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College Students and Recent Grads

How to Transfer a Parent PLUS Loan to the Student: Is It Possible?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’ve taken out a federal parent PLUS loan to help a child pay for college, you may have already started making loan payments while your child is in school. Or, perhaps you’ve deferred the payment until after graduation.

When you borrow a parent PLUS loan, the money gets sent to your child’s school. However, as the borrower, you are legally responsible for repaying the loan.

Sometimes, a parent and child may have an arrangement where the child starts making payments or reimbursing a parent once he or she can afford it. However, these are informal arrangements and don’t reflect the legal liability that you have as the borrower. If you want the child to take on full responsibility for the loan, you’ll have to figure out a way to transfer the debt to the child’s name.

Can a parent PLUS loan be transferred to the student?

Yes, transferring a parent PLUS loan to a child is possible. However, the U.S. Department of Education, which issues parent PLUS loans and lends money to students for educational costs, doesn’t offer a way to transfer a parent PLUS loan.

Even if your child has his or her own student loans and is making monthly payments to the same loan servicer that you’re working with, there’s no way to transfer the parent PLUS loan to the child within the federal student loan system.

To transfer the debt, the child will need to qualify for and take out a loan from a private lender and then use the money to pay off the parent PLUS loan. The new loan doesn’t have to be a student loan. Children could take out a personal loan or use a cash-out refinance if they own a home, and then give the money to a parent to pay off the parent PLUS loan.

But there are student loan refinancing companies that let borrowers refinance a parent PLUS loan into the child’s name. The loan may remain a qualified educational loan, which means eligible borrowers may be able to deduct up to $2,500 in interest payment from their taxes each year. The refinancing company will also generally pay off the other student loans directly, rather than sending the borrower cash.

Steps for children who want to take over parent PLUS loans

If you’re a student or former student who wants to transfer a parent PLUS loan to your name, refinancing the loan with a private student loan refinancing company could your best option.

You can choose which loans you want to refinance, including some of your own student loans. Refinancing could even save you money if you can qualify for a lower interest rate, and combining multiple loans into one new loan can make managing your loans easier.

However, carefully consider your options before refinancing your federal student loans. After refinancing, your new private student loan won’t be eligible for federal repayment, assistance and forgiveness programs.

Whether or not you want to refinance your own loans, if you’re looking to transfer a parent PLUS loan, consider taking these four steps:

1. Review your budget

Refinancing your student loans could lead to lower monthly payments if you’re only refinancing your own loans. However, if you’re taking on additional debt by adding in a parent PLUS loan, your monthly payments may increase. You can use a student loan refinance calculator to estimate the change in your monthly payment amount.

Consider how your new monthly payments will impact your budget, and whether you’ll still be able to cover all your living expenses. If you don’t think you can afford all the payments, you may not want to transfer the parent PLUS loan.

2. Find lenders that offer parent PLUS loan transfers

Many lenders offer student loan refinancing, but some lenders only let your refinance your own student loans. If you want to transfer a parent PLUS loan, you’ll need to find lenders that let you include a parent PLUS loan into the child’s new loan. For example, CommonBond, SoFi and Laurel Road — some of the top private student loan refinancing companies — all offer parent PLUS refinancing that transfers the debt to the student.

3. See if you’re eligible

Once you’ve identified a few lenders that let you transfer parent PLUS loans, review their basic eligibility criteria to see if you’ll qualify for refinancing.

Your citizenship status, state of residence, whether you received a bachelor’s degree and how much debt you’re refinancing could impact your eligibility. Your monthly income could also be a factor, as lenders want to be certain you can afford your loan payments.

Additionally, your credit history and score can determine whether a lender will approve your loan application and the terms it offers. Some lenders offer a soft credit preapproval, which lets you see if you qualify for refinancing and your estimated loan terms without affecting your credit score. With others, you won’t know what terms you’ll get until you apply.

You could check your credit score for free online to help estimate your chances of getting approved. Although lenders may use different credit scoring models to evaluate applicants, and a credit score isn’t the only important factor, you may need a minimum score of around 660-680 to qualify for refinancing from some of the top lenders.

You also may want to review your credit reports for negative marks. For example, regardless of your score, some lenders may not approve your application if you have recent collections accounts or a bankruptcy on your credit reports. You may need to wait until the negative items fall off your reports (which can take seven to 10 years), and can focus on building a good credit history with on-time payments.

4. Compare your loan offers and complete a loan agreement

Once you have a list of lenders that you think may be a good fit, you could start submitting applications.

When you submit a complete application for student loan refinancing, the resulting hard inquiry on your credit report could have a small, negative impact your credit score. And multiple inquiries can sometimes increase the damage. However, multiple hard inquiries from student loan applications that occur within a 14-day period (depending on the type of credit score) only count as one inquiry for scoring purposes. Therefore, shopping lenders and comparing offers during a short period could help you secure the lowest rate possible without causing excessive damage to your credit.

Once you figure out which offer is best, and if you decide to move forward, you’ll need to complete the application process. You may need to upload verification documents, such as recent pay stubs, tax returns or a job offer to verify your income. You’ll also have to sign the loan agreement, which you may be able to do electronically.

The private lender will then generally send payments to your loan servicer as well as your parent’s loan servicer to pay off those student loans. You should both continue making payments as usual until you’ve confirmed the original loans were paid off.

Pros of transferring your parent PLUS loans

Transferring your parent PLUS loan to a child may offer several benefits for both parties.

The debt will no longer impact the parent’s eligibility for financing. Decreasing the debt that’s in the parent’s name will lead to a lower debt-to-income ratio, which can help the parent qualify for loans and lines of credit at lower rates.

The child may be making the loan payments anyway. If you have an informal agreement that the child makes the loan payments or reimburses the parent, transferring the parent PLUS loan will let the legal responsibility match your arrangement.

The child can build credit. After transferring the loan, the child can build his or her credit by making on-time loan payments. However, a late payment could now hurt the child’s credit.

The loan’s interest rate could drop. Depending on the loan offers that the child receives, the refinanced loan could have a lower interest rate. A lower rate could lead to lower monthly payments and long-term savings.

Cons of transferring parent PLUS loans

There are also potential drawbacks to transferring your parent PLUS loans. Consider these carefully, because you can’t undo the transfer once it’s complete.

The borrower loses access to federal programs. Private student loans aren’t eligible for federal repayment plans, forgiveness programs or forbearance and discharge options. Therefore, if you’re having trouble making payments, you may have fewer options when dealing with your private lender.

The child might not qualify for a good rate. If the child doesn’t qualify for an equal or lower interest rate, the long-term cost of repaying the loan could increase. When there isn’t a pressing reason to transfer the loan, you may want to wait to refinance while the child builds their credit.

Additional parent PLUS loan repayment options

If your child doesn’t qualify to refinance the parent PLUS loan in his or her name, or you decide against the transfer for another reason, there still may be other options for your loan.

Consider a different federal repayment plan

If you’re struggling to afford monthly parent PLUS loan payments, you may want to consider switching your repayment plan. The graduated plan starts with a lower rate, which usually increases every two years. There’s also an extended plan, which increases your term to 25 years, versus 10 with the standard or graduated plans, and leads to a lower monthly payment (but more interest paid over time).

Parent PLUS loans borrowers are also eligible for the income-contingent repayment (ICR) plan, if you first consolidated your parent PLUS loan (or loans) into a federal direct consolidation loan. The ICR plan will adjust your monthly payments based on your discretionary income, and any remaining balance will be forgiven after you make payments for 25 years. You may, however, have to pay income taxes on the forgiven amount.

Look into federal forgiveness and discharge options

Parent PLUS loans are eligible for some of the same federal cancellation and discharge programs as federal student loans lent directly to students. For example, the debt may be discharged if your child’s school closed and he or she wasn’t able to complete the program.

You could also get part of the loan forgiven through the Public Service Loan Forgiveness. You’ll need to consolidate your loan and switch to the ICR plan specifically. To qualify, you (not your child) must work for an eligible employer, such as a government or nonprofit tax-exempt 501(c)(3) organization, and make 120 qualified monthly payments.

Additional student loan forgiveness or repayment programs

There are a variety of federally funded and private student loan repayment assistance (LRAP) programs that could also help you with your loan. Many of these programs are targeted at people in specific professions, such as those who work in health care, law or the military. And there may be additional requirements to work in high-need areas. Depending on the program, you may receive an additional signing bonus or annual stipend that will be sent to your loan servicer to repay your student loan.

Refinance the loan in your name

Just as your child may be able to refinance his or her student loans, you may be able to refinance your parent PLUS loan with a private lender. You may be able to qualify for a lower interest rate or change your loan term, which could lower your monthly payment and may save you money over the lifetime of your loan.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

Education Loan Finance: Student Loan Refinance Review

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

As long as you qualify to refinance your student loans, you may be able to combine multiple student loans into one new loan, lower your interest rate and decrease your monthly payment. Doing so could save you money and make it easier to manage your loans. But remember, if you want to refinance your student loans, you can shop around to make sure you find the best deal.

Student loan refinancing companies may offer you different interest rates, loan terms and benefits, which is why it can be important to compare lenders before deciding which one to use.

What is Education Loan Finance?

In 2012, SouthEast Bank was bought by Education Services of America (also known as Edsouth Services), a nonprofit that’s been in the student loan space for 30 years. SouthEast Bank went on to create Education Loan Finance, or ELFI, a division of SouthEast that offers student loan refinancing. ELFI is based in Knoxville, Tenn., which is also where the customer service representatives are based.

ELFI prides itself on its decades of experience in the student loan industry and the positive reviews it receives from borrowers. It has a student loan refinancing product for graduates, and for parents who took out federal student loans to pay for their child’s education. The program we’re reviewing here is for students who are refinancing their loans.

Education Loan Finance student loan refi in a nutshell

Fixed APR range

3.09% to 6.69%

Variable APR range*

2.69% to 6.01%

Loan terms offered

Five, seven, 10, 15 and 20 years

Fees

The are no application, origination or prepayment fees.

The late fee is the lesser of $50 or 5% of the amount past due.

There’s a $30 returned check or insufficient funds charge.

Maximum loan amount

You must refinance at least $15,000 in student loans. The maximum loan amount varies by applicant.

Cosigners

You can apply with a cosigner.

You can reapply to refinance the loan in your name and release a cosigner.

Savings opportunities

None

Other perks

ELFI will mail you a $100 bonus if you accept your loan offer within 30 days of your application date.
You can earn $400 for referring new ELFI customers.

*Although the interest rate will vary after you are approved, the interest rate will never exceed 9.95% for the 5-year, 7-year, 10-year, 15-year, or 20-year term.

What it takes to qualify with Education Loan Finance

Credit score

680

Income/employment

You or your cosigner must make at least $35,000 a year.

Loan types

  • Federal and private student loans

  • Parent PLUS loans that were taken out to pay for your education.

School/state eligibility

You must graduate with at least a bachelor’s degree from one of the approved post-secondary institutions.

Available to residences of every state, Washington, D.C. and Puerto Rico.

How Education Loan Finance compares with other lenders

You may find that there are a lot of different lenders that offer student loan refinancing. ELFI stands apart from some of the other top lenders with its relatively low interest rates and somewhat strict eligibility requirements.

In general, if you can qualify, ELFI may be one of the better options because the lender doesn’t seem to sugarcoat its offering. For example, ELFI doesn’t offer an interest rate discount if you sign up for automatic payments. Other lenders may offer you a discount, such as 0.25% off your interest rate, while you’re using autopay — and they may advertise this lower rate on their website.

While the lack of a discount may sound like a drawback, it isn’t necessarily a bad thing. If ELFI approves you for a lower rate than other lenders, then you’ll receive this lower rate whether or not you use autopay.

There are other potential advantages and drawbacks to consider as you’re comparing lenders.

Advantages of refinancing with Education Loan Finance

Soft credit pull preapproval. You can check your eligibility and get estimated loan rates with a soft credit check, which won’t hurt your credit score.

Open to residents of every state. While other lenders aren’t able to offer refinancing to residents of some states, ELFI’s refinancing is available to everyone in the U.S.

You can include multiple types of student loans. ELFI lets you combine your federal and private student loans. You can also include a parent PLUS loan, as long as your parent took out the loan to pay for your education.

Forbearance option. You may be able to put your loans in forbearance and temporarily stop making payments for up to 12 months. Eligibility is handled on a case-by-case basis.

Up to a 20-year loan term. ELFI offers five loan terms with both its variable- and fixed-rate loans. While the longest, a 20-year term, may lead to paying more interest over your loan’s lifetime, it may also lower your monthly payment. Having that option is a plus because some lenders don’t offer a 20-year term.

Bonus opportunities. ELFI offers three potential bonuses: a $100 bonus if you’re referred by an ELFI borrower, an additional $100 bonus if you accept a loan within 30 days of submitting your first application and $400 for each new ELFI borrower you refer.

Drawbacks of refinancing with Education Loan Finance

You must earn at least a bachelor’s degree. Other lenders may let you refinance your student loans once you earn an associate’s degree, or if you didn’t graduate.

No cosigner release option. If you add a cosigner to help you qualify for refinancing, or secure a lower interest rate, you may want to remove the cosigner later. Some lenders let you apply for a cosigner release (removing the cosigner without refinancing) after making a series of consecutive on-time payments. While you may need to agree to a credit check and meet all the requirements to take over the loan on your own, you’d keep the original loan terms if you qualify. ELFI does not offer such a cosigner release option.

The only way to remove a cosigner from an ELFI loan is to refinance again, without a cosigner. However, interest rates may have risen since you originally refinanced.

There isn’t a clear policy for death or permanent disability discharge. Some other lenders will always discharge the remaining loan balance if the borrower dies or becomes completely and permanently disabled. ELFI doesn’t have a clear policy and handles situations on a case-by-case basis.

Relatively high minimum credit score requirement. ELFI requires a 680 credit score, which is in line with some other refinancing companies, but a bit higher than a few other lenders that only require a 660 to qualify.

Relatively high minimum income requirement. ELFI requires you, or your cosigner, make at least $35,000 a year to qualify for refinancing. Some lenders only require a $24,000 a year income or don’t have an explicit minimum income requirement.

$15,000 minimum loan requirement. Other lenders may let you refinance as little as $5,000 in student loan debt, but ELFI requires you to refinance at least $15,000.

Who is Education Loan Finance best for?

Since it won’t hurt your credit, there’s no downside to applying for preapproval with ELFI to see if you qualify and check your estimated rates. Even so, the lender may be a better fit for some types of borrowers.

Creditworthy applicants with a high income relative to their debts may pass the eligibility requirements and lock in one of ELFI’s low interest rates. These types of applicants may get the best rates from many student loan refinancing lenders, but they they may not be eligible with other lenders based on where they live or which loans they want to refinance.

ELFI may not be the best option if you need a cosigner because it doesn’t offer a cosigner release, unless you reapply for refinancing again with either ELFI or a different lender. It also might not be a great fit for those who don’t have a lot of outstanding private student loan debt.

Borrowers may want to only refinance their private student loans to avoid losing the benefits on their federal student loans. But ELFI’s $15,000 minimum threshold could be difficult to reach with just your private student loans.

