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College Students and Recent Grads

Top Checking Accounts for College Grads

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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For many college students, their default banking option while in school is a student checking account, which is typically free. Unfortunately, when you graduate you lose those benefits. Many student checking accounts will begin to charge you monthly maintenance fees unless you meet certain requirements.

So, where do you go from there?

Few young adults would turn to their parents for fashion or dating advice and, yet, one of the most common ways we’ve found young people choose their bank account is by going with whichever bank their parents already use. This could be a bigger faux pas than stealing your dad’s old pair of parachute pants.

The bank your parents use may carry fees or have requirements that don’t meet your lifestyle or budget, and make accounts expensive to use.

But where do you even begin to choose the right checking account?

When you’re nearing graduation, start planning your bank transition.

Many banks send a letter in the mail a few months prior to your expected graduation date informing you that your student checking account is going transition to a non-student account. If you’re not careful and you disregard the letter, you may be transitioned into an account that charges a fee if you don’t meet certain requirements.

You can always call the bank and ask to switch to a different account or you can choose a new account that offers more benefits, like interest and ATM fee refunds.

Account Name

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

Chime $0$0NoneNone
Axos Bank Rewards Checking$0$50Unlimited domestic Up to 1.25% APY if requirements are met
Discover Bank$0$0NoneNone, but 1% cash back on up to $3,000 debit card purchases per month
Ally Bank$0$0Up to $10 per statement cycle 0.10% to 0.25% APY depending on balance
La Capitol Federal Credit Union Choice Plus Checking$0(if less than $1,000, there is a $8 fee)$50Up to $25 per month4.25% APY on balances up to $3,000 2.00% APY on balances $3,000-$10,000 and 0.10% on balances over $10,000
Consumers Credit Union (IL) Free Rewards Checking$0$5Unlimited ATM reimbursementsUp to 4.09% on balances up to $10,000,
0.20% APY on balances between $10,000 and $25,000 and 0.10% APY on balances over $25,000
T-Mobile Money$0$0None4.00% APY on balances up to $3,000, 1.00% APY after that
Evansville Teachers Federal Credit Union Vertical Checking$0$25Up to $15 in ATM reimbursements per month 3.30% APY on balances up to $20,000

The 5 key things you should look for in a checking account

When you’re shopping around for a new checking account, there are several things you should look for to ensure you’re getting the most value from your account:

  1. A $0 monthly fee: Sometimes banks may say they don’t charge a monthly fee but read the fine print — they may require a minimum monthly balance in order to avoid it. There are plenty of free checking accounts available for you to open, so there’s no reason to stay stuck with an account that charges a monthly fee. Take note, as some accounts may require you to meet certain criteria to maintain a free account like using a debit card, enrolling in eStatements or maintaining a minimum daily balance.
  2. No minimum daily balance: Accounts without minimum daily balances mean you can have a $0 balance at any given time. This may allow you to have a free account without meeting balance requirements — although other terms may apply to maintain a free account.
  3. Annual Percentage Yield: APY is the total amount of interest you will earn on balances in your account. Opening an account that earns you interest on your balance is an easy way to be rewarded for money that would typically sit without earning anything. You should definitely aim to earn a decent APY on your savings account.
  4. ATM fee refunds: You may not be able to access an in-network ATM at all times, so accounts providing ATM fee refunds can reimburse you for ATM fees you may incur while using out-of-network ATMs. Those $3 or $5 charges add up!
  5. No or low overdraft fees: Most banks charge you an overdraft fee of around $35 if you spend more money than you have available in your account. Therefore, it’s a good idea to choose an account that has no or low overdraft fees.

Top overall checking accounts for college grads

For the top overall checking accounts, we chose accounts that have no monthly service fees, no ATM fees, refunds for ATM fees from other banks, interest earned on your deposited balances and with strong mobile banking apps. While there is no all-inclusive account that contains every benefit, the accounts below are sure to provide value whether you want a high interest rate, unlimited ATM fee refunds or 24/7 live customer support.

1. Chime

The Chime Spending Account boasts an array of features that will likely benefit young adults who are just learning how to manage their money — including fee-free overdrafts up to $100, early direct deposit, no monthly fees and no minimum balance requirements. Additionally, Chime offers the option to round up each transaction and deposit the difference into your linked savings account.

Note that Chime is not a bank itself — it’s a financial technology company — but it provides its banking services and FDIC insurance by partnering with the Bancorp Bank or Stride Bank.

