Who doesn’t want the best of the best? No one wants to settle for second best or, perish the thought, third best. And with student loans, having those top-shelf loans is even more desirable. Not only does it feel good to know you made the greatest choice for yourself and your future, but it also should keep you from trouble down the line. Taking out the best student loans means that you are less likely to struggle with unaffordable payments and fall into default once you’ve graduated.
But finding the best student loans isn’t as easy as just getting any student loan available to you. It requires a strong understanding of the different student loans and which ones offer the best benefits.
Federal student loans are the best student loans
Without a doubt, federal student loans dominate private student loans. They offer lower and fixed interest rates. Federal loans also don’t need a cosigner, so you don’t have to drag your parents or family members into student debt with you. There are loads of federal student loan benefits that aren’t guaranteed with private student loans. These benefits include forgiveness, income-driven repayment plans, consolidation, forbearance, and deferment.
How to get the best federal student loans
To apply for any federal loans, you’ll have to fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA will determine your eligibility for all federal aid, including student loans and grants. Once you complete the FAFSA, you should receive a letter from your school outlining all the eligible federal aid available to you. But which are the best federal student loans?
Direct Subsidized Loans
Direct Subsidized Loans are the #goals of all federal student loans. The magical thing about Direct Subsidized Loans is that the U.S. Department of Education pays for the interest that grows on these loans while you’re in school and during your grace period.
The catch to this great benefit? You have to be able to prove financial need to qualify for Direct Subsidized Loans. The current interest rate for Direct Subsidized Loans disbursed on or after July 1, 2018, and before July 1, 2019, is 5.05%. These loans are also only available to undergraduate students.
Direct Unsubsidized Loan
Direct Unsubsidized Loans have to take the back seat to Direct Subsidized Loans’ interest benefit. You’ll have to pay for any interest that accumulates while you’re enrolled and during your grace period. But you can still enjoy that low interest rate of 5.05%.
Direct Unsubsidized Loans are available to undergraduate and graduate students (though the interest rate on Direct Unsubsidized Loans is higher at 6.60%). You don’t need to show financial need to qualify for Direct Unsubsidized Loans.
As an undergraduate student, you won’t need to worry too much about PLUS Loans yourself. But your parents may be interested in them. There are two types of PLUS loans: Parent PLUS Loans and Grad PLUS Loans. To qualify for a PLUS Loan, you’ll need a good credit score. The fixed interest rate for these loans is higher at 7.60%.
Private student loans are wild & unpredictable
Private student loans are generally not as great as federal student loans. Not only are they unable to consistently offer the same benefits that federal loans do, but their terms vary wildly across lenders. It can be harder to get private student loans since they need a good credit score. So you generally need a cosigner to qualify for good private student loans. Still, they can be helpful if you can’t get enough federal student loans to cover your college bills.
How to find the best private student loan
To make sure you’re finding the best private student loans, you’ll want to look into your options. Make sure to research and ask about the following topics to ensure you’re getting the best private student loans possible.
Variable vs. fixed interest rates
While fixed interest rates may seem higher, variable interest rates can change drastically during the life of the loan. This makes it difficult to predict your future monthly payments and the total loan cost. So typically fixed interest rate loans are better than loans with variable interest rates.
Most lenders only offer standard, strict repayment plans. But if you do find one that offers more flexible or income-based plans, that’s something to take into consideration.
Forgiveness is a rare benefit in the private student loan field. So any private student loans from a lender that does offer forgiveness are heads above the rest.
Autopay interest rate deduction
Some lenders will offer discounts for setting up autopay. These discounts can lower your loan’s interest rate and ensure that you don’t miss any payments.
Origination or disbursement fee
Some private loan lenders will charge you a fee upon origination or disbursement of your loan. These fees are typically a percentage of the total loan amount. Loans with smaller or ideally no fees have the upper hand on other private student loans.
Loan term length
Loan terms for private student loans can range from three years to 25 years. If you have the ability to choose five or ten years as opposed to the typical 15 years, this is a great option. It’ll allow you to have a lower interest rate and will help you get out of debt faster.
Any other benefits
Some private loans come with unique perks. They may offer to lower your interest rate or principal balance post-graduation. Other perks include financial counseling and unemployment protection. Knowing these perks can help you narrow down what your best options are.
Ultimately, the best student loans for you are going to be specific to you. And because student loans can affect your whole life, you should want to pick the best. You can’t go wrong with choosing federal student loans before turning to private student loans. But should you need private student loans, your best bet is to do your research. Make sure you’re not getting locked into impossible terms with too-high interest rates.
Disclaimer: The viewpoints and information expressed are that of the author(s) and do not necessarily reflect the opinions, viewpoints and official policies of any financial institution and/or government agency. All situations are unique and additional information can be obtained by contacting your loan servicer or a student loan professional.