Education Loan Finance

LEARN MORE Secured

on Education Loan Finance’s secure website

Taking a closer look at the online platform

Education Loan Finance’s website is intuitive to navigate and focused on its student loan products. There are pages devoted to each product, a few pages about the company or recent company-related news, a blog with personal finance posts and a page with testimonials.

There is also a calculator, several checklists that you can review to see if you’ll be eligible for refinancing and to prepare for the application process and an FAQ page. The FAQ page is broken down into six sections, ranging from general questions to sections about rates or the ELFI bonus programs.

Starting an application is also simple — we detail the process below — and if you want to take a break and start again later, you can log in to your account and pick up wherever you left off.

The fine print

There are a few fine-print items that were fairly easy to find on ELFI’s website. There’s a page with a list of the approved postsecondary schools, as well as a document checklist you can reference to see what you should gather before applying.

The terms page is also helpful, as it has an overview of the potential loan fees, interest rate amount, variable-rate interest rate cap, eligibility requirements and repayment options.

However, there were also a few fine-print items that were difficult to find on the website. A representative from the company confirmed the 12-month potential forbearance period and the case-by-case nature of the death or permanent disability discharge.

What to expect during the application process

ELFI’s online application process straightforward, and you may be able to complete it in just a few minutes.

Create your account

You’ll need to create an account to start your application. After entering your name, email address and password, you’ll be sent an email with a verification code. Submit the code, and you can then fill out your profile with your:

  • Name, address, date of birth and citizenship status
  • The school you attended, highest degree you attained and date of graduation
  • Your Social Security number
  • Whether you own a home, rent or live with family, as well as your monthly housing expense
  • Your gross income
  • The loan amount you’re requesting

You also must agree to a soft credit pull and read the Education Loan Finance’s communication policy before continuing.

Choose a loan term

If you qualify for preapproval, you can now choose between a fixed- or variable-rate loan with a term of either five, seven, 10, 15 or 20 years. You’ll see an estimated interest rate and monthly payment for each loan type.

The final loan offer may vary from these preapproval rates, and you can choose a different interest-rate type and loan term later if you want.

Complete your profile

The next step is to complete your profile by entering your mailing address and choosing three security questions and answers.

Read the loan disclosure forms

There are three loan disclosure forms you must read, and acknowledge that you read, before continuing:

  • The federal loan disclosure form goes over the differences between federal and private student loans.
  • The application disclosure fixed-rate form discusses the fixed-rate loan that Education Loan Finance offers. It will tell you your potential interest rate range, the fees associated with the loan and eligibility requirements, and it has examples of repayment times and amounts.
  • The application disclosure variable rate form is similar to the fixed-rate form, but for Education Loan Finance’s variable-rate loans.

Apply for refinancing

Once you reach this point, you can complete the official application for refinancing. Some of the information will be filled in for you based on what you’ve already entered.

  1. Borrower information. Much of this section will be filled in already, but you may need to add your driver’s license number/state and how long you’ve lived at your current address. If you’ve lived there for fewer than two years, you’ll also need to add your previous address.
  2. Reference information. You need to have two references who are at least 18 years old, don’t live with you and aren’t your cosigner. You’ll have to share the reference’s name, email address, phone number, mailing address and how you know the person.
  3. Employment information. Choose your employment status and then complete the related information about your employer, or how long you’ve been unemployed or retired. If you’re employed, you’ll also be asked to share the company’s address, how many years you’ve worked for the company and your income. You can also add additional sources of income, which may help you qualify for refinancing.
  4. Review application and approve hard credit pull. The fourth step asks you to double-check all your information and then authorize a hard credit pull. A hard pull could affect your credit score.
  5. Student loan information. You’ll need to share information about the student loans that you’re refinancing and may need to upload copies of recent billing statements or payoff letters. The documents should show the loan servicer’s name and address, your account number and the current balance or payoff amount.
  6. Rates. Choose the interest rate type and loan term that you want for your new loan.
  7. Documents. The documents step is where you’ll find copies of the disclosures you previously read. This is also where you can upload additional documents, such as pay stubs or tax returns to verify your income, or a copy of a government-issued ID to verify your identity.

Once you finish the seven steps, ELFI can use the documents you uploaded to verify your eligibility for the loan you chose. You can then sign the promissory note for the new loan to complete the process.

It can take about 30 to 45 days for your current loan servicer(s) to receive the payments for your student loans. You should continue making your loans payments as usual during this period to avoid missing a payment. And don’t worry, if you overpay your loan, the overpayment will decrease your loan balance with ELFI.

If you refinance with ELFI, a company named MOHELA will service your loan. MOHELA should reach out to you so you can set up an account, and you’ll send your monthly payments to MOHELA.

How to compare student loan refinance companies

There are many factors to consider when comparing student loan refinancing companies. The most important ones may be the eligibility requirements so you can rule out potential lenders, and the interest rates that the lenders offer you. The lower your interest rate, the greater your potential savings.

However, there may be other details to compare as well. For example, some lenders may not offer a 20-year term, which you may want if you’re looking to lower your monthly payments. And there are lenders, including SoFi and CommonBond, that give borrowers extra perks, such as invitations to exclusive events.

You can quickly compare lenders’ maximum loan terms, interest rate ranges, maximum loan amounts and transparency scores on MagnifyMoney.

But determining which lender is best for you depends on your circumstances. Once you find a few lenders you think may be a good fit, look to see if they offer a soft credit check preapproval so you can compare estimate interest rates.

Once you’re ready to refinance, submit applications to all the lenders on your short list. Although each application could result in a hard inquiry, which may hurt your credit score, multiple student loan inquiries won’t increase the impact if they occur within a 14-day period. Some, depending on the credit-scoring models, offer a longer “rate shopping” period, but to be safe, it’s a good idea to shop around in as short a period as possible.

After completing the applications, you can compare the official loan offers from each lender and decide which option is best. If you want to see how the different loan offers may affect your savings, you can plug the numbers into our student loan refi calculator.

 

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

The Ultimate Guide to Paying Off Big Grad School Loans

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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A graduate degree can open up new doors and may lead to higher annual earnings. But earning a degree generally isn’t cheap.

According to the College Board, as of the 2016-2017 academic year, the average graduate student borrowed $42,710 in federal student loan to pay for that year’s schooling — more than six times the $6,590 that the average undergrad borrowed. (Although, on average, parents also borrowed $15,880 to help pay for a child’s undergraduate education.)

And that’s not including any private loans students may have obtained along the way. By the time graduate students finish their degree, they may have a combination of undergraduate and graduate student loans to repay.

Tackling these student loans can be a daunting task, but having a plan could help diminish some of the fear or anxiety that may arise. Here’s a guide to help you navigate the process. You may even learn a few tips or strategies that could save you money or make your monthly payments more affordable.

Get organized and understand your grad school loans

Getting a clear understanding of all your student loans can be an important first step. You may want to start listing your student loans alongside important information for each loan.

Write down the name of the loan servicer, the loan type, the loan amount, remaining amount due, your monthly payment, the loan’s interest rate and whether the loan has a fixed or variable interest rate. Using a spreadsheet could be helpful, as you can then quickly arrange the loans by different criteria, such as the remaining amount due or interest rate.

You may then want to separate your loans into two groups — federal and private student loans — and further separate your federal loans by the federal loan type. These can be important distinctions and you may want to take different approaches to different types of loans.

The different types of student loans

You may have one or more of the following types of student loans:

Private student loans. A variety of institutions offer private student loans, including banks, credit unions, schools, states and online lenders. If you applied for a student loan without first filling out the Free Application for Federal Student Aid (FAFSA), then you took out a private student loan.

Some private student lenders outsource their loan servicing to a third party and the company you make your monthly payments to may not be the same company that lent you the money. You may need to contact that loan servicer, review a recent statement or check your account online to get information on your private student loans.

Federal student loans. The Department of Education offers federal student loans to undergraduate and graduates students, as well as parents of students. The federal government funds the loans, and there have been several different federal student loan programs over the years.

You may have different types of federal loans, including ones from your undergraduate degree. Some of the federal student loans also go by several names. Your loans could include:

  • Direct loans, which may be direct subsidized loans, direct unsubsidized loans, direct consolidation loans, and direct PLUS Loans (also known as grad PLUS loans when offered to a graduate or professional student).
  • Perkins loans
  • Federal Family Education Loan (FFEL), which may include subsidized and unsubsidized Stafford loans, FFEL PLUS loans, and FFEL consolidation loans.

Your federal student loans may be serviced by one or more of the 10 loan servicers that the education department contracts to collect payments. However, you can log into the National Student Loan Data System (NSLDS) to get an overview of all your federal student loans.

Know your options

Once you’ve got your loan information organized, learn about your options for loan forgiveness and repayment. You may be able to use one or more of the programs below to help manage your payments and ultimately get rid of your graduate school debt.

Federal student loan forgiveness programs

Several loan forgiveness programs are exclusively for federal student loans. However, your eligibility may depend on the type of federal loan you have, and you may need to meet other requirements to qualify.

For example, the federal Public Service Loan Forgiveness (PSLF) is only available for direct loans. With PSLF, you’ll have to make 120 qualifying monthly payments while working full time at a qualifying employer to get the remainder of your direct loan forgiven. Our guide to applying for PSLF has more details on determining if your loans qualify and how to get started.

Consolidate your federal loans

You may be able to consolidate your federal student loans into a direct consolidation loan. Consolidation lets you combine multiple loans into a new loan that’s part of the direct loan program.

Consolidating your loans may not save you money because the new loan has the weighted average interest rate of your existing loans. In some cases, since your loan term could be extended, it may even result in you paying more in interest over the lifetime of the loan.

However, consolidation could make managing your loans easier since you’ll have fewer monthly payments to manage, and it could give you access to repayment plans and forgiveness or cancellation programs that are only available to direct loans.

Federal repayment plans

Although you may wind up paying more in interest in the long run, switching repayment plans could lower your monthly payments and make managing your finances a little easier.

Student loans start with a 10-year standard repayment plan. You could change to a graduated repayment plan, which also has a 10-year term but the payments start low and gradually increase. The extended repayment plan, which has a 25-year term, is another option.

There are also income-driven repayment plans that base your monthly payment amount on how much money you earn. An income-driven plan could greatly decrease your monthly payments if you’re not making a lot of money. Plus with four of the plans, the education department will forgive your remaining balance after you make payments for 20 or 25 years on an income-driven plan.

Career-based forgiveness programs

You may be eligible for a variety of loan forgiveness or repayment programs from government or private organizations. Unlike the federal forgiveness programs, your private student loans may also be eligible for some of the programs.

The career-based programs can help you repay undergraduate and graduate degree loans, but they are generally limited to a few qualifying professions, some of which require an advanced degree. These are often service-oriented jobs, such as teachers, attorneys, military members and healthcare professionals.

You may also need to work in a high-need area, such as a federally designated health professional shortage area, for at least a year to qualify for loan repayment assistance.

Employer-based repayment programs

Some employers offer student loan repayment assistance programs (LRAPs) as an employee benefit. The specifics of the programs and the amounts vary, but some employers offer monthly payment toward your private or federal student loans.

Design your repayment road map

Once you know your options, you can start designing your plan for repaying grad school loans and any remaining undergrad debt. Here are a few of the questions you may want to ask yourself:

Which loans should you try to pay off first?

If you’re focused on paying off your graduate student loan debt ahead of schedule, you may want to organize your loans based on which one you want to pay off first.

For example, you could try to pay off the higher rate loans first, which could save you money on interest in the long run. Or, you may want to focus on your private student loans first, since those generally offer fewer options to borrowers who are having trouble making payments.

Should you consolidate your federal student loans?

Consolidating your federal student loans could be a good first step, but there are several pros and cons to consider.

Pros to consolidating your federal loans

  • It may be easier to manage your monthly loan payments if you only have one loan.
  • You can choose your new loan servicer.
  • Non-direct loans, such as FFEL loans, could be eligible for PSLF after consolidation.
  • The consolidated loan may be eligible for more income-driven repayment plans than your previous loans.
  • You may be able to take a loan out of default by consolidating it.
  • The consolidated loan will have a fixed interest rate (some previously issued federal student loans had variable rates).

Cons to consolidating your federal loans

  • If you consolidate all your federal loans, you won’t be able to make extra payments on the loan that has the highest interest rate.
  • You may lose progress you’ve made toward a federal loan forgiveness program.
  • If you consolidate all your loans, and then default on your loans, you won’t be able to consolidate again to take them out of default.
  • Consolidating could increase your loan term, and may lead to paying more interest over time, unless you make more than the required monthly payments.
  • You may lose interest rate discounts or rebates that you had on your loans.

Consider the pros and cons, as well as your circumstances, before rushing to consolidate your federal student loans. You can also pick and choose which loans you want to consolidate. For example, you could only consolidate your relatively low-interest-rate loans. Then, you can still make extra payments on your higher-interest loans.

Does it make sense to refinance any loans?

Private lenders offer student loan refinancing, which involves taking out a new loan to pay off one or more of your existing student loans. Depending on the lender and your creditworthiness, you may be able to qualify for a lower interest rate, which could save you money.

Even if you considered refinancing in the past, and weren’t able to get a good rate, you may want to revisit the option. Your credit score may have risen if you’ve been making your credit card and loan payments on time, and your debt-to-income ratio may be lower if your graduate degree helped you secure a higher paying job. Both of these factors can help you qualify for a better rate.

When you refinance, you can often choose your new loan’s term. A longer term can lead to lower monthly payments, but also paying more in interest over the lifetime of the loan. A shorter term could help you get a lower interest rate, but your required monthly payments could increase.

Keep in mind, there’s no prepayment fee for student loans. So, even if you refinance with a longer term and have a lower required monthly payment, you could pay extra and repay your loans early.

Your new loan may maintain its status as an educational loan, which means you may still be eligible for a tax deduction. However, once you refinance a student loan, it will be a private student loan. As a result, the loan won’t be eligible for any of the federal loan forgiveness, cancellation, discharge or repayment programs.

One option could be to only refinance your private student loans. Or, you may find it makes sense to refinance a few federal loans that have a higher interest rate, such as your grad school loans, while leaving other federal loans untouched.

If you do decide to refinance your student loans, comparing lenders can be a good idea since different lenders may offer you different interest rates, loan terms and benefits.

Strategies for getting ahead of graduate student debt

Being proactive and following through on your road map could help you repay your loans early. Here are a few strategies and tips that could help:

Create a budget and look for ways to save

A budget is a tally of your income and expenses broken down by category, and many free and inexpensive apps can help you with the tracking and organization. Knowing where your money comes from and goes to each month can be an important step in getting your finances in order, and may provide insights into savings opportunities.

For instance, you may find that you’re spending a lot of money eating out each month or paying for subscription services you rarely use. Cutting back on these expenses could help you free up money that you can then put toward your student loans.

Increase your income: negotiate a raise, change jobs or find a side gig

While saving money can help you pay down loans, there’s usually a limit to how much you can cut back. On the other hand, you may be able to greatly increase your income, maintain your standard of living and make big strides in paying down your debt.

While it’s not necessarily a quick or simple process, negotiating a raise is one way to increase your income. Alternatively, you may be able to get a higher pay increase if you’re open to changing companies or finding a new job in your field.

In the meantime (or in addition) you could get a side gig to earn extra money. There are a number of opportunities, ranging from turning a hobby into a source of income, to using one of the many “sharing economy” apps. You also may be able to leverage the specialized knowledge you obtained while earning your graduate degree, and use the side gig experience to build your resume or help make your case for why you deserve a raise.

