Our Premium Selection of the Best Student Loan Companies

What are student loans and how do they work?

Student loans represent a certain amount of money that an individual borrows from the government or a private lender to pay for college. The loan has to be paid back after graduation, along with the interest that has been accrued. The loan can usually be used to cover the costs of:

• tuition;
• room and board;
• books;
• other school-related expenses.

*Unlike scholarships and grants, student loans need to be paid back.

You can apply for a student loan online and fill out your and your parents’ (if applicable) financial information. Student loan qualifications are different depending on the type of loan you receive but can include FICO score and income. Typically, you will need multiple student loans to cover your entire tuition and all related expenses. A financial aid counselor from your high school or your future college should be able to help you better navigate the process.

With federal student loans, payments aren’t due until the student graduates, leaves school, or changes enrollment status. Credit checks aren’t always required, and there are several repayment plan options.

You should borrow what you need for the whole school year once per year. You can apply for a student loan in the middle of the semester, but only if you haven’t already gone over your borrowing limit.

Getting a student loan without a co-signer

To get a student loan without a co-signer, consider federal student loans first — most of these don’t require one. If you need additional financing, some private lenders offer loans without co-signers.

Getting a student loan with a co-signer

Your spouse, relative, guardian, or friend can be a co-signer on your loan, but only one person can co-sign for a private student loan. For instance, if two parents are willing to be co-signers, only one can do it. Your co-signer is responsible for repaying the full amount of the loan if you default.

The different types of student loans

Typically, student loans fall into two major categories:

Federal Student Loans. There are multiple types of federal loans but, in general, they have lower interest rates and better repayment terms than private loans. They’re also more readily available and may be easier to obtain than a private loan. They have fixed interest rates and some options aren’t dependent on your credit history.

Private Student Loans. These should be looked into after federal student loans are exhausted. Also known as alternative loans, private student loans may cover continuing education without a degree, tuition for non-U.S. citizens, and for education costs incurred after graduation.

Federal vs. private student loans

Most students obtain a federal student loan first and then seek private loans if they need additional funding. Both types come with different options, terms, and conditions. It’s important to know the differences between these two kinds of student loans:

Federal student loans

• Income-driven repayment plans for some borrowers
• No credit check is required for consideration
• Repayment plans and terms can be changed

Private student loans

• Offer a choice of fixed or variable interest rates
• Interest-only and fixed repayment plan options for when you’re in school
• Provides flexibility for students and parents

What is the overall cost of getting a student loan?

Federal student loan interest rates are 3.73% to 6.28% on loans disbursed from July 1, 2021, to July 1, 2022.

The main cost associated with student loans is the interest rate. However, some loans may also charge origination fees, prepayment penalties, and late fees. Federal loans tend to have lower interest rates so it’s best to apply for them first. Currently, the interest rate on federal student loans for undergraduates is 3.73%.

What are the pros and cons of student loans?

Student loans provide access to higher education to those who cannot afford tuition, but they are also a significant responsibility. About 43 million students and graduates have student loan debt, and that number continues to grow with the high cost of postsecondary education.

Pros

• Receive a higher education
• Potential for a successful career
• High borrowing limits
• Paying it off builds credit

Cons

• Debt (even if you don’t graduate)
• Penalties for defaulting
• Interest can be burdensome
• Co-signer may be required

Alternatives to student loan companies

If you decide that a student loan isn’t for you or want to know what other options you have, there are some alternatives:

• Parents pay for college
• Merit-based scholarship
• Athletic scholarship
• Work-study aid
• Savings or an inheritance
• Grants

(1). The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.