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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). When you make payments, each check 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 US Department of Education. Federal student loans offer deferred payments and fixed interest rates, and for some students even a subsidized interest 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.

Borrowing Order of Student Loan Options

Start Here!

For undergraduate students, the federal government offers student loans with the lowest rates and benefits and protections that are not available through private lenders. The current interest rate for Federal Stafford Loans is 5.05% and is a fixed rate.

Need More?

Private lenders currently offer rates lower than the Federal Parent PLUS loan. There are many options for a private student loan. Currently the lowest rate loan is offered by Iowa Student Loan. Iowa Student Loan offers private loans for students with cosigner(s) or parents can borrow on the students' behalf. These loans are subject to credit approval. Current interest rates range from 5.56% to 6.85% and are fixed.

Last Resort.

Parents can borrow a Federal PLUS Loan on the student's behalf. Be aware that the Federal PLUS Loan has an upfront loan fee of more than 4%. The current interest rate is 7.60% and is a fixed rate.

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

Explore All Other Options

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.

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.

To understand the long-term impact of your borrowing decisions ICAN recommends the Student Loan Game Plan. The Student Loan Game PlanSM is 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 PlanSM 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.

Provide Solutions to Real Risks 

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 10% rule.

Figure 10% of your total amount borrowed as your monthly payment for 10 years after you finish school. Your borrowing should be limited to your first year’s starting salary. If in your first year you’ll make $30,000, you shouldn’t borrow more than $30,000, making your monthly payment will be approximately $300 per month for 10 years.

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