Federal student loans, also known as Direct Loans, are funded by the government and may be awarded as part of your financial aid package if you completed the Free Application for Federal Student Aid (FAFSA®). They feature fixed interest rates and offer several repayment options. Private student loans are offered by banks or other lenders, are credit-based and have fixed or variable interest rates.


“Students who are able to pay off their loan relatively quickly have often sided with a variable rate,” said Dayan. “However, the longer it takes a student to pay off the loan with variable rates, the more chances there are for the rates to change over the lifetime of the loan. If a student’s future income is uncertain, and they don’t plan on paying off the loan quickly, many students consider fixed-rate student loans for more consistency.”
If you or your child graduated before July 1, 2006, it pays to roll multiple federal loans into one—you’ll lock in an interest rate that’s lower than what you’re paying on each separate loan. Earned a diploma since then? All federal student loans now carry fixed interest rates, so there’s no financial benefit to consolidating. (And it’s highly unlikely that you’ll be able to combine any variable private loans.) Nevertheless, if you have trouble keeping track of payment deadlines and have been hit with late fees on occasion, go ahead and consolidate. (For more information, go to SimpleTuition.com.) You’ll save some dough by doing so.
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If you have no income and either no credit or bad credit, you’ll need a co-signer to get a private student loan. Without bills in your name, such as a credit card, car loan or utility, you have no way to demonstrate that you can pay bills on time. Your co-signer will need to have a steady income as well as good to excellent credit scores, typically at least in the high 600s. Signing with a co-signer means they’re on the hook for your loan bill if you can’t pay.
Besides the interest savings, automatic payments can be a good idea to make life easier. By setting up automatic payments, you don’t have to worry about late or missed payments when paying back student loans (which matters for your credit score). Plus, you can use automatic payments in conjunction with other strategies on this list, like making payments higher than the minimum.
Key information to understand student loans includes being aware of the annual and cumulative loan limits, interest rates, fees, and loan term for the most popular private student loan programs. Often the interest rates, fees and loan limits depend on the credit history of the borrower and co-signer, if any, and on loan options chosen by the borrower such as in-school deferment and repayment schedule. Loan term often depends on the total amount of debt.
Refinancing replaces multiple student loans with a single private loan at a lower interest rate. You can choose a new loan term that’s shorter than the one you originally received. That may increase your monthly payment, but it will help you pay the debt faster and save money on interest. You’ll also have just one bill to pay, rather than multiple.
If you’re thinking about signing up for an income-based repayment plan, this may not be the best choice if you want to pay off students loans fast. Income-based Repayment or Pay As You Earn plans may not cover all of the interest that’s accruing, which can lead to capitalized interest. In the short term, you may feel better covering your payments, but you may end up owing more in the long term.
The stark reality is most American students and families have to borrow money as part of the overall financing process to pay for a college education. In fact, according to the 13th Annual Project on Student Debt, “Student Debt and the Class of 2017,” published by The Institute for College Access & Success (TICAS) in 2018, average student loan debt among college seniors is $28,650. Moreover, approximately 15% of the debt acquired among the Class of 2017 was non-federal debt.
Comparisons based on information obtained on lenders' websites or from customer service representatives and are based on student loans where students are the primary borrower as of October 2019. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Terms and Conditions. Aggregate loan limits apply.
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