Make (targeted) extra payments

Research how your student loan servicer will apply additional payments to your loans before you send a payment. Some servicers may split the payment amount between all your loans or use the money to prepay next month’s bill unless you specify how you want them to apply the payment. And, even if you don’t owe anything next month, they may still withdraw money from your account if you signed up for autodebit.

Whether you’re paying extra each month, or get a large gift, bonus or tax refund that you want to use to repay student loans, you want to make sure the payment aligns with your strategy. Ask your loan servicer how you can ensure this happens, and check your loan balances after you send in payments to make sure they were applied correctly.

Ask for help if you are struggling

While your aim may be to quickly pay down your grad school loans, you could find yourself falling behind on payments or struggling to meet all your financial obligations. If this happens, reach out to your student loan servicer and ask about your options.

You may be able to switch repayment plans, or the servicer may allow you to temporarily stop making payments while you get your finances in order. However, if you miss a payment, you may wind up having to pay late fees and hurting your credit.

Keep your entire financial situation in mind

You might be focused on paying off your grad school debt as quickly as possible, and that’s a commendable undertaking. However, consider your grad school loans within the context of your entire financial situation.

In some cases, you may want to start by paying down other, higher interest debt before your student loans. Doing so could free up the money you’d been spending on interest payments, which you can then use to pay off your student loans.

Building an emergency fund could also be a priority, as it can help you weather a financial setback without having to take on additional high-interest debt.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

4 Student Loan Refinancing Companies for Medical Residents

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Medical students may look forward to a high income and bright financial future. But the path to becoming a doctor often requires students to take on a lot of student loan debt — 75 percent of graduating medical students in 2017 had education debt, and the median debt balance was $192,000 (including undergraduate loans).

Graduating medical students generally don’t jump right into a high-income job, either. After graduating, the next step to becoming a doctor is a residency and/or fellowship program, and for the 2016-17 academic year, the starting median income for residents was $53,580. On top of that, a residency or fellowship can take three to seven years to complete, depending on your focus and specialization.

However, your student loan payments may begin after your loan’s grace period ends, generally six to nine months after graduation.

Managing student loans during your residency

Medical residents may have several options for handling their student loans during their residency and fellowship programs:

  • Start making full payments. If you can afford to make full principal and interest monthly student loan payments, paying down your loans now could help reduce the total amount of interest you pay. However, a medical school graduate’s monthly payments could be thousands of dollars, which might not be manageable on a resident’s income.
  • Switch repayment plans. Residents with federal student loans may be able to switch to a different federal student loan repayment plan and significantly lower their monthly payments compared with the standard federal repayment plan. Lower payments can lead to paying more overall but can help you manage your budget.
  • Defer payments. You may be able to put federal and private student loans into deferment and temporarily stop making payments while you’re a resident. However, interest will continue to accumulate, and this option could significantly increase your total cost of borrowing.
  • Refinance and repay your loans. Refinancing your student loans could lower your interest rate, which may decrease how much interest accumulates while you’re a resident and lower your monthly payments. Some medical residency refinancing programs also let you make preset, low monthly payments while you’re a resident or fellow.
  • Understand how interest accrues and capitalizes. When you defer payments, interest will continue to accumulate on your loan balance. The same may be true if your refinance your loans with a residency loan and the monthly payment doesn’t cover the interest that accrues each month.

Generally, the interest won’t compound, meaning you won’t get charged interest on your interest. However, the interest gets capitalized — added to your loan’s principal — once you start making full payments. As a result, your principal debt load could increase during your residency unless you make additional monthly payments to offset the interest accumulation.

4 companies that offer medical residency refinancing

Many companies offer student loan refinancing. However, there are only a few that have specialized refinancing programs for medical residents and fellows.

LenderVariable APR*Fixed APR*TermsMinimum loan amountMaximum loan amount 
SoFi

3.14%-8.01%**

3.50%-7.75%

5-20 years

$10,001

Total eligible loan balance

LEARN MORE Secured

on Sofi Bank’s secure website

3.55%-6.15%***

4.33%-7.27%

7-20 years

$5,000

Total eligible loan balance

LEARN MORE Secured

on Laurel Road’s secure website

Not available

3.91%-7.13%

7-20 years

$40,000

$450,000

LEARN MORE Secured

on LinkCapital ’s secure website

Not available

5.29%-5.44%

Up to 10 years

$25,001

$346,000

LEARN MORE Secured

on Splash Financial’s secure website

**SoFi variable-rate loans have an interest rate cap of 8.85% for five-, seven- and 10-year terms and 9.95% for 15- and 20-year terms.
***Laurel Road variable-rate loans have an interest rate cap of 9% for seven- and 10-year terms and 10% for 15- and 20-year terms.

Details on medical residency refinancing programs

SoFi medical and dental resident student loan refinancing

SoFi is an online-only lender that offers several types of loans and loan refinancing products. After taking out a loan from SoFi, you can take advantage of several SoFi membership benefits, including discounts on other types of loans and free career coaching services.

Why we like SoFi

SoFi offers the lowest potential APR of the four lenders we compared. It also doesn’t have a maximum loan limit and offers variable- and fixed-rate loans.

You can choose from five loan terms at SoFi, with a short five-year option that some other lenders don’t offer. While a shorter term will increase your monthly payment, it can decrease the total interest you pay.

You only have to make $100 monthly payments during your residency and for up to six months following the end of a four-year residency program.

If you think SoFi may be a good fit, you can pre-qualify online. SoFi pre-qualification involves a soft inquiry on your credit report, which won’t hurt your credit.

Eligibility requirements

To refinance medical school loans with SoFi, you must graduate with an MD, DO, DMD or DDS from an eligible school, currently be a resident or fellow and have up to four years left in an approved program.

You also must generally refinance at least $10,001 in eligible student loan debt (residency loans do not qualify). However, people who live in Connecticut and Kentucky must refinance a minimum of $15,001, and those who live in Pennsylvania must refinance a minimum of $25,001.

Residents of Mississippi, Montana and Washington, D.C., aren’t eligible for medical and dental resident student loan refinancing from SoFi.

There are also other general eligibility and underwriting requirements.

Where SoFi may fall short

Although SoFi offers the potential lowest APR and a variety of interest-rate types and loan terms, it may not be the best fit for everyone.

One potential drawback is that you can only make $100 monthly payments for up to 54 months, after which you’ll have to make full interest and principal payments. However, some residency and fellowship programs last longer than 54 months.

You can apply for refinancing with SoFi as soon as you match with your residency or fellowship program. But you’ll lose any grace periods your loans have and must start making $100 monthly payments once you get your new SoFi loan.

Laurel Road student loan refinancing for medical residents

Laurel Road is a Connecticut-based bank and online lender. Originally named Darien Rowayton Bank, the bank rebranded as Laurel Road in April 2018. Laurel Road offers student loan refinancing to students and parents, and it has a special product for doctors and dentists who are in a residency or fellowship program.

Why we like Laurel Road

With Laurel Road, you can apply to refinance your student loans as soon as you’re matched with a residency program. Laurel Road may honor your student loans’ grace periods, so you could lock in a lower interest rate as soon as you match and still delay making payments until after graduation.

You can choose from four loan terms — seven, 10, 15 or 20 years — and can pick between a variable-rate or a fixed-rate loan. Laurel Road also lets you prequalify with a soft credit pull, which allows you see estimated loan terms without hurting your credit.

Laurel Road may let you make monthly payments as low as $100 while you’re a resident or fellow, including up to six months after finishing your residency or fellowship.

Eligibility requirements

You must be a U.S. citizen or permanent resident with a valid I-551 card and have eligible student loans that are in their grace period or repayment. You’ll also need to pass Laurel Road’s credit check and underwriting requirements.

Laurel Road can refinance medical school loans in all 50 states, as well as Washington and Puerto Rico. You’ll need to refinance at least $5,000 worth of debt, and you can refinance up to your total outstanding federal and private student loan balance.

Where Laurel Road may fall short

Based on the rate ranges listed above, you may be able to qualify for a lower interest rate at other lenders. Laurel Road also doesn’t offer the $100 minimum monthly payment to all borrowers.

Beyond that, there aren’t any clear downsides to Laurel Road’s student loan refinancing for medical residents offering. However, it’s still generally a good idea to shop around and compare your loan offers before deciding which lender to use.

LinkCapital medical resident refinance loan program

LinkCapital is an online lender that focuses on health care professionals. It offers student loan refinancing to medical professionals and has two student loan refinancing products for medical residents.

The standard resident refinancing loan is for graduates who have only completed one year their residency program. The contracted resident loan is for residents and fellows who are in their last year of training and have a signed contract to start working within the next 12 months.

Why we like LinkCapital

LinkCapital’s standard residency refinance program lets residents make $75 minimum monthly payments for up to up to 72 months while they’re in an eligible residency or fellowship program. The contracted resident refinance programs lets you make $75 monthly payments for up to 12 months. You also may be able to continue making $75 monthly payments during a three-month post-training grace period with either program.

If you refinance your student loans with LinkCapital’s standard resident refinance product, you could receive an automatic interest rate reduction after finishing your residency program.

Eligibility requirements

You must graduate with a medical professional master’s or doctorate degree and complete at least one year of your residency program before you can refinance your student loans with LinkCapital. You’ll also have to pass a credit check and be a U.S. citizen.

Although you don’t have to refinance all your student loans, you must refinance at least $40,000 in eligible student loans with LinkCapital.

Where LinkCapital may fall short

LinkCapital only offers fixed-rate loans. While fixed-rate loans are less risky than variable-rate loans because their interest rate can’t change in the future, they also generally have a higher starting interest rate than variable-rate loans.

The minimum loan requirement may be too high for some applicants, particularly if they’re only looking to refinance their private student loans.

You also have to wait until the end of your first year of residency before you can refinance your student loans. You may be able to save money by refinancing your loans with a different lender before that point.

Unlike some of the other lenders on this list, LinkCapital doesn’t offer an option to check your eligibility or estimated loan offer with a soft credit pull.

Splash Financial medical resident and fellow refinancing

Another online lender, Splash Financial offers student loan refinancing and medical resident student loan refinancing.

Why we like Splash Financial

Splash Financial lets borrowers make $1 monthly payments during an eligible residency or fellowship program. You can continue making the $1 monthly payments for up to 84 months, the longest advertised partial-payment period offered by the resident refinance loans we compared.

The high end of the advertised APR is relatively low compared with competitors’ fixed-rate medical residency refinance loans.

Eligibility requirements

You must start your residency program before you can apply for student loan refinancing with Splash Financial. Approval for refinancing, and your terms, will depend on your creditworthiness.

To refinance your student loans with Splash Financial, you must refinance at least $25,001 and no more than $346,000 in eligible federal and private student loans.

Where Splash Financial may fall short

Splash Financial only offers fixed-rate loans for medical residents.

Splash Financial only offers loans with a 10-year term, which begins after you finish your residency and fellowship programs. Other lenders let you choose from a variety of loan terms, which can influence your interest rate and monthly payments.

Unlike other lenders, Splash Financial doesn’t offer pre-approval with a soft credit check.

Additional options for refinancing med school loans

In addition to the medical residency student loan refinancing programs, you may want to consider refinancing your student loans with a non-resident-specific program from one of the lenders below. Non-resident programs won’t let you make lower monthly payments during your residency, but they could still lower your interest rate and monthly payment.

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.40%% - 7.75%%


Fixed Rate*

2.63%% - 7.70%%


Variable Rate*

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on SoFi’s secure website

earnestA+

20


Years

3.25%% - 6.32%%


Fixed Rate

2.57%% - 5.87%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on Earnest’s secure website

commonbondA+

20


Years

3.20%% - 7.25%%


Fixed Rate

2.57%% - 7.25%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on CommonBond’s secure website

lendkeyA+

20


Years

3.15%% - 8.79%%


Fixed Rate

2.68%% - 8.06%%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan

LEARN MORE Secured

on LendKey’s secure website

A+

20


Years

3.37%% - 7.02%%


Fixed Rate

2.80%% - 5.90%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on Laurel Road Bank’s secure website

A+

20


Years

3.50%% - 8.69%%


Fixed Rate

2.62%% - 8.07%%


Variable Rate

$90k / $350k


Undergraduate /
Graduate

LEARN MORE Secured

on Citizens Bank (RI)’s secure website

A+

20


Years

5.24%% - 8.24%%


Fixed Rate

4.74%% - 7.99%%


Variable Rate

$150k


Undergraduate /
Graduate

LEARN MORE Secured

on Discover Bank’s secure website

4 student loan mistakes residents make

As a medical student or resident, you have a lot on your plate already, and dealing with student loans could be down low on your priority list. Or, you may find yourself going along with whatever a friend or colleague does instead of considering all your options and choosing the path that’s best for your situation.

We’ve compiled a few of the common mistakes that residents and fellows might make when it comes to their student loans. Ryan Inman, a fee-only financial planner for physicians, also shared some insights into the best ways to deal with your loans, based on his experience working with residents and doctors.

1. Misunderstanding Public Service Loan Forgiveness requirements

The federal Public Service Loan Forgiveness (PSLF) program may forgive your remaining federal student loan balance after you make 120 qualified payments while working full time at an eligible employer, which may include government and nonprofit clinics and hospitals.

Inman said doctors could get confused about all the requirements for PSLF, or think they’re eligible simply because of where they work. If you took out private student loans, or if you refinanced your student loans with a private lender, those loans won’t be eligible. The program only applies to certain types of federal student loans.

In addition to reviewing the types of loans you have, you may want to apply for PSLF and resubmit an employment certification form every year to help ensure that your employer qualifies.

If you’re certain you want to use the PSLF program and you’re planning on working at an eligible employer for at least 10 years, you should also compare your federal loan repayment plan options.

“Make sure you choose the repayment plan that will allow you to qualify while paying the least amount on your loans every month,” said Inman. You can compare estimated monthly payments with this online tool.

2. Choosing the wrong federal repayment plan

Your federal student loans may be eligible for several different federal student loan repayment plans, including four income-driven repayment plans that base your monthly payments on your income, family size and where you live.

Choosing the plan that leads to the lowest monthly payment may be ideal if you have a tight budget, or you plan to go for PSLF. But if you don’t plan to get PSLF, perhaps because you want to work in a private practice, then the best repayment plan may not be so clear.

“Knowing that you aren’t going for PSLF, you should generally go with the plan that gives the largest interest subsidy, which is REPAYE,” said Inman, referring to the Revised Pay As You Earn plan.

With REPAYE, if your monthly payment doesn’t cover all the interest that accrues on your loan, the government will pay at least half of the difference between your monthly payment and the interest accrual.

“That could add up to tens of thousands of dollars if the loan balances are high enough,” said Inman, “and interest subsidies are not available through some other income-driven plans.”

3. Rushing into refinancing

Carefully consider the pros and cons of refinancing federal student loans. Once you refinance your federal loans, you’ll lose access to federal repayment plans and forgiveness, cancellation and discharge programs. Private student loans already aren’t eligible for these plans or programs, so there’s potentially less to lose by refinancing those loans.

If you do decide to refinance, remember that you don’t need to refinance all your loans. You can pick and choose, and refinance the ones that have the highest interest rates.