2. Axos Bank Rewards Checking

The Axos Bank Rewards Checking account is a great option for college grads, as it offers low fees and generous rewards. There are no monthly service fees, no overdraft fees and unlimited reimbursements for domestic ATM fees. Currently, you also can earn an APY up to 1.25% if you meet the following requirements:

  • Receive monthly direct deposits totaling $1,000 or more
  • Use your Axos debit card at least 15 times per month

3. Discover Cashback Debit

Cracking our list for the best checking accounts for college graduates is Discover Bank, which takes a unique approach to checking account rewards. Instead of offering an APY on deposit balances, Discover opts for cash back as an incentive to get consumers to sign up for its checking product. The Discover Cashback Debit account offers up to 1% cash back on $3,000 of debit card transactions per month. That coupled with its zero fees and free access to 60,000 ATMs nationwide make it one of the best checking accounts for college graduates.

4. Ally Bank

Online bank Ally Bank offers a solid checking account with minimal fees, decent APYs and other attractive perks. Its Interest Checking account charges no monthly maintenance fees and provides free access to Allpoint ATMs nationwide, as well as a $10 reimbursement per statement cycle for any other ATMs fees incurred. Ally Bank’s APY isn’t too shabby, either: You can earn an APY of 0.25% with a $15,000 minimum balance or 0.10% with balances under $15,000. Other cool features include its Ally Skill for Amazon Alexa, which enables you to transfer money with just your voice.

Top high-yield checking accounts for college grads

Since most checking accounts offer little to no interest, high-yield checking accounts are a great way for you to maximize the money that typically would just sit in your account without earning interest. These accounts often offer interest rates that fluctuate depending on how much money you have in the account. However, in order to earn interest, there are some requirements that you may have to meet such as making a certain number of debit card transactions and enrolling in eStatements.

1. La Capitol Federal Credit Union Choice Plus Checking

This checking account has a $2 monthly service fee, which can easily be waived if you enroll in eStatements.

While the terms state a minimum balance requirement of $1,000 and a low balance fee of $8, the fee can be waived if you make 15 or more posted non-ATM debit card transactions per month.

To earn the top interest rate on your checking balance, you just need to make at least 15 or more posted non-ATM debit card transactions per month. There are numerous surcharge-free La Capitol ATMs for you to use, and after signing up for eStatements you can receive up to $25 per month in ATM fee refunds when you use out-of-network ATMs.

SEE DETAILS Secured

on La Capitol Federal Credit Union’s secure website

NCUA Insured

2. Consumers Credit Union (IL) Free Rewards Checking

The Consumers Credit Union (IL) Free Rewards Checking account is just that: Rewarding. It offers a tier-based APY, which includes a 4.09% APY on balances up to $10,000, 0.20% APY on balances between $10,000 and $25,000 and 0.10% APY on balances over $25,000. In order to earn the highest APY, you must complete at least 6 signature-based debit purchases receive at least one direct deposit, ACH debit, or pay one bill through their free bill payment system totaling $500 or more, log into your online banking account and be signed up for eStatements and spend $1,000 or more with a Consumers Credit Union Visa credit card each month. This account has no fees and offers unlimited ATM reimbursements if requirements are met.

3. T-Mobile Money

Wireless carrier T-Mobile has forayed into finance with a checking account, T-Mobile Money. The account offers a generous APY of 4.00% on balances up to $3,000, with balances over that threshold earning 1.00% APY. In order to receive the higher APY, you must meet the following requirements: Be enrolled in a qualifying T-Mobile wireless plan, be registered for perks with your T-Mobile ID and have deposited at least $200 in qualifying deposits to your checking account within that current calendar month. T-Mobile Money does not reimburse for out-of-network ATM fees, but it does not charge any maintenance fees.

4. Evansville Teachers Federal Credit Union Vertical Checking

Evansville Teachers Federal Credit Union’s Vertical Checking account doles out a generous APY of 3.30% on balances up to $20,000 if you meet the following requirements per month:

  • Make at least 15 debit card purchases
  • Make at least one direct deposit
  • Make at least one online or mobile banking login
  • Receive electronic statements

This account boasts a low, minimum opening deposit of just $25 and no monthly service fee, as well as up to $15 in ATM fee reimbursements per month.

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Your Guide to Student Loans in 2021

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Student loans help you pay for educational expenses, such as tuition, fees, room and board, equipment and transportation to and from school. You can borrow from the U.S. Department of Education or a private lender, though it’s worth exploring your options for scholarships and grants before you take on debt. If you need extra funding, it’s usually best to borrow federal loans before taking out private loans for school.

In this guide, we’ll explore the difference between federal and private loans, how to apply for both and where to find other sources of money to pay for school.

PART I: Understanding student loans

As with other types of debt, you must agree to repay student loans, 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 look into taking out private loans for school. 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 that you can use for additional educational expenses, such as off-campus housing or 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. Meanwhile, 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, or 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 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 loan repayment 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 one 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 in a grace period, and then it will be capitalized (added to your loan’s principal balance) 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

Student 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 with 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, flexible repayment options, deferment and forbearance programs and eligibility for federal forgiveness can make federal loans a better option. Private lenders may not offer or guarantee similar options.

However, if you’ve maxed out your eligibility for federal loans but still need more money, taking out private loans for school could be worth considering.

Please change the H3 subheads in this section to the purple text & gray underline, as the other H3s are in the other sections. Thanks!

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 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, 2020 to June 30, 2021. The disbursement fees apply to federal student loans disbursed from Oct. 1, 2020 to Sept. 30, 2021.

Direct subsidized loan

 Interest rateDisbursement feeAnnual loan limitAggregate loan limitCredit needed
Direct subsidized loans2.75%1.057%$3,500 first year
$4,500 second year
$5,500 third and subsequent year
$23,000None

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 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, as well as the interest 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

 Interest rateDisbursement feeAnnual loan limitAggregate loan limitCredit needed
For dependent undergraduate students2.75%1.057%$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 Loan2.75%1.057%$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 students4.3%1.057%$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. 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 as such might be able to save money with a private student loan.

Parent PLUS loan

 Interest rateDisbursement feeAnnual loan limitAggregate loan limitCredit needed
Parent PLUS loan5.3%4.228%Your child's cost of attendance minus other financial aidNo limitNo 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 schedule that’s less than half time. However, interest will accrue during that deferral period.

Pros and cons. As with other federal student loans, parent PLUS loans 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 rateDisbursement feeAnnual loan limitAggregate loan limitCredit needed
Grad PLUS loan5.3%4.228%Your cost of attendance minus other financial aidNo limitNo 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 loans — 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 preset 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.

If you want the best of both worlds — greater federal loan protections but lower private loan rates — keep in mind that you could always refinance your student loans down the road. You might borrow PLUS loan for its safeguards, but decide later that they’re worth trading for a lower interest rate as you ramp up your repayment.

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 borrowing federal loans and taking out private loans for school, 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 preset 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 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. Currently, many of these start with a lower interest rate than fixed-rate loans, but there’s a risk the rate will increase in the future.
  • Interest rate discounts. Federal and private student loans often offer a 0.25% 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 the government’s 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 or 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) is 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, such as whether they let you release a cosigner. You could also read 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 those for undergraduates, and older applicants may be able to qualify for a lower interest rate with a private lender. However, consider the big picture — there may be other drawbacks, such as lack of access to federal forgiveness programs and repayment plans.

Finally, private loans could be a last resort for students who aren’t eligible for federal financial aid. This cohort includes part-time and international or immigrant students.

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. You can find a guide from the Department of Education and free phone support at 800-4-FED-AID (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 Permanent Resident 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’ll 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 less aid being offered.

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 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’ll 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.

Taking out private loans for school

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 even be able to log in and submit their 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 via fellowships. Plus, you could look into different work opportunities.

If you submitted a FAFSA, you may receive a work-study award as part of your financial aid offer. The federal work-study program pays a portion of a 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 summer, might not earn you enough to cover all your educational costs — but every dollar you earn and put toward your education is one less dollar you need to borrow (and pay interest on).

If working an in-school job isn’t feasible, you could also avoid borrowing by using an Income-Share Agreement (ISA). Available at schools and through private companies, ISAs help you cover your tuition in exchange for a percentage of your income when you leave school and find employment. Of course, consider ISAs or student loans only after racking up as much gift aid and savings as you can.

Rebecca Safier contributed to this article.

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Understanding the Difference Between Forbearance and Deferment

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Need a break from repaying your student loans? Both deferment and forbearance allow you to postpone payments on your federal student loans temporarily, but there are also differences between them.

In periods of deferment, for example, subsidized loans don’t accrue interest, so you don’t have to worry about your balance growing. Forbearance, however, can be easier to qualify for.

Generally, all federal loans are eligible for deferment or forbearance, but only some private student loans offer this option.

[Note: Some details may have changed due to coronavirus pandemic measures. Read more here.]

To get the full picture on pausing your student loan repayment, let’s look at the following topics:

Key differences between forbearance and deferment

One major difference between forbearance and deferment has to do with subsidized loans, which are loans that are available to undergraduate students with financial need. If you defer subsidized loans, you won’t have to worry about any interest accruing on your balance.

This is true whether you’re in your grace period during college or get a deferment for an alternative reason, such as economic hardship. That said, your unsubsidized loans will accrue interest during a period of deferment. And typically, all loans accrue interest during a period of forbearance.

The only exception to this is the emergency forbearance that has been put in place in response to the coronavirus pandemic (in which both payments and interest have been suspended on qualifying loans).

So if you have any subsidized loans, deferment is usually the better option. But if you don’t, there’s no major difference between forbearance and deferment, apart from the criteria you’ll need to meet to qualify.

This chart shows the difference between forbearance and deferment, specifically for subsidized loans.

Qualifying for forbearance and deferment

Another major difference between forbearance and deferment has to do with the criteria you’ll need to meet to be eligible. There are two types of forbearance: mandatory and discretionary.

If you meet a requirement for mandatory forbearance, your loan servicer has to grant your request. If you don’t, your loan servicer can decide whether or not to pause your payments.

Mandatory forbearance

Forbearance will be granted if any of the following pertain to you:

  • You are enrolled in a medical or dental internship or residency.
  • You are serving in a national service position, such as AmeriCorps, are part of the Department of Defense repayment program, are in the National Guard or are eligible for teacher loan forgiveness programs.
  • Your monthly loan payment is 20% or more of your gross monthly income.
  • You are teaching in a program that qualifies for loan forgiveness.
  • You qualify for partial repayment under the U.S. Department of Defense Student Loan Repayment Program.
  • You are called into active military duty.

Discretionary forbearance

Forbearance may be granted if any of the following apply:

  • You are enrolled less than half time (each school has their own definition of ‘half time’).
  • Poor health.
  • Unemployment (beyond the maximum deferment time limit).
  • A reduction in work hours.
  • A life-changing circumstance.

Deferment

You can qualify for a deferment if you are:

  • Enrolled at least half time at an eligible postsecondary school.
  • In a full-time course of study in a graduate fellowship program.
  • In an approved full-time rehabilitation program for individuals with disabilities.
  • Unemployed or unable to find full-time employment (for a maximum of three years).
  • Experiencing an economic hardship (including Peace Corps service) as defined by federal regulations (for a maximum of three years).
  • Serving on active duty during a war or other military operation or national emergency and, if you were serving on or after Oct. 1, 2007, for an additional 180-day period following the demobilization date for your qualifying service.
  • Performing qualifying National Guard duty during a war, other military operation or national emergency and for an additional 180-day period following the completion of your qualifying service.
  • A member of the National Guard or other reserve component of the U.S. armed forces (current or retired) and you are called or ordered to active duty while you are enrolled (or within six months of having been enrolled) at least half time at an eligible school.

Applying for forbearance or deferment

If you’re at risk of falling behind on your student loans, act fast. You don’t want your loans to go into default, as it comes with a host of bad consequences and makes your loans ineligible for forbearance or deferment until you get them back into active standing.

Start taking action by reaching out to your loan servicer. Be sure to keep the lines of communication open. You’ll need to work with your loan servicer(s) to apply for deferment or forbearance. You can sign into your Federal Student Aid account to see the details of your loans and loan servicers.

Your student loans can be placed in deferment for up to three years. Forbearance is typically granted in 12-month intervals for up to three years.

Note that putting loans into deferment or forbearance does not hurt your credit score. That’s another reason why you should pursue forbearance or deferment if you’re at risk of default — missing payments can do serious damage to your credit.

How to restart normal repayment on your student loans

Before your deferment or forbearance term expires, contact the servicer of the loan. You will need to explain your current situation.

Both you and the lender will create a repayment plan that will work for your new situation. Note that if your situation changes before your deferment or forbearance period expires, you can resume payments at any time.

If you’re able to make small payments, your lender might recommend an income-driven repayment plan, which adjusts your monthly payments in accordance with your income and family size.

Final words of advice on forbearance and deferment

If you’re having trouble paying your student loans, contact your loan servicer(s). Keep paying toward the current agreement. Do not let your loans go into default. If they do go into default, you must get current before applying for either deferment or forbearance.

If your loans are current, begin the application process for deferment or forbearance. Lenders want their money. They are willing to work with you to make that happen — even if payments are delayed. Talk with them. They will listen.

Whether you go with deferment or forbearance, what’s important is you’re addressing your situation and doing what it takes to avoid default.

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