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Student Loans

Think Before You Borrow

Student loans can help make college a reality. However, unlike grants, scholarships, and work-study, student loans are a form of financial aid that must be repaid with interest. As with any debt, you must repay your student loans; even if you don’t complete your education, you’re not satisfied with your education or you don’t find employment after you graduate. Failure to make regular monthly payments could result in a defaulted student loan, which could have a serious impact on your credit score.

As with all loans, you must repay what you borrow (the principal) plus interest (a percentage of the principal). Each payment is divided up to pay:

• Any late charges or collection costs.
• Interest accrued (or built up) since the last payment.
• Possibly part of the principal.

Not all student loans are alike. 

Federal Student Loans

Federal Student Loans are an option provided by the U.S. Department of Education. Federal student loans offer deferred payments and fixed interest rates, and for some students even a subsidized interest (no interest while in college) rate while in-school. The application process for federal student loans is done through the Free Application for Federal Student Aid (FAFSA) and accepted through the institution’s financial aid office. Click here for more information on Federal Student Loans. 

Private Student Loans

Private Student Loans are offered by various private lenders, banks, and credit unions. Depending on a lender’s qualification requirements, private loans may be a better fit for some students and parents. Each lender has a different set of criteria, which, when qualified, can offer students and parents better interest rates and payment options. Click here for more information on private loan options.

Steps to Paying for College

Students and families should work with financial aid professionals at their respective colleges and universities to explore and exhaust all sources of financial aid. If borrowing is necessary, families should use the lowest-cost options first. For undergraduate students, the federal government offers student loans with the lowest rates and benefits and protections that are not available through private lenders. 

Compare Student Loan Options

	Federal Loans	Private Loans
Available From	U.S. government	Private lenders like banks, credit unions, and savings and loans
Interest Rates	Fixed Generally lower than private loans Some loans do not accrue interest until repayment begins	Fixed or variable Generally higher than federal student loans but can be lower than the Parent PLUS loan
Repayment	Deferred while enrolled at least half-time in college Interest may accrue on certain loans	May or may not be deferred while in school
Application Process	Must file a Free Application for Federal Student Aid (FAFSA) No cosigner required No credit check necessary with the exception of PLUS loans	Obtain an application from the lender May need to file a FAFSA May need a cosigner Likely subject to a credit check

Can You Afford the Debt?

When considering a loan also consider whether you’ll be able to repay it. Keep in mind that you may have to continue borrowing student loans each year that you’re in school. Your student loan payment obligation will reduce what you can spend in the future on a car, home, furniture, other living expenses, and family. It’s important to keep your borrowing to a minimum. Before you take out a loan, make sure you’ve considered all possible options for funding your education. Search for additional scholarships, consider a part-time job, or talk to your financial aid office.

To understand the long-term impact of your borrowing decisions ICAN recommends the Student Loan Game Plan, a free, interactive online tool that helps students understand ways to borrow less and set the foundation for a financially responsible future. Through a series of questions, the Student Loan Game Plan can help students and families understand the consequences of over borrowing and, just as importantly, discover how to avoid over borrowing. To begin, visit www.iowastudentloan.org/gameplan.

Remember the 1% rule.

Students often find it easier to borrow now and worry about it later. Student Loan Game Plan uses several methods to help borrowers understand the consequences of over borrowing. Remember the 1% rule. Figure 1% of your total amount borrowed as your monthly payment for 10 years after you finish school.

If you borrow $50,000 total, your monthly payment will be approximately $500 per month for 10 years.

Find Out About Loan Cancellation and Forgiveness Programs

If you work in certain fields, some of your loan debt may be forgiven or reduced.

• Federal Teacher Loan Forgiveness Program
• Federal Perkins Loan Cancellation & Discharge
• Teacher Education Assistance for College and Higher Education (TEACH) Grant Program
• Public Service Loan Forgiveness
• NURSE Corps Loan Repayment Program
• Federal Perkins Cancellation for Nurses
• Iowa Health Care Award Program
• Attorney Student Loan Repayment Program
• John R. Justice Student Loan Repayment Program