Also, before rushing and choosing a variable-rate loan because it offers a lower initial interest rate, consider how rising interest rates could affect your payments and budget. Inman said, “In this low-interest-rate environment, fixed rates are relatively cheap and may be the best option for a new physician.” He thinks variable-rate loans generally only make sense if you plan to pay off the loan within five years.

4. Not shopping before refinancing

Inman said many physicians either don’t have the time to shop around when they’re refinancing their student loans or they aren’t interested in the fine print. But this can be a big mistake. “Shopping a few companies for the best rates is critical if you want to make sure you’re getting the best deal,” said Inman.

You could compare many details, such as the fees that the lenders charge. The four resident-specific programs above don’t have origination or disbursement fees, but some other refinancing companies might charge these.

You can also compare lenders’ other benefits or drawbacks, such as the interest-rate types they offer, the length of their loan terms, repayment-plan options while you’re a resident and how they handle cosigners.

Once you’ve compared all the terms, you can submit applications with several lenders to see which one offers you the lowest interest rate. While a loan application can hurt your credit score, some credit scoring models count multiple student loan applications within a short period of time as a single hard inquiry, allowing you to apply with several companies to see which will save you the most money.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

The Ultimate Guide to Student Loans in 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Student loans are loans that you take out to help pay for educational expenses, such as tuition, fees, room, board, equipment and transportation to and from school. This guide covers the ins and outs of federal and private student loans, explains how to apply for student loans, discusses which option may be best for your circumstances and offers several alternatives to borrowing money.

PART I: Understanding student loans

As with other types of debt, you must agree to repay the money, plus interest.

However, student loans can differ from other types of loans. They may have less stringent credit or income requirements for students, and you may be able to delay making payments until after you leave school.

How do student loans work?

You can apply for a student loan from the federal government or from a private lender. The eligibility requirements and application process (discussed in detail later) are different for federal and private student loans, but the overall student loan process can be similar.

After applying and getting approved for a student loan, the lender will often send the money directly to your school. The school applies the money to your account to pay for tuition, fees and other expenses. If there’s money left over, the school will issue you a refund which you can use for additional educational expenses, such as off-campus housing and food. You can also return the excess funds.

With federal loans, you’ll need to reapply for financial aid once every year to remain eligible; the policies of private lenders vary. You may need to reapply each term, apply once for an academic year or apply once and fund multiple years. However, with both federal and private student loans, the loan will generally be split up and disbursed (i.e. sent) to the school at the beginning of each term.

Terms and repayment options

Your repayment term — the amount of time you have to repay the loan — and repayment plans can vary depending on the type of student loan. Many student loans, including federal student loans, let you defer payments while you’re enrolled at least a half-time in an eligible program, as well as during a six-month grace period after you graduate, leave school or drop below a half-time schedule. However, some private lenders require borrowers to make at least interest-only or $25 monthly payments once the loan is disbursed.

Federal student loans automatically enter a 10-year standard repayment plan. However, you can switch to a different plan for free. Other repayment plans may give you more time to repay your loans, which can decrease your monthly payments but lead to paying more interest over the loan’s lifetime.

You may also be eligible for an income-driven plan that bases your monthly payments on your income, family size and where you live. An income-driven plan could even lead to $0 monthly payments, and the remainder of your loan balance might be forgiven after you make monthly payments for 20 to 25 years. There are also federal student loan forgiveness and cancellation programs.

Private loans aren’t eligible for federal repayment, forgiveness or cancellation programs, and often you’ll choose your loan’s term or be assigned a term when you apply. Some lenders have different repayment plans, but with others the only way to change your private loan’s term is to refinance the student loan.

Interest rates

The interest rate on your student loan can impact your overall cost of borrowing and your monthly payment amount. It’s important to understand how a lender determines your interest rate, how interest accrues on your loan and what your options are before agreeing to take out a student loan.

Congress sets the interest rate on federal student loans. All federal student loans have a fixed interest rate, meaning the rate won’t change once the loan is disbursed.

By contrast, private student loans’ interest rates can vary greatly. Lenders may offer different rate ranges, and the rate you receive will depend on your creditworthiness (or the credit of your cosigner). Private lenders also offer fixed- and variable-rate loans. Variable-rate loans are riskier because the interest rate can change in the future, but they can be enticing because they often offer a lower initial interest rate than fixed-rate loans.

Many federal and private student loans begin accruing interest as soon as the loan is disbursed. The interest will continue to accrue while your loans are in deferment or a grace period, and then it will be added to your loan’s principal balance (i.e. capitalized) once you enter repayment. When this happens, more interest may accrue each month, as your interest rate will now apply to a higher principal loan balance.

PART II: Types of student loans

Students loans fall into one of two general categories: federal or private student loans.

Federal student loans

Federal student loans can offer borrowers simplicity and savings compared to private student loans. Although there are differences depending on the type of federal student loan or the degree the borrower is pursuing, federal student loans have uniform eligibility requirements, interest rates, loan terms, benefits and repayment options for every borrower.

Private student loans

On the other hand, private student loans — and their eligibility requirements, interest rates, loan terms, benefits and drawbacks — can vary depending on the lender. Carefully research different companies’ policies and the fine print on their loan agreements before agreeing to take out a loan.

Often, federal student loans are the best first choice for borrowers because of their standard terms and low barrier to entry. Even if you could get a lower rate with a private student loan, federal loans’ flexible repayment options and eligibility for federal repayment plans and forgiveness, cancellation, deferment and forbearance programs can make them a better option. Private lenders may not offer or guarantee similar options.

PART III: Federal student loan options

What is a federal student loan?

A federal student loan is a loan that’s funded by the federal government. There are currently three types of federal student loans available to new borrowers through the William D. Ford Federal Direct Loan (Direct Loan) Program: Direct Subsidized Loans, Direct Unsubsidized Loans and Direct PLUS Loans.

There are also Direct Consolidation Loans, which allow borrowers to combine multiple federal student loans. Previous borrowers may also be repaying other federal student loans that are no longer available to new borrowers.

All three types of federal student loans have the same basic eligibility requirements, including being enrolled at least half-time or accepted into an eligible degree or certificate program. In addition, the application process always starts with the Free Application for Federal Student Aid (FAFSA).

However, these loans are not identical. They may have different annual loan limits, aggregate loan limits and credit requirements. Loan details, such as eligibility for different repayment plans, can also vary depending on the borrower — whether they are an undergraduate, graduate or professional student, or the parent of a student.

The loans may have different interest rates and disbursement fees, a fee that’s subtracted from the amount that’s sent to your school. These fees depend on the loan type, the type of borrower and when the loan is disbursed.

The federal student loan interest rates in this guide are for federal loans disbursed from July 1, 2017 to June 30, 2018. The disbursement fees apply to federal student loans disbursed from Sept. 30, 2017 to Sept. 30, 2018.

Direct Subsidized Loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Direct Subsidized Loans

4.45%

1.066%

$3,500 first year
$4,500 second year
$5,500 third and subsequent year

$23,000

None

How does it work?Direct Subsidized Loans are only available to undergraduate students, and only if their school determines they have a financial need based on the school’s cost of attendance and their expected family contribution. The Direct Subsidized Loan loan limit increases during your second and third years. However, your offer could decrease if your financial need decreases.

The subsidy part comes into play after your loan is disbursed. Although the loan starts to accrue interest right away, the U.S. Department of Education will pay the interest while you’re in school at least half-time, during your grace period and if you later put the loan into deferment.

Pros and cons. If you plan to take out a federal student loan, the Direct Subsidized Loan’s relatively low disbursement fee and interest rate, and the subsidization, makes it the best option in most cases. Of course, it’s only an option if you qualify — the biggest drawback is that you may not be able to borrow enough to pay for all your educational expenses.

Direct Unsubsidized Loan

Direct Unsubsidized Loans

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

For dependent undergraduate students

4.45%

1.066%

$5,500 first year
$6,500 second year
$7,500 third and subsequent years

The annual loan limits include Direct Subsidized Loans.

$31,000, including up to $23,000 in Direct Subsidized Loans.

None

For independent undergrads and dependent undergrads after a parent gets denied for a PLUS Loan

4.45%

1.066%

$9,500 first year
$10,500 second year
$12,500 third and subsequent years

The annual loan limits include Direct Subsidized Loans.

$57,500, including up to $23,000 in Direct Subsidized Loans.

None

For graduate and professional students

6%

1.066%

$20,500

$138,500, including up to $65,500 in Direct Subsidized Loans.

None

How does it work? Undergraduate and graduate students may be able to borrow money with Direct Unsubsidized Loans, even if they don’t have a demonstrated financial need. The loans also have higher annual and aggregate loan limits than Direct Subsidized Loans, and the limit varies depending on your degree type and dependency status.

However, the loan limits include debt from both Direct Subsidized Loans and Direct Unsubsidized Loans loans. You also might not be offered the maximum amount, as your offer depends on several factors — these can include your school’s cost of attendance, your family’s expected contribution and how much money you’ve received from other sources of financial aid, such as scholarships.

Pros and cons. The higher loan limits and lack of a financial need requirement may make it easier to qualify for a Direct Unsubsidized Loan; for undergraduate students, these loans have the same interest rate and disbursement fee as the subsidized version. However, the biggest drawback may be the lack of the subsidy. Without the subsidy, you could leave school with significantly more debt than you initially borrowed, unless you make interest payments while you’re in school and during the grace period.

For graduate and professional students who aren’t eligible for Direct Subsidized Loans, the Direct Unsubsidized Loans offer a lower interest rate and disbursement fee than grad PLUS loans. However, graduate and professional students may have already established their creditworthiness, and so might be able to save money with a private student loan.

Parent PLUS loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Parent PLUS loan

7%

4.264%

No limit

No limit

No adverse credit history

How does it work? Parent PLUS loans are Direct PLUS Loans that a parent borrows to help a dependent child pay for school. Parent borrowers must meet many of the same basic eligibility requirements as student borrowers; however, parent PLUS loans also require a credit check. The credit check looks for an adverse credit history in your credit reports, such as a recent bankruptcy or outstanding delinquent debts.

If you don’t pass the credit check, you may still be able to take out a parent PLUS loan if you have a creditworthy endorser (i.e. cosigner) or appeal the decision. Your child may also be able to take out additional Direct Unsubsidized Loans if you’re unable to qualify for a parent PLUS loan.

Loan payments begin immediately after the parent PLUS loan is disbursed, unless parents request a deferment. If you request a deferment, you may not have to make payments as long as your child is enrolled at least half-time and for the six months after they leave school or begin taking a less-than-half-time schedule. However, interest will accrue during the deferral period.

Pros and cons. As with other federal student loans, parent PLUS loan are eligible for different federal repayment plans, and forgiveness and cancellation programs. However, parent PLUS loans are only eligible for one of the four income-driven plans: the income-contingent plan — notably, this is only an option after the parent PLUS loan is consolidated with a Direct Consolidation Loan.

Direct PLUS Loans, including parent PLUS loans, also have the highest interest rate and disbursement fee of the federal student loans. The interest rate and fees may still be lower than what you could receive with a private student loan, but you should compare your options.

Another potential con is that parents can’t transfer the loan to their children, although a child may be able to take over the debt if they can qualify to refinance student loans with a private lender. The debt from the parent PLUS loan could also increase your debt-to-income ratio, which may affect your eligibility for other loans or financial products.

Grad PLUS loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Grad PLUS loan

7%

4.264%

No limit

No limit

No adverse credit history

How does it work? Graduate and professional students can use grad PLUS loans to pay for educational expenses. They have the same fees, limits and credit-check requirements as parent PLUS loans (both loans are Direct PLUS Loan), but there are a few differences.

Grad PLUS loans are eligible for all four income-driven repayment plans, and unlike parent PLUS loans, grad PLUS loans are automatically placed into deferment until six months after you drop below a half-time schedule, graduate or leave school. However, you can make early payments if you want.

Pros and cons. Grad PLUS loans don’t have pre-set annual or aggregate loan limits; you can also borrow up to your school’s cost of attendance, minus your other financial aid awards. This means you may be able to fund all your educational costs with grad PLUS loans — but that doesn’t mean a grad PLUS loan should necessarily be your first choice.

Direct Unsubsidized Loans will have a lower interest rate and disbursement fee than grad PLUS loans, and they offer the same access to federal repayment plans and programs. You may also want to compare private student loans offers to your grad PLUS loan rates to determine which will save you the most money.

PART IV: Private student loans

What is a private student loan?

A private student loan is an educational loan issued by a non-government lender. As with federal student loans, borrowers must use the money for educational expenses.

Some federal laws apply to both federal and private student loans. For example, lenders aren’t allowed to charge you a fee for paying off your loans early — however, it can be difficult to discharge a federal or private student loan during a bankruptcy.

There are also important differences between federal and private student loans, and several pros and cons, to consider before taking out a private student loan.

Pros:

  • High loan limits. The federal student loans with the lowest interest rates also have pre-set annual and aggregate loan limits. By contrast, private student lenders may let you borrow up to your school’s cost of attendance.
  • Potentially lower interest rates. Creditworthy borrowers may qualify for a lower interest rate with a private lender than they’d receive with a federal student loan.
  • No funding fee. Federal student loans often have a disbursement fee; private student lenders generally don’t charge a disbursement or origination fee.
  • Variable-rate options. Private lenders may offer variable-rate loans, which generally start with a lower interest rate than fixed-rate loans. However, there’s a risk the rate will increase in the future.
  • Interest rate discounts. Federal and private student loans often offer a 0.25 percent interest rate discount if you sign up for autopay. Private lenders may offer additional discount opportunities.

Cons:

  • Credit requirements. Your income, credit score and other factors could impact your eligibility, interest rate and maximum loan amount.
  • No access to federal benefits or programs. Private student loans aren’t eligible for federal repayment plans or subsidies. They also aren’t eligible for forgiveness, cancellation, discharge, forbearance or deferment programs.
  • Fewer hardship options. Private lenders might not offer borrowers forbearance or deferment options when borrowers have trouble making payments.
  • Quicker defaults. Private student loans may default sooner than federal student loans if you stop making payments. When a loan defaults, you’ll immediately owe the entire loan balance. Federal student loans also offer ways to get your loan out of default and back onto a repayment plan, but private lenders may not give you similar options.
  • Limitations with loan repayment assistance programs. Some government and private student loan repayment assistance programs won’t help you repay private student loans.
  • Varied discharge policies. Private lenders may not discharge your loan balance if you become permanently and totally disabled or die. As a result, you may leave your estate or cosigner with a loan balance to pay. Federal student loans can be discharged when the borrower, or student in the case of parent PLUS loans, permanently and totally disabled or dies.

Where can you find private student loans?

Banks, credit unions, online lenders, schools and states all offer private student loans to students, and sometimes to students’ parents. Your school’s financial aid office may be able to recommend several options, but you can also look online or speak to friends and family members to get recommendations.

There’s no single best private student lender, and you should compare different lenders’ loan types, loan terms, repayment options, fees, discounts and fine-print restrictions, like if they let you release a cosigner. You could also read others’ reviews and recommendations to determine which private student lenders might be best for your situation.

Once you’ve narrowed down your list, you can then apply for a student loan with several lenders and compare your offers to determine which loan is best.

Who are private student loans best for?

Federal student loans are the best place to start for most borrowers, but there are some students who may want or need to take out private student loans. For example, if you’ve reached your annual or aggregate loan limit with federal student loans and you still need more money for school, you may want to consider a private student loan.

Parents and graduate or professional students who have established their creditworthiness may also want to consider private student loans as an alternative to federal student loans. Their federal loans have a higher interest rate and disbursement fee than undergraduate students’ federal loans, and older applicants may be able to qualify for a lower interest rate with a private lender. However, consider the big picture as there may be other drawbacks, such as lack of access to federal forgiveness programs and repayment plans.

PART V: How to get a student loan

Applying for federal student loans

You must complete and submit a Free Application for Federal Student Aid (FAFSA) every year to apply for, and remain eligible for, federal financial aid.

MagnifyMoney has a detailed guide on filling out the FAFSA. You can also find a PDF guide from the Education Department and free phone support at 1-800-4-FED-AID (1-800-433-3243).

Submitting your FAFSA early can help your financial aid situation, as some schools and states offer financial aid on a first-come, first-served basis based on information in your FAFSA. Even if you don’t plan on taking out loans, the FAFSA is a requirement for some grant and scholarship opportunities.

To begin the FAFSA process online, go to fsaid.ed.gov and create your FSA ID. The FSA ID will be your username and password for signing into your account and you’ll also use it to sign loan documents. Dependent students also need a parent to create an FSA ID, which the parent will use to sign the child’s FAFSA.

After you’ve created your FSA ID, you can start the online application at fafsa.gov. To complete the application, you’ll need:

  • Your Social Security number or alien registration number
  • Income-related forms, including recent W-2s and federal income tax returns
  • Copies of your bank, brokerage, and other financial account statements
  • Documents related to other income
  • If you’re a dependent student or you’re married, you may also need your parents’ or spouse’s Social Security number and income-related forms.

It generally takes under an hour to complete the FAFSA. Returning students will send the form to their school, while first-year students can send their FAFSA to the schools they’re considering.

After submitting your FAFSA, you will get a Student Aid Report (SAR) by mail or email; you should review this document to ensure all your information is correct. The SAR will list your expected family contribution amount, along with your FAFSA information. Schools and state agencies use this data to determine your financial aid eligibility and award amounts, and a mistake could lead to you being offered less aid.

Your school, or the schools you’re considering, will then send you an aid offer that lists the financial aid types and amounts that you can accept. Your aid package may include a combination of grants, scholarships, work-study funds, and/or several types of student loans.

You can choose which aid package offer to accept and how much money to borrow if you’re taking out a loan; the process can vary depending on your school. If you’re accepting a federal student loan offer, you will have to sign a promissory note, or loan contract. Keep in mind that you do not have to accept the full amount of federal loans you’re eligible to borrow — do the math to avoid unnecessary debt.

Applying for private student loans

Private student lenders may have different applications, and the application processes could vary. However, you can find some lenders that have a fairly simple and straightforward online application.

You won’t need to complete the FAFSA to apply for a private student loan, but you may want to gather similar personal and financial documents — you’ll likely need information from these documents during the application process, and you might have to submit copies for verification purposes.

You may also need personal and financial information from a cosigner if you’re adding one to your application; in some instances, the cosigner may be able to log in and submit his or her information directly.

If your application is approved, you might be able to pick from several loan terms with varying interest rates. Or, the lender may make you an offer and you can choose to accept or decline it.

At some point during the application process, the lender could contact your school to verify your eligibility and the school’s cost of attendance, which can determine your maximum loan limit. Alternatively, you could be asked to self-certify these numbers.

Alternatives to student loans

A loan shouldn’t necessarily be your first choice when it comes to financial aid. Scholarships and grants can offer money for school that you don’t need to pay back. Graduate or professional students may be able to get “free” money from fellowships. And you could look into different work opportunities.

If you submitted a FAFSA, you may get a work-study award as part of your financial aid offer. The federal work-study program pays a portion of work-study recipient’s wages, which could make it easier for you to find a job while you’re at school. However, only certain employers are eligible, such as the school, nonprofits and some for-profits if the work you’ll do aligns with your major.

Graduate and professional students may have opportunities to get an assistantship at the school. Depending on the program, you could receive a stipend, tuition waivers or even benefits in exchange for working part-time.

You can also look for work opportunities that aren’t part of a financial aid program. A part-time job while you’re at school, or a full-time job during the summers, might not earn you enough to cover all your educational costs — but every dollar you earn and put towards your education is one less dollar you need to borrow (and pay interest on).

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads, Student Loan ReFi

5 Best Private Student Loans for 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

private student loans
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Taking out private student loans to pay for college is one of the most expensive ways to borrow for school, yet many college students make the mistake of turning to private loans first before pursuing other financing options.

Nearly half (47%) of undergraduates who took out private student loans during the 2011-12 school year didn’t use the maximum available in federal loans, according to a 2016 report by The Institute for College Access and Success (TICAS).

The danger with private loans is in how costly they can be — interest rates on private student loans were as high as 14.24% in September 2017 vs. 4.45% for federal student loans — and how few flexible repayment options they carry for borrowers who struggle to pay them back.

It’s generally best to find ways to fund your education for free with grants and scholarships, turn to your savings and then exhaust your federal student aid. Federal student loans tend to offer lower interest rates and more lenient repayment plans than private student loans, which is why federal aid is often a good first choice.

However, federal loans can only go so far, especially if you are pursuing a postgraduate degree that requires many more years of schooling. Once you’ve tapped out all your access to federal aid and you still need money to cover educational costs, a private student loan could help you fill the gap.

While federal student loans offer a fairly uniform application process and loan terms, private student loan terms can vary widely from one lender to another. If you’re thinking about paying for school with a private student loan, it’s important to compare lenders’ offerings and find the one that’s best for you.

How we ranked the best private student loans

There’s a lot to compare when you’re considering taking out a student loan from a private lender. Your annual percentage rate (APR), fees and loan term could impact how much you pay in interest over the lifetime of the loan. But other features, such as a straightforward application process and the option to apply for cosigner release, can also be important to borrowers.

We started the search for the best private student loan companies by identifying the 10 largest national private student loan lenders. Each lender’s undergraduate student loan got graded on seven important factors:

Private lenders offering loans with varying interest rates depending on the applicant’s creditworthiness. However, they do advertise an interest-rate range that you can use to compare one lender with another. Each lender was assigned grades based on its lowest and highest APRs compared with the average lowest and highest APRs for all 10 lenders. Each lender received four scores, as they all offer variable-rate and fixed-rate loans, and the lenders with below-average APRs received top marks.

Lenders may charge a fee to submit an application or an origination fee that’s based on your loan balance. Only one of the top 10 lenders charges an origination fee, and it didn’t make the top five list.

All the lenders offer an online application, but the clarity and ease of use can vary. The lenders with a simple and easy-to-understand process got the best grades.

Many private student lenders, including all 10 of the lenders we compared, offer a 0.25% interest rate discount if you enroll in autopay from your bank account. A few lenders earned extra points for offering a 0.50% interest rate discount with autopay, or an additional interest rate discount if you have an eligible account with the lender when you take out a student loan.

Most of the private student loans we compared offered several repayment terms with a maximum of 15 years. Lenders that cap their loan’s term below 15 years didn’t score as well. A long repayment term could increase the total amount of interest you pay, but it will also lower your monthly payments and there’s no penalty for prepaying student loans if you find you can afford more.

Most students have a creditworthy cosigner, who can help you qualify for a loan or lower your interest rate. Some private student loan lenders let you apply to release your cosigner after you make consecutive, on-time full principal and interest payments, and pass a credit check. Twelve payments set the bar for a top score as that’s the shortest option available among the lenders we compared.

You may be able to choose from different repayment plans, such as making interest-only payments while you’re in school or fully deferring payments until your post-school grace period ends. Lenders that offer full interest and principal deferment got top marks.

A few lenders earned extra credit because they offer something extra, such as a principal rate reduction or cash back when you graduate.

After assigning the lenders a score for each factor, we compared their average scores and ranked them from highest to lowest. Here are the resulting top five student loan lenders:

Our top picks for private student loan companies

 

SunTrust Custom Choice Loan

Wells Fargo Collegiate Loan

Sallie Mae Smart Option Student Loan

LendKey Private Student Loan

Citizens Bank Student Loan

Ranking

No. 1

No. 2

No. 3

No. 4

No. 5

Borrowing limit

$150,000

$120,000

School-certified cost of attendance

Varies by lender

$120,000

Variable APR*

3.75-12.75%

5.40-10.84%

4.00-9.04%

4.63-9.61%

6.01-11.27%

Fixed APR*

5.35-14.05%

6.84-11.67%

5.75-8.68%

5.36-9.69%

6.39-11.65%

Application fees

None

None

None

None

None

Online application

Good

Good

Good

Very good

Good

Interest rate discounts

0.25% with autopay, or 0.50% if you autopay from a SunTrust Bank account.

0.25% with autopay. Additional 0.25% to 0.50% interest rate deduction if you have an eligible Wells Fargo account when you get your student loan.

0.25% with autopay

0.25% with autopay, you may have to pay from an account with the lender to qualify.

0.25% with autopay. Additional 0.25% interest rate deduction if you have an
eligible Citizens Bank account when
you get your student loan.

Repayment terms

5, 7, or 15 years

15 years

5 - 15 years

10 years

5, 10 or 15 years

Cosign release option

Yes, you can apply after 36 to 48 consecutive full payments

Yes, you can apply after 24 consecutive full payments. Or, after 48 consecutive full payments if your first payment is late.

Yes, you can apply after
12 consecutive full payments

Yes, you can apply after 12 to 36 consecutive full payments

Yes, you can apply after 36 consecutive full payments

Max deferment

Full deferment

Full deferment

Full deferment

$25 monthly payments

Full deferment

Bonus

Request a 1% principal (the loan amount that was disbursed) reduction after you graduate.

None.

None.

None.

None.

*Rates are current as of May 1, 2018, and may include a 0.25% autopay discount.

#1 SunTrust Custom Choice Loan

SunTrust Bank took the top spot in our comparison of the top private student loan lenders with its Custom Choice Loan. The bank also offers Union Federal Private Student Loans through a partnership with Cognition Lending.

Why we like SunTrust

There are several savings opportunities that help SunTrust’s Custom Choice Loan that help it stand out from the competition. First, as of April 1, 2018, SunTrust had the lowest possible fixed interest rate of the 10 lenders we compared.

Additionally, you can get a 0.50% interest rate discount if you sign up for autopay from a SunTrust Bank account, or a 0.25% interest rate discount with autopay from a different account. And SunTrust Bank will reduce your loan balance by 1% of the disbursed loan amount when you apply for the reduction and show proof of graduation with a bachelor’s degree or higher.

Borrowers can also choose from four different repayment plans: start making full payments immediately, make interest-only payments, pay $25 a month or fully defer payments.

Where SunTrust may fall short

The one big drawback to the SunTrust’s Custom Choice Loan is that you’ll have to make 36 or 48 consecutive full payments before you can apply to release a cosigner.

#2 Wells Fargo Collegiate Student Loan

You’ll likely recognize Wells Fargo, as it’s one of the largest banks in the U.S., but you may not have realized that it offers student loans. In fact, the company actually has several different student loan programs, with offerings for community college students, undergraduates or graduates and professional school students.

Why we like Wells Fargo

Like many other lenders, Wells Fargo offers a 0.25% interest rate discount if you enroll in autopay. In addition, you can get a permanent 0.25% to 0.50% interest rate reduction if you or your cosigner have an eligible Wells Fargo student loan, consumer checking account or Portfolio by Wells Fargo relationship.

Where Wells Fargo may fall short

You have to choose a 15-year term for your student loan, and if you stick to making your required payment amount you could wind up paying more in interest than if you took out a shorter loan elsewhere.

Also, be sure that you make your first full payment on time. If it’s late, you’ll need to make 48 consecutive full payments (rather than 24) before you can apply to release a cosigner.

#3 Sallie Mae Smart Option Student Loan

Sallie Mae offers a wide range of student loans to undergraduate, graduate and professional students, and their parents. That may not come as a surprise though, Sallie Mae is one of the most widely known private student loan companies.

Why we like Sallie Mae

The undergraduate Smart Option Student Loan has a few standout benefits, such as the option to release a cosigner after making 12 consecutive monthly payments. You can also choose from three repayment plans: full deferment, $25 monthly payments or interest-only payments. And if you’re having trouble making payments after graduation, you can request to make 12 interest-only payments.

Borrowers also get non-loan related perks, such as quarterly access to one of their FICO credit scores. You can also choose to get 120 minutes of free tutoring from Chegg Tutors or free access to Chegg Study for four months (or a combination of the two).

Where Sallie Mae may fall short

Overall, Sallie Mae offers borrowers a variety of choices and benefits. However, it doesn’t offer as many potential discounts as some of the other top lenders. Still, if you find you qualify for a lower pre-discount rate with Sallie Mae than another lender, Sallie Mae could indeed be a smart option.

#4 LendKey Private Student Loan

LendKey stands apart from the other lenders on the top five list because it technically doesn’t loan you money. Instead, LendKey has created a centralized, uniform (and easy-to-use) application that you fill out to get student loan offers from regional banks and credit unions.

Why we like LendKey

Being able to fill out a single application and compare multiple loan options can help you find a low rate, plus the application is quick and easy to fill out. Additionally, some of LendKey’s lenders may let you release a cosigner after making 12 consecutive full payments, which ties for the fewest number of required payments among the top lenders.

LendKey particularly stands because the high-end APR rate for variable- and fixed-rate loans from its lending network are 2% to 3% lower than other competitors. That may not seem like a big difference, but it could lower your monthly payments and lead to saving hundreds to thousands of dollars over the lifetime of the loan.

Where LendKey may fall short

Regional banks and credit unions may not offer student loans nationally, so the interest rate ranges that LendKey advertises may not be available to every borrower. The fine print and eligibility requirements could also vary from one lender to another.

For example, some lenders may require you use autopay from an account with the lender to qualify for a 0.25% interest rate discounts (others may let you qualify with autopay from any account). And how many consecutive payments you need to make before you can apply for a cosigner release, if you can apply at all, could also vary.

All LendKey lenders only offer a 10-year loan term. Other lenders offer a shorter term, which sometimes corresponds with lower interest rates, or you want to lower your monthly payment by choosing a longer term from a different lender.

Also, LendKey student loans don’t offer full deferment and you’ll have to make $25 monthly payments once your loan is disbursed. This could lower your total cost of borrowing compared with full deferment, but if you don’t have any income while you’re at school, it could be difficult to afford the monthly payment.

#5 Citizens Bank Student Loan

Citizens Bank is a large traditional bank with over 1,000 branches in the Midwest and along the East Coast. It offers student loans to undergraduate and graduate students, their parents and student loan refinancing.

Why we like Citizens Bank

Citizens Bank’s lowest possible variable-rate APR is the lowest of our top five lenders, but even if you don’t qualify for the lowest rate it’s worth considering. And if you or your cosigner have a qualifying bank account or loan from Citizens Bank, as that could make you eligible for a permanent 0.25% interest rate reduction on your student loan.

You may also qualify for multi-year approval if you have more than a year left before you graduate. Often, you may need to apply for a student loan at the start of each term. But with multi-year approval, you could choose (there’s no obligation) to borrow additional money for another term without having to fill out a new application.

Where Citizens Bank may fall short

The primary drawback is the 36-payment requirement to apply to release a cosigner. This aside, Citizens Bank offers competitive rates, a variety of loan terms and interest rate discounts that are in line or could be better than many of the other private student loan companies.

Determine if a private student loan is right for you

After comparing your options, you may be able to identify the private student loan lender that offers you the best overall loan. However, you may want to take a step back and consider all your options before committing.

Federal student loans. Often, federal student loans should be a borrower’s first choice if he or she has to borrow money. In part, this is because federal student loans offer loan forgiveness programs, repayment plans and guaranteed options to defer payments or put your loans in forbearance that aren’t available from private student lenders.

Also, if you haven’t built credit of your own and don’t have a creditworthy cosigner, federal student loans could be your only option. Most don’t have a credit requirement, and the federal loans for graduate or professional students and parents that have a credit check don’t vary their interest rate based on your credit. By contrast, even with a creditworthy cosigner, you may wind up with higher interest rate if you take out a private student loan.

However, there may be times when a private student loan makes sense or be a necessity. For example, undergraduate federal student loans have annual ($5,500-$7,500) and aggregate (up to $31,000) borrowing limits that may not be enough to cover your educational expenses.

Even if your unsure about whether you’re going to take out federal or private student loans, you may want to fill out and submit the Free Application for Federal Student Aid (FAFSA) every year. In addition to being a requirement for federal student loans and work-study aid, you may need to submit the FAFSA to qualify for some grants and scholarships.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

Parent Loans (Parent PLUS and Private Parent Loan Options)

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

College and graduate students may have several options when it comes to paying for school, including federal student loans that don’t depend on the student’s income or credit, or the family’s financial situation.

However, sometimes a student hits the federal loan limit and still needs money for school or living expenses. Parents who want to help shoulder some of the financial burden also have options. They may be able to take out a federal parent PLUS loan after their child submits a Free Application for Federal Student Aid (FAFSA), or apply directly with a private lender, and use the money to pay for a student’s educational expenses.

In this guide, we’ll explain everything you need to know about parent loan options.

Private vs. federal: Which is the right choice for you?

You have two choices in parent loans, federal parent PLUS loans or a parent loan from a private student lender. In either case, the loan will be in your name (rather than the student’s), there’s a credit check and you’ll be responsible for repaying the debt. However, there are important differences to consider.

Eligibility: The parent PLUS loans have a credit check which looks for an adverse credit history, such as a recent default, foreclosure, repossession or bankruptcy. However, parent PLUS loan eligibility isn’t dependent on a credit score or the applicant’s income or other debts that are in good standing. And every borrower during a given loan disbursement period receives the same fixed interest rate and pays the same disbursement fee.

Private student loans are also credit-based, and the lender may have a more rigorous underwriting process than what you undergo for a federal student loan. Your eligibility for a loan could depend on your income, debts, credit history and credit score, and these can also affect your interest rate.

Cost: While private student loans often don’t charge disbursement or origination fees, your annual percentage rate (APR), which is the cost of borrowing inclusive of fees, could be higher with a private student loan than a parent PLUS loan. On the other hand, especially creditworthy borrowers may find private student loans are a much less expensive option.

Terms and benefits: In addition to the cost of borrowing, you may want to consider the loan’s term, repayment plans and benefits. For example, a federal parent PLUS loan will be discharged if the student dies. The policies may vary from one private lender to another, and depending on the servicer that the lender partners with to collect loan payments.

Flexibility: Also, consider your options if you’re having trouble making payments later. You may be able to put a parent PLUS loan into forbearance and temporarily stop making payments. There are different repayment plans that can lower your monthly payments, and private lenders may vary their policies and offerings.

Parent PLUS loans: Explained

Parent PLUS loans are a subtype of direct PLUS loans, which are part of the U.S. Department of Education’s William D. Ford Federal Direct Loan program. The department offers direct PLUS loans directly to graduate and professional degree students and parents of dependent undergraduate students. Sometimes these loans are called grad PLUS loans.

Parent PLUS loans have a fixed interest rate and disbursement fee for all borrowers, although it may vary from one year to the next.

Parent PLUS loan rates

Interest rates for loans disbursed July 1, 2017 to June 30, 2018

7%

Disbursement fee for loans disbursed on or after Oct. 1, 2017 to Sept. 30, 2018

4.264%

Annual and aggregate loan limits

Cost of attendance minus the student’s other financial aid.

Unlike some types of federal student loans which limit how much you can borrow each year, or aggregate, parent PLUS loans don’t have a preset limit. However, you’re still limited to the school-determined cost of attendance for the student, minus other financial aid that the student received.

Eligibility requirements

To qualify for a parent PLUS loan, you must meet these requirements:

  • Your child must complete the Free Application for Federal Student Aid (FAFSA).
  • You meet the basic eligibility requirements for federal student aid.
  • You can’t have an adverse credit history.
  • You must take out the loan on behalf of a biological or adoptive child. Stepchildren may also qualify, in some cases.

The student you’re borrowing money for also must meet the eligibility guidelines for federal aid and must be taking at least a half-time course load at an eligible school. Your child also has to be a dependent student as determined by the education department, which uses different guidelines than tax-related dependency status.

If you don’t qualify for a parent PLUS loan due to having an adverse credit history, you may still be able to still take out a parent PLUS loan if you add an eligible endorser (similar to a cosigner on the loan) to the loan. The endorser will have to repay the loan if you’re unable to make payments in the future.

You may also qualify if you can prove that the there’s an error in your credit reports that led to the adverse credit, or if there are extenuating circumstances related to your adverse credit. For example, if you have adverse credit due to recent foreclosure, you may be able to qualify if you sold the home with a short sale and can prove the sale was approved and completed.

If you’re qualifying for a parent PLUS loan because of an endorser or extenuating circumstances, you’ll also need to take an online PLUS Credit Counseling session. All borrowers are required to take an online entrance counseling course.

How to apply for a Parent PLUS loan

Fill out the FAFSA. To take out a parent PLUS loan, your child will need to complete the FAFSA, which you can find on FAFSA.gov. You’ll need to share some information for FAFSA, including your Social Security number, tax and some financial information. MagnifyMoney has a guide to filling out the FAFSA, and the education department offers shares helpful information and guides online.

Resubmit FAFSA each year. Your child will need to resubmit the FAFSA each year to remain eligible for federal financial aid, and for you to qualify for parent PLUS loans.

For students beginning their first year at school, they’ll hear back from all the schools that received their FAFSAs with financial aid offers. Otherwise, they’ll just get a response from their current school. The award letter will list the types of aid the student is eligible for and maximum loan limits.

Review your financial award letter. The next step can vary from school to school, so you should reach out to the school’s financial aid office if it hasn’t already given you instructions on how to request a PLUS loan.

Your child’s award letter may list a parent PLUS loan, but even if it doesn’t, you could still be eligible for a parent PLUS loan. On the other hand, even if a parent PLUS loan is on the award letter, you’ll still need to meet the eligibility criteria to qualify for the loan. In either case, you may need to apply for the loan on StudentLoans.gov.

Complete your paperwork. If you qualify, you’ll also need to sign the direct PLUS loan Master Promissory Note. If you’re not able to get a parent PLUS loan, your child may be eligible for additional direct unsubsidized loans.

Repaying a parent PLUS loan

How PLUS loans are disbursed: The education department disburses (sends) the money you borrow with a parent PLUS loan to your child’s school to cover his or her expenses, such as tuition and fees. If the parent PLUS loan is for more than your child’s outstanding expenses, the school will send you a refund for whatever is left over. You can alternatively authorize the school to send the money to your child.

Making payments: Parent PLUS loans have a standard 10-year repayment plan and you may need to start repaying your loan after the last disbursement. You can also apply to defer your loan for as long as your child is enrolled at least half time at an eligible school, and for the six months after he or she leaves the school. However, your loan will accrue interest during this period, which could add to your total cost of repaying the loan.

Repayment plan options: In addition to deferring the loans, you may be able to switch to a different repayment plan. Changing plans to the extended repayment plan will increase your loan’s term and lower your monthly payments. You can also switch to the Income-Contingent Repayment plan after consolidating your parent PLUS into a direct consolidation loan. The ICR plan bases your monthly payments on your income, family size and where you live.

Liability: Some parents have an arrangement with their child where the child helps repays the parent PLUS loan. However, because you took out the loan in your name, legally you must repay the money. Children won’t be able to take legal responsibility for a parent PLUS loan, even after they graduate, unless they apply for student loan refinancing from a private lender that lets them include a parent’s loan.

Private student loans for parents: What are your options?

Similar to parent PLUS loans, some private student lenders offer student loans to parents who want to help finance a child’s education. These are credit-based loans, and each lender may have different underwriting requirements and loan offerings. Therefore, if you’re considering a parent loan from a private student lender, you may want to compare lenders and their loans’ terms.

Where to find private parent loans

Parents can find private parent loans from banks, credit unions and student loan companies. The five companies featured here are among the largest national private student loan lenders that offer loans specifically for parents who want to finance a student’s education.

There’s no single company that’s best for every parent borrower, nor is there one lender that will always offer you the lowest APR. Even the lender with the lowest advertised APR might offer you a higher rate than a different lender. However, there may be other requirements or features, such as the minimum loan amount or repayment plans, that make one lender a better fit for your situation.

Pre-approval with private parent loans

Some private lenders let you apply for loan pre-approval with a soft credit inquiry, which won’t affect your credit score. If you’re pre-approved, you may see an estimated APR, or APR range, which could help you decide between lenders.

When you decide to take out a loan, you’ll need to agree to a hard credit inquiry and will then see your official loan offers. You can still decide to turn down the loan and keep looking if you want.

A hard credit inquiry could hurt your credit score. However, multiple hard credit inquiries from student loans get treated as a single inquiry for credit-scoring purposes when they occur within a 14-day period. Since you’ll eventually have to agree to at least one hard inquiry to take out a private parent loan, you may want to apply with several lenders (including those that don’t offer a soft credit inquiry pre-approval) once you’re ready to take out a loan.

Private parent loans options

All of these rates and loan terms are current as of March 26, 2018, and may include a 0.25% autopay discount.

SoFi

Variable APR*

4.090%-7.515%

Fixed APR*

4.250%-8.000%

Loan terms

Five or 10 years

Loan balance range

$5,000 to the cost of attendance

Fees

No application, disbursement, origination or prepayment fees.

Late fee is up to $5.

Interest rate discount

0.25% with autopay

Additional 0.125% if you were a SoFi member before applying.

Soft credit check

Yes

Alternatives to parent loans

Some parents may want to help pay for a child’s education but don’t want to take out a parent loan or are having trouble getting approved for a student loan with a good rate.

Here are a few alternatives options you can consider.

Max out federal aid

Whatever you do, you and your student’s first step should always be to max out the federal student aid options, from grants to student loans. These options are nearly always the best bet financially, because they come with more flexible loan terms, repayment plans and typically have lower rates than what you’ll find from private lenders.

If you still feel the need to seek additional sources of aid, here are some alternatives:

A personal loan

Personal loans are unsecured loans that you can take out for almost any purpose. However, check the lender’s restrictions as some loan companies specifically state you can’t use a personal loan for educational expenses.

A personal loan may be a good idea if you want to receive the money directly rather than have it sent to your school. And personal loans may be easier to get discharged during a bankruptcy. But those two potential pros are outweighed by many cons.

Personal loans may have a much higher interest rate than student loans. If you have poor credit, the APR could be over 30% and you may have to pay origination fees that can eat into how much money you receive. Those with poor credit may be able to get a much lower interest rate with a federal parent PLUS loan, which doesn’t have a minimum credit score. And they’ll have access to federal loan repayment programs and benefits in case they have trouble making payments later.

Those with good-to-excellent credit may get a lower rate with a private student loan. Although private student loans can be harder to discharge than personal loans during a bankruptcy, private student lenders may offer forbearance or deferment options that let you temporarily stop making payments.

Also, you may be able to deduct up to $2,500 in interest payments on student loans, including private students loans, which isn’t an option with a personal loan.

Compare personal loan offers at MagnifyMoney’s parent company, LendingTree.

A home equity loan

If you’ve built equity in your home, you may be able to take out a home equity loan and use the money to help pay for college.

In turn, you may be able to save money if you use a home equity loan as interest rates could be similar, or maybe even lower, than on a parent loan. The home equity loan won’t be eligible for federal student loan repayment plans, but sometimes you can make interest-only payments on the loan. Although, as with student loans, making smaller payments now will increase your overall cost of repaying the loan.

There are also a few downsides to taking out a home equity loan. Since the passing of Tax Cuts and Jobs Act of 2017 (the new tax bill), if you use a home equity loan to pay for educational expenses, the interest payments aren’t tax-deductible. But one of the biggest drawbacks is that you could be taking on a lot more risk.

With a student loan or unsecured personal loan, if you don’t make payments you could wind up getting charged fees, hurt your credit and lead to your wages or Social Security payments being garnished. Falling behind on a home equity loan can also result in fees, damage to your credit and garnished wages, and the lender may foreclose on your home.

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Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads, Reviews

Sallie Mae Student Loans Review for 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

mortar board cash

Most students who borrow money for their education should start with federal student loans. The federal loan programs offer borrowers a variety of repayment, forgiveness, cancellation and discharge programs that aren’t available from private lenders.

But if you reach your federal loan limits, or exam your options and find you might be better off with a private student loan, you can compare loan offerings from private student lenders. One of the largest private student loan companies, Sallie Mae, has a dozen education loan products you can consider.

What is Sallie Mae?

Started over 40 years ago, Sallie Mae has played a variety of roles in the student loan space, including lending federally guaranteed loans and private student loans, and servicing federal and private loans.

Sallie Mae spun off a portion of its student loan servicing business to form a new company, Navient, in 2014. And due to changes in the federal student loan programs Sallie Mae no longer originates federally guaranteed loans. Now, Sallie Mae offers and services its private student loans, and also has banking products, such as savings accounts.

Types of student loans Sallie Mae offers

Whether you’re a parent of a grade school student or about to begin your doctorate, Sallie Mae may have a student loan that fits your needs. Its loan products include two for parents or sponsors of students; seven for students enrolled in a degree, training or certification program; and three for health profession and law students to cover residency or bar exam costs.

  1. K-12.For a parent or sponsor of a child who wants to take out a loan to pay for a student’s private kindergarten-through-high school education.
  2. Parent.For a parent or sponsor of a child who wants to take out a loan and pay for an undergraduate, graduate or certificate program.
  3. Career training. For students at eligible non-degree granting schools.
  4. Undergraduate. For students at degree-granting schools who are earning an associate or bachelor’s degree.
  5. Graduate. For students at degree-granting schools who are earning a master’s, doctorate or law degree.
  6. MBA. For business school students.
  7. Health professions graduate. For graduate health profession students, including those in nursing, psychology and dental assistant programs.
  8. Dental school. For graduate dental degree students, including those in dentistry, endodontics and orthodontics programs.
  9. Medical school. For graduate medical degree students, including those in allopathic, osteopathic and podiatric programs.
  10. Medical residency and relocation. For medical residency students to help pay for board examinations and residency-related travel and moving expenses.
  11. Dental residency and relocation. For dental residency students to help pay for board examinations and residency-related travel and moving expenses.
  12. Bar study. For law students and recent graduates to help pay for bar review courses, registration and living expenses while you study.

Sallie Mae student loans in a nutshell

Most of Sallie Mae’s loans are identical when it comes to fees, cosigner release options and discounts.

Fees

  • Aside from the K-12 loan’s 3% disbursement fee, none of the loans have application, origination, disbursement or prepayment fees.
  • Late payments result in a fee that’s 5% of the amount due (capped at $25).
  • Returned checks carry a $20 fee.

Cosigner release

  • You can apply to release a cosigner after making 12 consecutive, on-time, full interest and principal payments. However, parent loans don’t offer a cosigner release option.

Discounts

  • With all but the K-12 loans, you can receive a 0.25% interest rate discount if you sign up for automatic payments.
 

K-12 loans

Parent loans

Career training

Undergraduate loans

Graduate loans

MBA loans

Fixed APR range*

Not available

5.74% - 12.87%

Not available

5.74% - 11.85%

5.75% - 8.68%

5.75% - 8.68%

Variable APR range*

8.99% - 15.64%

5.49% - 11.87%**

6.24% - 13.35%**

4.00% - 10.86%**

4.00% - 9.04%**

4.00% - 9.04%**

Loan terms

Three years

10 years

Five to 15 years

Five to 15 years

Five to 15 years

Five to 15 years

Loan amount

$1,000 minimum

Borrow up to the school-certified cost of tuition

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

Repayment plans

Full interest and principal payments

Full interest and principal payments

Interest-only payments

$25 a month

Interest-only payments


12-month interest-only repayment that begins after your separation or grace period ends

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

**Variable rates are capped at 25%.

 

Health professions

Dental school

Medical school

Medical residency

Dental residency

Bar study

Fixed APR range*

5.75% - 8.68%

5.75% - 8.37%

5.74% - 8.36%

Not available

Not available

Not available

Variable APR range*

4.00% - 9.04%**

4.00% - 8.74%**

4.00% - 8.74%**

4.91% - 11.22%

4.79% - 11.22%

4.99% - 11.69%

Loan terms

Five to 15 years

20 years

20 years

Up to 20 years

Up to 20 years

Up to 15 years

Loan amount

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to the school-certified cost of attendance

$1,000 minimum

Borrow up to $20,000

$1,000 minimum

Borrow up to $20,000

$1,000 minimum

Borrow up to $15,000

Repayment plans

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

Deferment

$25 a month

Interest-only payments

12-month interest-only repayment that begins after your separation or grace period ends

Full interest and principal payments

Two- or four-year interest-only repayment

Full interest and principal payments

Two- or four-year interest-only repayment

Full interest and principal payments

Two- or four-year interest-only repayment

**Variable-rate loans have a 25% APR cap.

How Sallie Mae compares with other lenders

Sallie Mae is one of MagnifyMoney’s top five private student lenders for 2018. We compared undergraduate student loan products and began with the nation’s 10 largest national lenders. The reviews focused on loans’ APR ranges, discounts, fees and repayment terms, as well as lenders’ policies for releasing a cosigner, deferring loan payments and their online applications.

Sallie Mae took third place, behind SunTrust Bank and Wells Fargo, partially because it only offers one discount opportunity (the other two allow borrowers to get up to 0.50% or 0.75% interest rate discounts).

In addition to having a top-rated undergraduate loan, Sallie Mae differentiates itself by offering such a wide variety of different student loans. Many of these other loans share characteristics with the undergraduate loan, including the 12-payment cosigner release requirement, lack of a specific maximum loan amount and 0.25% interest rate discount for auto debit.

However, as with any lender, there are pros and cons to consider before taking out a loan from Sallie Mae.

Advantages of Sallie Mae Student Loans

You may be able to choose a repayment plan. Depending on the loan product, you may be able to choose from up to three different repayment plans. A plan that requires you make payments while you’re in school could help you save money in the long run; however, deferring your full payments can give you more money to cover education and living expenses now.

12-month payment requirement for cosigner release. With most Sallie Mae student loans, you can apply to release your cosigner once you make 12 consecutive, full, on-time payments. Other lenders may let you apply for cosigner release, but it could take longer to qualify. For example, some lenders require you make 48 full monthly payments before you can apply.

In addition to the payments, you’ll need to pass a credit check and meet Sallie Mae’s requirements for releasing a cosigner.

Discharge due to death or permanent disability. Similar to the federal student loan guidelines, Sallie Mae will waive a borrower’s current balance if he or she dies or becomes permanently and totally disabled. The benefit may be especially important to borrowers who have a cosigner or dependents, such as a spouse or child, who could be affected if the debt isn’t waived.

No preset loan limit. While some federal student loans and private student loans set dollar-amount limits on how much you can borrow, most Sallie Mae student loans allow you to borrow up to your school’s certified cost of attendance.

Loans for less than half-time students. Some private school lenders require borrowers to have at least a half-time course load to qualify for a student loan. Sallie Mae’s loans for students don’t have this requirement.

Forbearance and deferment options. Putting your loans into forbearance or deferment lets you temporarily stop making payments without getting charged late payment fees or hurting your credit. Forbearance is generally for when you have trouble making payments, perhaps due to losing a job or a medical emergency, and deferment may apply to other circumstances, such as returning to school.

Sallie Mae could approve up to 12 months of forbearance in three-month increments and up to 60 months of deferment in 12-month increments. Interest continues to accumulate and your long-term costs may increase, but forbearance or deferment are still better options than missing a payment or letting a loan go into default.

Extra perks. Many of Sallie Mae’s student loans also come with the Study Smarter benefit. Borrowers can get four months of free study tools or 120 minutes of live online tutoring through Chegg Study® or a combination of the two.

All of Sallie Mae’s loans also give borrowers and cosigners quarterly access to a FICO® credit score.

Drawbacks of Sallie Mae Student Loans

No additional interest rate discount. Sallie Mae’s 0.25% interest rate discount is standard for most federal and private student loans. But other private lenders offer borrowers opportunities to get an additional 0.25% to 0.50% interest rate discount by having other financial products from the same lender or making auto debits from an account with the lender.

Sallie Mae assigns loan terms. Many Sallie Mae student loans have a repayment term that ranges from five to 15 years. Other lenders that offer a range of terms let borrowers choose their term, and the corresponding monthly payment and interest rate. Sallie Mae will assign you a term.

No loan pre-approval. Private student loans require a credit check. Some lenders will do a soft credit pull, which doesn’t hurt your score, to determine if you can qualify for a loan or need a cosigner and to show you estimated interest rates if you qualify. Sallie Mae will only show you rates after a hard credit inquiry, which could hurt your score.

What it takes to qualify with Sallie Mae

All Sallie Mae student loans have the same basic requirements:

Minimum credit score. Sallie Mae doesn’t disclose a minimum credit score requirement. In 2016, applicants that were approved for a Sallie Mae student loan on average had a 748 FICO® Score 8 at the time of approval.
Minimum age for borrowers. Borrowers must be the age of majority in their state (often 18 years old). Younger applicants will need an eligible and creditworthy cosigner.
State residency requirements. Sallie Mae student loans are available in every state.
Eligible schools. Sallie Mae doesn’t publish a list of eligible schools, but you can search for the name of a school at the beginning of the loan application to see if your school qualifies.

 

K-12 loans

Parent loans

Career training

Undergraduate loans

Graduate loans

MBA loans

Additional requirements

The student you’re taking the loan out for has to be enrolled in a private school.

The student you’re taking the loan out for has to be pursuing a certificate or an associate, bachelor’s or graduate degree at a degree-granting school.

You must be enrolled at a non-degree granting school and pursuing professional training or a certification.

You must be a enrolled at a degree-granting school and pursuing a certification or an associate or bachelor’s degree.

You must be enrolled at a degree-granting school and pursuing a master’s, doctorate or law degree.

You must be enrolled at a degree-granting school and pursuing a masters of business administration degree.

 

Health professions

Dental school

Medical school

Medical residency

Dental residency

Bar study

Additional requirements

You must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.

You must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.

You must be enrolled at a degree-granting school and pursuing a degree in one of the eligible areas of study.

You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

If you didn’t already earn your medical degree, you must expect to earn the degree in the current academic program year.

You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

If you didn’t already earn your dental degree, you must expect to earn the degree in the current academic program year.

You must either have a half-time course load and be in your last year at an eligible school, or graduated from an eligible school in the previous 12 months.

You must take the bar exam within 12 months of graduating.

What borrower is Sallie Mae best for?

Sallie Mae offers a variety of student loan products that could be a good fit for parents or students. If you, or a student you’re supporting, can’t take out additional federal student loans but need more money for school, Sallie Mae’s lack of a predefined loan limit could make it a good option.

The medical and dental residency programs and the bar study loan do have a loan limit. But even then, it’s higher than the limit of some competitors’ who offer similar types of loans.

You also may want to consider Sallie Mae if you think you’ll need a cosigner and would like to release the cosigner later. Although you still may not qualify depending on your creditworthiness, the 12 months of consecutive full payments is shorter than some other lenders require.

Taking a closer look at the online platform

You can learn a lot of details about Sallie Mae’s student loans on its website. There are landing pages for each loan product that have a lot of the basic information you’ll want to know. And there are pages with generally helpful information, such as how to make a loan payment or options if you’re having trouble making payments.

Some of the informational pages, such as on the one about interest rates and interest capitalization, also have quick video explainers to help you understand the topic and why it’s important to student loan borrowers.

The actual loan application doesn’t have quite as nice of a design as the other parts of the Sallie Mae website. But the application is still easy to navigate and fill out.

The fine print

The Sallie Mae product and informational pages give you a lot of the basic information you’ll want if you’re comparing student loans from several lenders. There are also loan application and solicitation disclosure forms for many of the loans online. In these, you can see fine-print items like the variable-rate loans’ interest rate cap and late payment fees.

It’s more difficult to find fine-print information on some of the loans, though. The K-12, residency and bar loans don’t have application and disclosure forms on their pages, for example. We were only able to confirm these loans’ fees and interest rate caps by reaching out to a representative from Sallie Mae.

While you would have a chance to review your loan details after agreeing to a credit check but before signing the loan agreement, it would be nice to have that information up front.

We were also disappointed in how difficult it is to understand how loan terms work with Sallie Mae student loans.

Some private lenders only offer one term. Others offer a variety of terms and let borrowers choose their loan term. Most of Sallie Mae’s undergraduate and graduate student loans have a five- to 15-year term, but Sallie Mae chooses which term to offer you. The loan term range, and the fact that Sallie Mae chooses the term rather than the borrow, isn’t clearly disclosed on the loan’s main page.

What to expect during the application process

Sallie Mae has an online loan application system that makes the process fairly uniform for all its student loans. A few questions may differ, but you can expect the process to be similar to the following steps. Applicants with cosigners may need their personal information, including the cosigner’s Social Security number and date of birth.

Basic information

General information. Basic information about the student and borrower:

  • Your name, email address and phone number.
  • Your date of birth, citizenship status and Social Security number.
  • Your relationship to the student, if you’re taking out a loan for someone else.

Address. Your permanent address and a previous address if you moved in the last year. If you have a different mailing address you’ll have to fill that in, too.

Student and school information. If you’re taking out the loan for a student, you’ll need the student’s name, date of birth, citizenship status and Social Security number.

Enter the name of the school and your, or the student’s academic information:

  • Degree type or certificate of study
  • Major or specialty
  • Enrollment status
  • Grade level
  • Academic period that the loan will cover
  • Anticipated graduation or certification graduate date

Loan application

Loan amount. The cost of attendance, which the application can help you estimate, as well as your estimated financial assistance.

You’ll automatically have a loan amount for the difference between your cost of attendance and financial assistance. You can choose to request less money, and even if you’re approved, Sallie Mae could offer you less than what you requested.

Employment info. Fill in information about your work, including:

  • Employment status
  • Employer’s name
  • Your occupation
  • Work phone number
  • Years with the current employer
  • Gross annual income.

Financial info. You can list additional income and assets you have, such as:

  • Income from alimony, child support or a rental property
  • Investments
  • Disability
  • Social Security
  • Income from a household member, such as a spouse

Your current assets that could be in checking, savings, CD or money market accounts.

You’ll also be asked about your expenses, including monthly housing payments (when applicable).

Personal contacts. Unless you’re taking out a loan for someone else, you’ll have to share two personal contacts that Sallie Mae can use as references. These could be a relative or family friends, and you’ll have to have their name and phone number.

Submit application. Choose to apply on your own or add a cosigner. You’ll be prompted to read and agree to an electronic delivery consent form, and may then get a copy of the loan’s disclosure form and Sallie Mae’s privacy policy.

You’ll have to agree to let Sallie Mae review your credit history to submit your application.

Finalize the loan

Once you’ve completed an application, you may need to send verification information (such as pay stubs or tax returns). But generally, Sallie Mae will offer a quick response based on your credit.

If you’re approved, you can choose your type of interest rate and repayment plan before accepting the loan. Once you accept the loan offer, Sallie Mae will contact your school to verify that you’re eligible for the loan and loan amount.

The school certification process may take several weeks, and could even be put on hold until about a month before your term begins. As long as everything checks out, Sallie Mae will send the loan to you or your school, depending on the type of loan.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

Common Student Loan Debt Relief Scams and How to Avoid Them

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Students Studying Learning Education
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If you’re looking for relief from your student loans and see a claim that seems too good to be true, it probably is. Knowing that borrowers can find themselves in dire straights, scammers may advertise that you can get some or all of your loans forgiven due to a new law or rule. They may take your money and do nothing. Or, they may not rip you off completely, but charge you a one-time or monthly fee to sign up for a federal program — a program that you could easily sign up for free on your own.

In October 2017, the Federal Trade Commission (FTC), 11 states and the District of Columbia launched Operation Game of Loans, which is a coordinated effort to address student loan scams. And in case you thought the reference to “Game of Thrones” was unintentional, the acting chairman Maureen K. Ohlhausen, said, “Winter is coming for debt relief scams that prey on hard-working Americans struggling to pay back their student loans.” The resulting court cases claim that the companies collected over $95 million from student loan borrowers looking for help.

While managing student loans can be tricky, take your time and research a company or person before agreeing to pay for assistance and watch out for scams.

Student loan debt relief scams to watch out for

Some companies provide legitimate help to borrowers who want to better understand or deal with their student loans. But it’s best to be cautious. The scams often involve similar promises or premises, and some of the most common scams include:

Student loan debt elimination/cancellation/settlement scams

One of the most enticing offers involves a promise to eliminate or cancel all your student loan debt. It may sound great, and vaguely possible as you may have heard of legitimate student loan forgiveness, repayment, discharge or cancellation programs. However, a promise that you can quickly get rid of your student loans is almost certainly a scam.

Companies may alternatively claim they can help you settle your debts for less than you owe. However, this is rarely the case. If you stop making payments, or the scammers tell you that they’ll make payments on your behalf, but they don’t, you could be left owning additional money in fees and accrued interest.

Lower monthly payment or interest rate scams

Some companies will ask for upfront enrollment fees or monthly maintenance payments with a promise to lower your monthly payments or reduce your interest rates. The companies may switch your federal repayment plan, which can lower your monthly payments but is also something you can do for free.

Even worse, some companies may request you send your monthly payments to them, instead of your loan servicer, and they simply keep the money and let your loans go into default.

The interest rate on federal loans is locked in when you the loan is disbursed and generally can’t be changed. You may be eligible for a 0.25 percent interest rate reduction on Direct Loans if you sign up for autopay. But again, this is something you can easily do for free by contacting your loan servicers.

Loan consolidation scams

If you have multiple student loans, consolidating (combining) the loans could make it easier to manage your finances and may lower your monthly payment. Eligible federal loans can be consolidated for free through the Direct Loan consolidation program. You may be able to consolidate private student loans by refinancing them with a new student loan.

The scam is when a company charges you hundreds or thousands of dollars to consolidate your loans without offering any additional aid or consultation. The Department of Education (ED) even has a warning on its site about paying others to consolidate your loans since there’s no application fee and the process is easy and free.

There is a lot to consider before consolidating or refinancing student loans. For example, if you consolidate a federal Perkins Loan, it won’t be eligible for the Perkins Loan cancellation and discharge options but may now be eligible for other federal forgiveness programs. Or, after you refinancing federal loans, they won’t be eligible for any federal programs. You may want to pay for an expert analysis of your situation and options. But spending hundreds of dollars to simply have someone else apply for consolidation on your behalf may not be a wise way to spend your money.

Red flags to watch out for

The specifics of a particular scam may vary, but there are a few trends and common themes that can tip you off that something isn’t right. For instance, Joshua Cohen, a student loan attorney based in West Dover, Vermont, says if the claim or offer has Trump or Obama in the name, that’s generally a clear red flag that it’s actually a scam.

Here are a few others to watch out for:

  • You’re promised all your loans could immediately be forgiven or cancelled. There are programs that may lead to loan forgiveness or cancellation, but they only apply to certain types of loans and the process can take years to complete.
  • There’s an upfront fee. Legitimate companies and individuals may charge fees to help you better understand your situation and options. However, it may be illegal for companies to charge a fee before they’ve done any work. In some cases, the scammers may try to convince you that the initial fee will pay down your debts, but then they actually pocket the money. Also, watch out for companies that ask you to make your monthly payments to them rather than your loan servicer.
  • They promise you relief based on a “new” program. Student loan programs may come and go, but tying an offer to a new program can be a warning sign. “Any company that claims there is a ‘new’ program under the Trump administration is a huge red flag,” says Cohen. “There is no ‘Trump forgiveness,’ nor was there ever ‘Obama forgiveness.’”
  • They pressure you with a limited-time offer. Some companies may tell you that you need to act now otherwise a program may end and you’ll miss out. Cohen says this tactic may be becoming more popular since many people know there haven’t been any new forgiveness programs under President Trump. “What I have seen is, ‘Sign up now before they take forgiveness away,’ or change the laws,” says Cohen. The added pressure can make some people fall for this trick. Cohen says while there are proposals that would end some federal forgiveness programs, they only affect future borrowers.
  • The salesperson isn’t knowledgeable about student loans. Whether you’re meeting with someone in person, on the phone, on social media or via email, do some independent research first and make sure what they say or write matches what you find on official government websites. “If the sales rep can’t explain the options, can’t point to a reference from the Dept of Ed. or offer anything in writing, that’s also a red flag,” says Cohen.
  • You’re asked to share your FSA ID. Your Federal Student Aid ID (FSA ID) is the username and password you use to sign on to federal websites and manage your loans. While it may seem like the same info you use to log into dozens of other sites, your FSA ID may be much more important. It can be used to sign loan agreements, apply for different student loan repayment plans and to consolidate a loan. A company could make irreversible changes to your loans using your FSA ID.
  • You’re asked to give them legal authority. By signing a power of attorney or third-party authorization form, you may be giving the company the legal right to make changes to your loans on your behalf. The company could then change the contact info in your account so you won’t notice that it isn’t paying your bills.
  • They claim to be part of the Department of Education. Scammers may go as far as using the ED’s seal, or a logo that looks like it could belong to a government agency, to gain your trust and try to convince you they can offer something special or exclusive. But that’s not how forgiveness programs work. If you have federal student loans, StudentAid.gov is a reliable and official source of information. With private student loans, contact your servicer before trusting a third party.
  • The company doesn’t act professionally. Misspelled words, grammatical errors, a notice urging you to sign up in all caps or other unprofessional communications could also be a red flag. Even if the company has the best intentions, you may not want to work with it.

Already a victim of a student loan forgiveness scam?

If there are bells going off in your head and you realize that you may have been paying a company that isn’t following through on its promises or offering legitimate help, there are a few steps you can take to help rectify the situation.

1. Stop working with the company
First things first, if you suspect you’ve fallen for a scam you should stop paying the scammers. If you only paid a one-time fee, you may want to contact the company just to let it know you’ll no longer be needing its services. You could also ask for a refund, although the company may not have to give you one.

“If there is any kind of auto payment being made to the scam company, the borrower should call their bank immediately and cancel all future payments,” says Cohen. He says you should then call or write the company to cancel your contract and request a refund.

Also, let your loan servicers, the companies you send payments to, know that you were working with a scammer. If you gave the scammer legal authority to access and make changes to your account, ask the servicer what you need to do to take back full control.

2. Check the status of your loans
In some cases, the scammers take your money and don’t do anything to your loans. But other scammers may make changes to your account that need to be undone.

You can log into your accounts online or call your loan servicers to check the current status of your loans. Look for and ask about any missed payments, changes to your repayments plans and any other changes to the account or loans.

With federal student loans, you can check your loan balances on the National Student Loan Data System (NSLDS) website or by contacting your loan servicer. For private student loans, reach out to the company you were making payments to, which may be different than the company that lent you the money.

3. Tell the FTC and your State Attorney General
You can file a complaint against the company with the FTC, Consumer Financial Protection Bureau and your State Attorney General. Filing a complaint could lead to formal legal actions against the scammer, may save other borrowers from falling for the scam and in some cases could lead to refunds for victims.

4. Update your FSA ID.
If you gave the company your FSA ID, you can update your username and password online. You may also want to contact the Federal Student Aid Information Center (you can call them at 1-800-433-3243) if you think the company used your FSA ID to make changes to your federal student loans.

5. Monitor your credit
If you don’t already monitor your credit, you may want to sign up for a free or paid credit monitoring service. The scammers may have stopped making payments on your loans, which could lead to late payments or defaults that hurt your credit. Check your credit reports for these derogatory marks. Although you may not be able to get them removed, it’s good to know where you stand.

You can also add a fraud report to your credit reports by contacting one of the credit bureaus, which you may want to do if you shared your Social Security number or other personal information with the scammer.

Legitimate student loan debt relief strategies

Getting scammed can be frustrating, expensive and put you in a worse position with your student loans. However, there are legitimate paths that you may be able to take towards student loan forgiveness or relief.

Federal repayment plans

If you’re having trouble making payments on federal student loans, look into the federal income-driven repayment plans. Switching plans can lower your monthly payments and depending on your income, family size and where you live your payments may drop all the way to $0 a month. Also, the remainder of your loan balance will be forgiven after 20 to 25 years of making payments on an income-driven plan.

You can use the federal repayment estimator tool to see how switching plans could change your payment amount.

Federal loan consolidation

Consolidating your federal loans may extend your repayment term. Although you’ll wind up paying more overall, this could lower your monthly payments.

Depending on the types of loans you have, consolidating the loans may make them eligible for, or disqualify them from, certain loan forgiveness or cancellation programs. Also, since you’ll receive a new loan that pays off your existing loans, payments that you’ve made towards a forgiveness or cancellation program won’t carry over to your new loan.

Federal loan forgiveness, cancellation and discharge programs

Depending on your loans and situation, you may be eligible for legitimate federal loan forgiveness, cancellation or discharge programs. For example, with the Public Service Loan Forgiveness program, you may be able to get the remainder of your loan forgiven after making 120 payments while working full-time for an eligible nonprofit or government organization.

Loan deferment and forbearance

You may be able to put federal or private student loans into deferment or forbearance. Eligibility can depend on your situation and the type of loan you have. Deferment is often for when you can’t make payments because you return to school, are on a military assignment or working with a public service organization. Forbearance could be granted for economic hardship, perhaps due to a loss of job or medical emergency.

With either deferment or forbearance, you can temporarily stop making payments without incurring late fees or defaulting on the loan. However, your loans in forbearance may continue to accrue interest during these periods.

Get real help managing your student debt

There are also people and organizations that can genuinely help you understand and manage your student loans. Some of them charge fees, but that isn’t necessarily an indication that it’s a scam.

Cohen suggests borrowers start with the free route by checking official government website if you have federal student loans, or your loan servicer’s site for private student loans. “If the borrower is still confused or uncertain, contact a student loan lawyer,” says Cohen. “Most folks don’t need a lawyer, but at least the lawyer is regulated by the State Bar which creates a higher degree of accountability.”

You can also look for assistance from nonprofit organizations. The National Consumer Law Center has a student loan borrower assistance project that you may find helpful. Many nonprofit credit counseling organizations also offer student loan and debt management counseling for a $50 to $200 fee. The National Foundation for Credit Counseling can help you find a certified counselor.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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News

What’s the Difference Between Dental Insurance and Dental Discount Plans?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Some employers offer dental insurance as an optional benefit, separate from health insurance. But those who don’t have this as an employer benefit, or don’t like their employer’s options, may want to find a plan on their own.

Choosing either dental insurance or a dental discount plan can save you big, but there are important differences to consider before deciding which route to choose.

Dental insurance versus dental discount plans

Before jumping into details, here’s a quick overview of the two offerings:

Dental insurance

Individual dental insurance costs more than insurance through an employer. According to the most recent figures from the National Association of Dental Plans, individual plans cost $4-$15 more per month than group plans (those offered through employers) and $20-$35 more for family plans. In 2016, the average DHMO (similar to HMOs for health insurance) premium cost $14.06 per month for employee-only coverage. The average DPPO cost $24.49 per month. Premiums for individual insurance would be higher, based on past research.

DHMOs are generally cheaper than DPPOs, both in premium and in service cost, but only if you go to an in-network provider, according to Guardian Life Insurance. Most DHMO networks are small, limiting your provider options, and you may be required to choose a primary care dentist. DPPO plans have larger networks and allow you to go to any dentist, though they may offer the best discount at in-network providers. DPPOs may have a maximum limit on coverage (often up to $2,000) per adult per year, while DHMOs do not have annual maximums, according to dental insurer Solstice Benefits.

Many dental insurance plans fully cover preventative care, like two cleanings and one set of X-rays per year. Insurers also tend to cover the majority (generally 80 percent) of basic procedure costs about half the cost of major procedures, according to Guardian Life. How much you have to pay will depend on the copay (DHMO) or coinsurance (DPPO) amounts set by your insurance. Your plan may or may not cover orthodontics, so that’s something to consider when shopping around.

Dental discount plans

With a discount plan, you pay a monthly or annual membership fee and will receive a discounted price on services. We looked at several discount plans on the comparison site DentalInsurance.com, and monthly membership fees for an individual range from about $8-$15, though costs vary by location.

Dental discount plan networks may be more limited than insurance networks, and compared with insurance, the out-of-pocket costs are often higher for patients. You can get full coverage of preventive care with a discount plan, but it’s less common than it is with insurance. With discount plans, there are no copays or coinsurance; rather, there are set discounts on specific services. Discounts range from about 20-50 percent, with routine procedures getting the highest discounts.

Based on a review of dental discount plans available online, it’s clear you’ll have to compare multiple plans to get a sense of your potential savings, as costs and coverage vary by provider and location.

Factors to consider when choosing one option over another
At first glance, you may think the only difference between dental insurance and a dental discount plan is the cost and amount of coverage, but there’s more to consider.

When do you need coverage to start?

Some insurance plans may allow you to get a cleaning or X-ray right away, but there are often waiting periods.

“It’s common to see six-month waits for fillings and one year for major services,” says Adam Hyers, owner of Hyers and Associates, an independent life and health insurance agency in Columbus, Ohio. “These waiting periods prevent consumers from abusing the plan” — using the insurance for a procedure and then dropping it right away.

By contrast, dental discount plans don’t have any waiting periods. It may take a few business days for your membership to go through. If you have an immediate (nonemergency) need, you may be able to pay for a dental discount plan and get a discount on the procedure a few days later.

How many options do you want?

An important consideration is how many dentists you can choose from, and if there’s a well-rated in-network dentist nearby. If you already have a dentist you like, check with the office to see if it will accept the insurance or discount plans you’re considering.

Brian Correia is a director of sales and client services for Solstice Benefits, which provides dental insurance and dental discount plans in five states. Correia says that generally, dentists who are just starting out will participate in dental discount plans and insurance networks because they’re trying to grow their customer base. Established dental businesses and chains might only accept insurance plans, although some offer in-house discount plans. Then there are dental practitioners who have a loyal client base.

“They may not take any insurance or discount plans, because people will keep coming to them and pay out of pocket,” says Correia. He adds that from a practitioner’s perspective, it’s easiest and most profitable to receive out-of-pocket payments from clients.

Dental insurance is the next most profitable for dental offices, because the dentist receives your copay or coinsurance and gets reimbursed from the insurance company. However, with a dental discount plan, the dentists only get what you pay — they don’t receive anything from the plan provider. That’s why new dentists, aiming to grow their client base, are often the only ones who accept discount plans and why your options may be limited.

What do the plans really cover?

As with any contract, you should carefully read the fine print before paying for insurance or a discount plan. Otherwise, you might be surprised to find out when you need to pay for a procedure, and how much it’ll cost you.

“With crowns and bridges, you might see a copay of $250 for a crown or bridge with an asterisk next to it,” Correia says. Read the content associated with the asterisk. It may say that laboratory fees — like the cost to get your new tooth molded — aren’t part of that copay and aren’t covered. You could also have to pay a materials fee if you want a more expensive material. And some inexpensive insurance policies may not offer any coverage for high-cost procedures, like a root canal.

Another fine-print point to consider is that your cost can vary depending on the dentist. Even two dental plan or insurance in-network dentists may charge different prices for the same procedure.

If you already have a dentist whom you want to stay with, you may want to call and confirm how different coverage will affect your costs. If you’re looking for a new dentist, create a short list of well-rated or recommended dentists and ask what your net cost will be before buying insurance or a dental plan.

Which option is best for you?

Compared with having no coverage at all, you can save money with either a dental insurance plan or a dental discount plan.

If you already have a dentist whom you like to visit and are looking to save money, your best bet may be to ask which options the dentist accepts and compare the costs for your family’s general needs. When you don’t have a dentist, it can be more difficult to compare all the different insurance and discount plans available.

For those who regularly get cleanings and don’t have a history of dental problems, a dental discount plan could provide adequate coverage for a low monthly fee. Although you may only break even or save a little money on your twice-a-year cleanings and annual X-ray, you’ll have some added security in knowing you can save money on other procedures. However, since the discount plan isn’t likely to cover the entire cost for major work, you may want to have some savings set aside for an emergency.

Buying dental insurance on your own could make both routine visits and emergencies more affordable, and may be the best option if you have a large family. But for individuals and those who aren’t prone to needing expensive dental care, the premiums can be so high, and the annual coverage limits so low, that you won’t always get a benefit.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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