Best Student Loans for Both Students and Parents

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Updated on Wednesday, June 8, 2016

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Navigating the world of student loans can be daunting. Not only are there several criteria you should evaluate before you sign on the dotted line, but there are also different options available to you depending on where you are on your life’s journey.

Today we’ll walk through some of the best options out there depending on your current circumstances.

Students About to Enter School

Before you apply to school, you should fill out and submit your FAFSA. It’s the best way to get your hands on grant money, work-study opportunities and federal student loans. Before taking out any student loans, you should talk to your school about any additional financial aid packages it may provide including scholarships and grants, both of which you never have to pay back.

After you’ve exhausted all the avenues for money, you can start to consider student loans. Federal student loans are widely considered the best option as they provide opportunities like deferment, income-driven repayment and, in some cases, forgiveness or cancellation. With all of these advantages, you should max out all of your Federal student loan options prior to looking at private student loans.

Criteria for Private Student Loans

If you’ve gotten all you can from grants, scholarships, work-study and Federal loans and still don’t have enough to cover the cost of college, you may want to look into private student loans. Before taking out a loan you’ll want to evaluate:

  • Interest Rates
  • Upfront Fees
  • Grace Periods/Interim Periods
  • Repayment Assistance Options

You do want to shop for the lowest possible interest rates and avoid any loans that require fees aside from late fees for late payments, but be sure to recognize the value in the other criteria, too.

Grace Periods

Grace periods, sometimes referred to as interim periods, give you some time between graduating school and making your first payment. This gives you time to locate and secure employment. The grace period typically also starts if you drop below half-time enrollment in school. Keep in mind that interest is likely to still accrue during the grace period, so it’s wise to consider making interest-only payments during this time period.

Our favorite pick for student loans with a grace period? Discover. Discover Student Loans have a six-month grace period for undergraduate degrees and a nine-month grace period for professional degrees. If you drop below half-time, you’ll have a six-month grace period, too.

Discover Student Loans tick many of the other boxes, as well, including:

  • Competitive interest rates.
  • Zero fees (not even late fees.)
  • Flexible repayment options.
  • Repayment assistance in the form of deferment, extended grace periods and forbearance.

Explore more top picks for private student loans with grace periods

Repayment Assistance Options

Many private student loan providers are starting to offer options akin to Federal programs. Typically, these repayment assistance options will provide opportunities for forbearance and deferment, though you should read all the fine print carefully on your individual loan offer; the terminology will not necessarily carry the same meaning for private student loans as they do for federal student loans.

Discover Student Loans are top of the list for repayment assistance options as mentioned above with deferment, extended grace periods and forbearance (which isn’t always the case with private loans), but another good alternative is Citizens Bank (RI). It offers forbearance and deferment on a case-by-case basis, so it is not as easily accessible as with Discover, but the fact that they even offer the option is still progressive.

Citizens Bank Student Loans also have a lot of other things going for them:

  • Lower interest rates.
  • No fees.
  • Repay over the course of 5, 10 or 15 years with the option to pay interest while you’re in school.
  • Six-month grace period.
  • Ability to release your co-signer from their obligation after 36 months of full, on-time payments.

Explore more top picks for student loans for future students

Options for Graduates

After you’ve graduated college, hopefully you’ll land a job that allows you to pay back your loans and then some. If that doesn’t happen, you won’t be the first person to walk the path of needing extra assistance. Even if you can afford payments, you may have taken out your loans at a time when interest rates were much higher than they are today. Here are some options to better your financial situation when it comes to the student loans you already carry.

Refinancing

Refinancing is an option for people who can afford their payments and have a steady record of being on-time. Some, though not all, lenders will also evaluate if you have a good credit score.

If your interest rates are steep, you may want to seriously look into refinancing. Be careful, though; while there is a push to be able to refinance with the government, you cannot currently refinance your federal student loans without consolidating or moving to the private sector. Doing so can disqualify you from advantageous programs such as income-driven repayment and forgiveness.

You can find which refinancing option is best for you with our comparison tool.

Income-Driven Repayment Plans

There are five major income-driven repayment plans. As we look at these plans, we’ll evaluate income eligibility, if you have to include your spouse’s income when filing taxes separately, how many years you’ll have to pay, how much you’ll pay, which loans qualify and if there is a cap to how much you’ll pay overall.

Traditional IBR (Income-Based Repayment) Plan

  • Income eligibility: Annual amount due on your loan must exceed 15% of your discretionary income, which is considered the difference between 150% of the poverty line in your state and your adjusted gross income (AGI.)
  • How much will I pay? 15% of your discretionary income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

New IBR Plans (for borrowers who started taking out loans after July 1, 2014)

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 20 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

Learn more about Traditional and New IBR Plans

ICR (Income-Contingent Repayment) Plans

  • Income eligibility:
  • How much will I pay? The lesser of 20% of your discretionary income or what you would pay on a fixed, 12-year repayment plan adjusted to your income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You could potentially end up paying more over the life of your loan than you would on a standard, 10-year payment plan.
  • Which loans qualify? All federal loans.
  • Must include spouse’s income if married filing taxes separately?

PAYE (Pay As You Earn) Plan

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income, plus you must have been a new borrower after October 1, 2007 and received a disbursement on or after October 1, 2011.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

REPAYE (Revised Pay as You Earn) Plan

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 20 years for undergraduate degrees and 25 years for professional degrees, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You could potentially end up paying more over the life of your loan than you would on a standard, 10-year payment plan.
  • Which loans qualify? All Federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

Learn more about the difference between PAYE and REPAYE

Public Service Loan Forgiveness (PSLF)

If you work for the government or a non-profit with a 501(c)(3) tax classification, you may qualify for the PSLF program. In order to qualify, you must be set up and be in active repayment on one of the above income-based repayment plans and work enough hours at one or several qualifying employers to be considered full-time.

If you qualify, your loans will be forgiven after 120 payments, which adds up to 10 years. These payments do not necessarily have to be consecutive.

If you don’t qualify for PSLF, you may want to look into cancellation or discharge of Federal student loans.

Parents of Current Students

If you want to borrow money to help pay for your child’s education, you essentially have two options. The first is a Parent PLUS loan from the Federal government. Parent PLUS loans are currently only available via a Direct PLUS loan.

These loans have a fixed interest rate (currently 4.272%,) cannot be transferred into your child’s name, and can finance all of your child’s tuition and fees less any financial aid. Because you can borrow so much money, it’s important to be sure that you can actually pay it back. For its part, the Federal government checks to make sure repayment is likely by running a credit report on you before approval.

Keep in mind that the only income-driven repayment plan you could possibly be eligible for is ICR, and that you will be ineligible for PSLF unless you work in the public sector; your child’s occupation is irrelevant. You will be notified if you qualify for this loan after you apply for the FAFSA. If your child’s school does not participate, the government will tell you so you can put a request in with the educational institution to secure this type of loan.

Your other option is to refinance with the private sector. Be savvy when applying for private student loans, utilizing the same practices suggested to your children above. Two great options for parents are SoFii and Citizens Bank (RI).

Citizens Bank (RI) offers a Student Loan for Parents that has no application fee, can be for a five- or ten-year term, and has competitive, fixed interest rates. While your child is in school, you can make full or interest-only payments, though payments cannot be deferred completely.

SoFi provides refinancing. In order to qualify, you have to have to have a great credit history and make solid money, making this an ideal option for parents who may be further along in their careers. You cannot switch between fixed and variable rates, but rates remain competitive with those of the Federal government.

Parents of Graduates

As you well know, just because your student has earned their degree, it doesn’t mean you’re done paying for their college. If you’re carrying a Parent PLUS loan, especially if it has an interest rate on the higher end, you may want to look at refinancing.

Because the only income-driven repayment plan you are eligible for with a Parent PLUS loan is ICR and you’re only eligible for PSLF if you work in the public sector, there aren’t quite as many consequences for you if you refinance in the private sector. ICR can be beneficial for parents approaching, or already in, retirement as it sets your payments based on your income. