contacting these credit bureaus, ask if they can enable automatic fraud alerts on your credit files.

#5: Frequently Check Your Credit Reports

Keep monitoring your online accounts and financial reports. If you see something suspicious, report it immediately. Tell your financial lenders and creditors if there’s been any unauthorized access.

How College Students Can Stay Informed and Avoid Scams The world of college financing can seem scary, but by doing your homework, you should be able to avoid scams that target vulnerable students and recent grads. Follow these tips to stay safe, protect your personal information, and find legitimate sources of financial aid.

Research Current Student Loan Scams. Ask your college’s financial aid office if they know of scams currently aimed at students, and always thoroughly look into loans or financial aid offers before applying.
Enroll with Trusted and Credible Lenders. Avoid scams by entrusting your college financing needs to reliable lenders. First of all, always fill out the FAFSA and maximize any federal financial aid you may qualify for. Then, use the Student Loan Finder to find trustworthy private loans.
Become a Student Loan Expert. Understanding how student loans work, as well as your rights and responsibilities as a borrower, can help you spot and avoid offers that don’t sound quite right. EducationConnection is home to plenty of informational resources on the college financing process, and StudentLoans.gov also offers a wealth of information.

Embarking on your college journey is an exciting time in your life, and you should spend it pursuing new goals and experiences and not dealing with the aftermath of identity theft. By taking precautions as you finance your education, you can prevent scammers from getting in the way of your dreams.

Financial Aid for High School Students & Finding College Money for High Schoolers

Posted on April 30, 2024December 17, 2024 by Melanie Datu

The financial aid process is a little bit different for each student, but there are a few things that hold true for just about everyone, including high school students. Even though you’re still in high school doesn’t mean you shouldn’t start thinking about how you’ll pay for college.

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Tips for Finding Financial Aid for High School Students

There’s a ton of information about financial aid on this page, and yes, we know it looks intimidating, especially if you’re still in high school. Before you — students and parents alike — get too far into the guide, check out the flowchart that walks you step-by-step through every possible option you can pursue for financial aid.

Interact with the flowchart and answer the basic questions it asks to help you explore how you should tackle your financial aid game plan — and in what order.

Taking this first step should save you a ton of time and (and hopefully money) as you work through the process. Once you know where you stand, you can come back and research the funding options the most sense for you and your situation.

The Basics

Filing the Free Application for Federal Student Aid (FAFSA) is essential. There are many variables that go into determining eligibility, and there’s no way to know if you are eligible for assistance if you don’t apply.

So, even if you don’t think you’ll qualify for federal financial aid, file the FAFSA.

Here’s why:

The FAFSA is used by agencies and funding sources other than the federal government to determine your eligibility for scholarships, grants, loans and other financial aid programs.
The FAFSA is used as your application for federal student loans. Because of this, completing the FAFSA gives you two big advantages: you may be eligible for non-federal aid, and even if you don’t want a loan now, the paperwork is already done in case you change your mind.

Filing the FAFSA

The quickest way to file the Free Application for Federal Student Aid (FAFSA) is online at: FAFSA on the Web. Complete the FAFSA as soon as possible after January 1st of the year in which you will need funding.

It will be easier to fill out the FAFSA if you have these items handy:

Your Social Security card and driver’s license
Your W-2 Forms or other records of earned-income (and your spouse’s, if you are married) federal income tax return.
Your parent’s federal income tax return (unless you are filing as independent)
Records of other untaxed income you received, including welfare benefits, social security benefits, TANF, veteran’s benefits, and military or clergy allowances
Your current bank statements and records of stocks, bonds, and other investments
Your business or farm records, if applicable
Your alien registration card (if you are not a U.S. citizen)

Tip: If you or your parents have not completed federal income tax returns yet, use estimates from pay stubs and bank statements.

If you or your parents’ income has not changed significantly, you have a choice. You can use the amount of tax you paid last year or you can estimate. Here’s an easy way to estimate the amount of tax you owe:

Take the line item from your federal income tax return titled “This is your total tax.”
Divide it by your adjusted gross income.
Multiple this number by your estimate of this year’s adjusted gross income to obtain an estimate of the amount of you tax owe.

Other Applications You May Need to File

CSS Profile

Incoming freshman may also need to complete the CSS Profile Application. Some private colleges require the profile because it gives financial aid administrators more information to determine your eligibility for need-based assistance and funding directly from the school. In other cases, they may need the profile to offer admission to very competitive programs for early admission where the admissions process is not need blind.

The Profile must be completed earlier than the FAFSA – usually in the middle of October of the year prior to the year you’ll need funding. Check with your college to see if you are required to complete the CSS Profile. You can register and apply online at: CSS Profile

Institutional Aid Applications

Some schools require you complete a form they provide you. This is called an institutional aid application. On this form you may be asked to tell the school about outside scholarships you expect to receive and whether you’re interested in other types of aid such as work study.

Often you can also use this form to explain any special circumstances not taken into account on the FAFSA (e.g. an unexpected recent loss of income, extraordinary medical expenses, etc.). If your school requires one of these applications, they will mail it to you.

Financial Aid Eligibility

Financial Need is a term used to describe how much need-based financial aid you’re eligible to receive. Your financial need is calculated by subtracting your school’s Cost of Attendance (COA) from your Expected Family Contribution (EFC). In order for you to receive need-based aid, your COA must be greater than your EFC.

Let’s take a look at how Financial Need is calculated.

COA – EFC = Financial Need

Schools use the processed data from the FAFSA and/or the CSS Profile to determine your financial aid eligibility. Whether you complete the FAFSA and, if required, the Profile, the basis for determining your award is a number referred to as the Expected Family Contribution (EFC).

The EFC is a measure of your family’s ability to pay for college based on student and parent income and asset information, your state of residence, household size, and number of household members in college. Some factors that go into determining your EFC include demographic, financial, and household data, among other things.

The next step in calculating your financial need is figuring out what the Cost of Attendance (COA) will be for the school you will attend. The school you attend establishes a COA for the academic period for which you will be enrolled. The COA includes tuition, room and board, fees and estimated living expenses. Variable costs like books and personal expenses are also included.

The Financial Aid Award Letter

The financial aid office at your school will use the need-based resources they have available to try to meet your Financial Need. They will use other funding sources that aren’t based on need such as the Unsubsidized Direct Student Loan to help cover the entire COA.

Of course, they won’t always be able to meet a student’s full financing need or cost of attendance.

Follow-up Forms

Sometimes, even after a college has received your FAFSA data, additional information may still be required to complete your package/award. This process is called “verification”. If you are selected for verification, the school will ask that you fill out a Verification Worksheet.

In addition, they request physical copies of documents such as federal income tax returns, W-2′s and any other income statements (e.g. 1099′s) they may require.

Warning: the college will not process your financial aid, without this additional documentation.

If you plan on accepting a Stafford loan or Direct PLUS loans, you will also need to complete promissory notes. The college you attend will provide you with specific information on how to complete this part of the process.

If it’s your first time borrowing a federal loan, you’ll also need to complete an “entrance interview,” which is simply a session done online or in-person that informs you of your rights and responsibilities as a student loan borrower.

Read everything the college sends you carefully and respond to requests promptly. If you have questions or don’t understand something, call the financial aid office and ask! They’ll be more than happy to provide a helping hand.

Types of Financial Aid

If you aren’t familiar with the different types of financial aid that undergraduate students can pursue, we encourage you to do your homework and educate yourself using the links below. Financial aid comes from a variety of sources, so be sure to review each financial aid type in greater detail as you put together your plan.

Federal Student Aid
State Aid
Institutional Assistance (money supplied by the school you attend)
Scholarships
Grants
Corporate/Employer Benefits/Programs
Federal Student Loans
Work Study
Military and veterans benefits

Do I Borrow Student Loans for One Year or For All Years

Posted on April 19, 2024December 3, 2024 by Melanie Datu

First things first–let’s get the answer to the question out of the way. A student may only borrow up to the cost of attendance determined by the school minus financial aid including other student loans. The amount a student is eligible to borrow is the remainder of that equation and it can only be determined one academic year at a time.

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It might seem convenient or even cost-effective due to current low interest rates to finance an entire education up front. However, the student would still be accruing or paying interest on the full amount borrowed while in school.

As you can imagine, the interest charges on $40,000 are much higher than on $10,000. Let’s take a quick look at how eligibility is determined to see how the borrowing process works.

How Much Can You Borrow?

Borrowing a student loan for multiple years is not possible because eligibility can’t be calculated in advance. Things like the school’s cost of attendance will change from year to year as will the financial aid your student is offered.

Plus, the amount a student may borrow under the Direct Student Loan program increases from $5,500 for freshmen, to $6,500 for sophomores, to $7,500 for juniors and seniors.

The school will not only determine your student’s cost of attendance each year, but they will also certify the amount the student is eligible to borrow when the lender of the private student loan requests it. The lender is required to ask the school for this certification for each academic year (or partial year) in which financing is requested.

It is the school’s job to ensure the student does not borrow more than eligibility allows.

Even if a student could take out one private student loan for all 4 years of college, it wouldn’t make financial sense to borrow more funds than would actually be utilized. If a borrower defers all payments, interest will still be added to the original amount borrowed.

Even if a student makes interest-only payments while enrolled, the he would still be paying interest on the full amount borrowed.

Student loans do not work like a line of credit that you draw down as needed or like a credit card where you are only charged interest on the part of your credit limit that you access. Assuming a loan with a 6% interest rate, the monthly payment of interest only on $40,000 would be $200 versus $50 on a $10,000 loan.

Another thing to consider is whether the student will make it all the way to graduation. According to NCES, only 64% of first-time, full-time undergraduates seeking a bachelor’s degree at a 4-year degree granting institution in the fall of 2014 had graduated by 2020.

One final note, it’s very important for students to borrow only what they really need for any given academic year. The school’s cost of attendance for each year includes not only the actual costs a student will be billed, but estimates of other expenses like books and room and board.

Take a careful look at both eligibility (how much you can borrow) and actual needs before borrowing a private student loan.

Be certain to pursue all other options for paying for college before borrowing at all. Regularly searching and applying for scholarships, saving money earned at work, and buying used books whenever possible are all good places to start.

Student Loan Consolidation

Posted on May 14, 2019December 9, 2024 by Shannon Fandler

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IS IT SMART TO CONSOLIDATE YOUR STUDENT LOANS?

Loan consolidation involves merging multiple loans into a single one. If you’ve taken out several student loans during your college years, consolidating them can simplify your life in the following ways:

You can turn several loans into a single loan
You can make a single monthly payment instead of many
You can switch variable interest rates to a single, fixed interest rate
You might be able to lower your monthly bill
If you have loans that don’t currently qualify for a federal loan forgiveness program, you could turn them eligible

Students with federal student loans have the option to apply for a Direct Consolidation Loan. This allows them to merge various types of loans, including Unsubsidized and Nonsubsidized Federal Stafford Loans.

Often, students consolidate after their grace period is over. The grace period is when your loans are temporarily in deferment after you graduate.

What about private student loans? While not eligible for a Direct Consolidation Loan, you can consolidate your loans through a lender. This is called refinancing.

HOW TO CONSOLIDATE STUDENT LOANS

1. IF CONSOLIDATING FEDERAL LOANS, START AT STUDENTLOANS.GOV

You can to fill out a Federal Direct Consolidation Loan Application and Promissory Note online. You may need information such as your Social Security Number, driver’s license number, and two personal references.

2. CHOOSE THE LOANS YOU WANT TO CONSOLIDATE

You may not wish to consolidate all of your federal loans. Why? Because some may come with extra benefits, like Perkins subsidized interest, or cancellation and discharge programs. You’ll lose those benefits after you consolidate.

Plus, if you have a loan with a higher interest rate than the others, you may wish to pay that off on its own. That’s because the interest rate of your Direct Consolidation Loan depends on the weighted average of the interest rates for all your loans. It may be smart to pay off that higher interest loan quickly, instead of including it in your Consolidation Loan.

What about private student loans? Since these don’t come with federal benefits, you could potentially refinance them all with a private lender.

3. CHOOSE YOUR STUDENT LOAN SERVICER

For federal loans, you can choose from several servicers. One possible option is FedLoan Servicing, which manages the Public Service Loan Forgiveness program (PSLF). If you plan to work toward PSLF, it may make sense to choose FedLoan Servicing.

For private student loans, there are several private student loan companies that do refinancing. When choosing a company to work with, consider factors like:

Interest Rate Ranges: The interest rate you qualify for depends on your lender, your credit report/eligibility, and the market. As of 2018, variable interest rates range from about 2.5 to 9.09%. Remember that variable rates can get higher or lower over time. Fixed rates, which stay the same, range from about 3.35 to 9% in 2018.
Loan Amount: Some lenders have minimum or maximum amounts you can refinance.
Loan Period: How quickly do you want to pay off your loan? Refinancers may have a minimum loan period, usually from five to 15 years. They may also have a maximum loan period. Remember that the quicker you pay off your loans, the higher your monthly payments will be. But, you’ll save on interest if you pay off your loans quickly.
Hardship Options: Does your lender have deferment and forbearance options? If you have trouble paying off your loan due to an event like the loss of your job, these options could help.
Fees: Compare late fees or other kinds of loan servicing fees.
Extra Benefits: What extras make a particular lender stand out? For example, some offer interest rate reductions if you hit milestone goals – like repaying the first 10% of your principle.

4. DECIDE ON YOUR REPAYMENT PLAN

For federal loans, there may be several ways to repay your consolidation loan. These include:

Standard Repayment Plan – Fixed payments, made over a period of 10 to 30 years Graduated Repayment Plan – Payments start out low and increase over 10 to 30 years Extended Repayment Plan – Fixed or graduated payments; pay off your loans in 25 years Income Driven Repayment Plans – Payments are recalculated each year based on factors like your income and family size

Private student loan refinancing companies do not have the same kinds of repayment options. That said, some lenders may offer more flexible plans.

5. SUBMIT THE APPLICATION

Once you’ve fully understood your options, it’s time to take the next step. Contact the loan servicer if you have questions or need help with your application.

LOAN CONSOLIDATION VS. LOAN REFINANCE

Both student loan consolidation and refinancing are ways to simplify repayment and change your loan terms. Consolidating only works for your federal loans, though.

If you want to combine several private student loans (or private + federal loans), you’ll have to refinance. Student loan refinancing means applying for a new private student loan and using it to pay off your other loans.

There are pros and cons to both. For starters, consolidation typically won’t lower your interest rate. Refinancing usually does, meaning you could save money over the life of your loan.

That said, refinancing student loans depends on factors like your income, credit report, and debts. In other words, your loan terms are based on your creditworthiness. That’s not the case when you consolidate federal student loans.

And, refinancing federal loans with a private lender could mean you lose out on key benefits – like subsidized interest or loan forgiveness.

Depending on the types of loans you have, a combination of consolidation and refinancing may be the ideal plan.

	Student Loan Consolidation	Student Loan Refinance
Which Loans Can I Combine?	Most federal student loans	Both private and federal loans
Can I Lower My Rates?	Can I Lower My Rates? The interest rate on Direct Consolidation loans is based on the weighted average of the interest rates of the loans you’re combining. The good news? This interest rate is fixed, which means it can’t get higher over time. Yes, you may qualify for lower interest rates. It helps if you (or your cosigner) have a high credit score and low debt-to-income ratio.	Yes, you may qualify for lower interest rates. It helps if you (or your cosigner) have a high credit score and low debt-to-income ratio.
Can I Save Money?	Probably not (though fixed interest rates could help). Consolidation usually increases the length of your repayment period. Taking longer to repay what you borrowed could mean you’ll pay more interest over the life of the loan.	Yes, you could save money if you qualify for a lower interest rate. Paying off your loan quicker can also help you save money.
Can I Use Federal Loan Protections and Forgiveness Programs?	Consolidating federal loans other than Direct Loans may give you access to: Income-driven repayment plan options Public Service Loan Forgiveness (PSLF) But, consolidating your current loans means you’ll lose credit for any payments you’ve already made toward income-driven repayment plan forgiveness or PSLF. And if you have Federal Perkins Loans, you’ll lose benefits like subsidized interest and cancellation/discharge options.	When you refinance federal student loans with a private lender, you lose federal benefits and programs. These include: Income-based repayment options Federal loan forgiveness programs Interest discounts or rebates Federal deferment and forbearance options (if you have trouble paying back your loans)
Will I Pay Only One Bill?	Yes	Yes
Who Offers These Loans?	The U.S. Department of Education (often through consolidation loan servicers). Your first step should be to apply for a Direct Consolidation Loan at StudentLoan.gov.	Private lenders, like banks and financial institutions

STUDENT LOAN CONSOLIDATION: THE BIG PICTURE

Americans owe over $1.5 trillion in student loans(2020).
42% of people who attended college had education debt (2017).
The typical student loan payment was between $200 and $299 per month(2022).
43 million borrowers hold Consolidation Loans (2024).

Average aid per full-time equivalent (FTE) student in 2022-23 was:

$15,480 per undergraduate student
$28,300 per graduate student

PRIVATE STUDENT LOAN CONSOLIDATION LENDERS

Lender	Why this Lender	Eligible Degrees	Eligible Loans
LendKey	Choose from flexible repayment plans, like interest-only payments for the first four years. And, pay no origination fees.	Undergraduate and/or Graduate	Private and/or Federal
CommonBond	They offer up to 24 months of forbearance over the life of your loan. And, you’ll pay no origination fees or prepayment penalties.	Undergraduate and/or Graduate	Private and/or Federal
College Ave	They offer 16 loan term options. Choose how long it will take to pay back your loan, between five and 20 years. Plus, qualify for a lower interest rate when you use autopay.	Undergraduate and/or Graduate	Private and/or Federal

Private Student Loans

Posted on May 14, 2019December 17, 2024 by Shannon Fandler

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Private student loans serve as a means to fill the financial gap between federal financial aid and the actual cost of your college tuition. Prioritize exhausting financial aid from other sources, such as grants, scholarships, work-study, and federal loans. If there’s still a need for additional funds, considering private loans could be the next step in your college financing strategy.

Here’s what you need to know before getting started!

FEDERAL VS PRIVATE STUDENT LOANS

Federal student loans receive funding from the federal government, while private student loans are provided by lenders such as banks and credit unions. Additional distinctions between the two types of loans include:

Overall Cost of the Loan. Private education loans tend to have a higher overall cost.
Interest Rates. Private student loan interest rates may be higher than federal rates. Sometimes, private loans have variable interest rates that change over the life of the loan.
Loan Repayment Terms. Private loans often come with less favorable repayment terms compared to federal student loans, which may offer income-based repayment plans and other benefits.
Borrower Eligibility. For private student loans, your credit score may impact your eligibility, and you might need a cosigner. In contrast, most federal loans do not require a credit check or cosigner.

Make sure to explore all available government financial aid programs before considering private student loans. However, if federal loans fall short in covering your college expenses, a private loan could be a viable option.

FINDING LENDERS

Numerous banks, credit unions, and financial institutions provide private student loans. To find the best fit for you, it’s prudent to compare interest rates, terms, and conditions among a selection of top-rated lenders.

COMPARE THESE PRIVATE STUDENT LOAN LENDERS:

Sallie Mae
SunTrust
College Ave
PNC
Citizens

APPLY FOR A LOAN

When exploring private student loans, it’s essential to consider that not all loans are alike, and different lenders may offer products, features, and terms that align better with your objectives. As you delve into potential lenders, here are some crucial factors to bear in mind:

Your Eligibility. Assess whether you seek private student loans without cosigner requirements or if your credit history presents challenges. Some private loans may suit your needs more favorably based on your citizenship status, income, part-time or full-time student status, and other criteria.
Loan Cost. Scrutinize factors such as the loan’s interest rate, interest type (fixed or variable), and associated fees. These elements contribute to the overall cost of your loan. For instance, be cautious when opting for a low, variable interest rate if you intend to repay the loan over an extended period. Variable rates can fluctuate with the market, resulting in higher payments than anticipated.
Loan Features. Certain private loans offer advantageous features, such as cosigner release, deferment options in case of financial hardship, or early repayment opportunities. Additionally, many lenders provide auto-pay discounts, often reducing the interest rate by 0.25 or 0.50 percent. Compare multiple lenders to explore the various features available to you.

HOW TO APPLY FOR PRIVATE STUDENT LOANS

Prior to considering private student loans, it’s crucial to complete your FAFSA and make the most of any federal grants or loans you are eligible for. Additionally, don’t overlook the opportunity to apply for scholarships! If you find that you still require additional funds, then you can initiate the process of selecting a lender and applying for private student loans.

IF YOU’RE ELIGIBLE, HERE’S HOW TO GET A PRIVATE STUDENT LOAN:

Get Ready to Apply. Generally, you can apply for private student loans online. To start, you’ll need to prove your basic eligibility – like citizenship and college enrollment status.
Submit Documentation. You’ll need to provide your personal and financial information to your lender. Your lender may require documents like your Social Security number, a pay stub for proof of income or your monthly housing costs. They may also as for your school’s cost of attendance, the amount of financial aid you’ve already received, your cosigner’s details (if applicable), and other information.
You’ll Receive a Decision. Your lender will need to process your application and analyze your financial and eligibility information, to let you know whether you’re approved. If you’ve applied for your private loan online, you may receive a result pretty quickly – sometimes in minutes! In other cases, a lender may need more information from you to move forward.
Choose and Accept the Loan Terms. Once you’ve been approved for the loan, you’ll need to decide on your interest rate type (fixed or variable), loan term, and repayment plan. You and your cosigner (if you have one) will then sign the loan agreement.
Wait for Disbursement. Your private student loans will be sent directly to your college or university. If you have borrowed more than your tuition actually costs, your school will generally refund the difference to you. You can return that money to your lender. Or you could use it to cover other college costs, like room, board, or your textbooks. It’s always best to borrow the minimum amount you need to cover your education related expenses.

PRIVATE STUDENT LOANS ARE AN IMPORTANT RESPONSIBILITY

Opting for private loans to finance your college education can make your academic journey possible. College opens doors to new career opportunities and a promising future. Nevertheless, it is crucial to be aware of the risks and responsibilities as a borrower. You must ensure that you are prepared to take out and eventually repay your private loans.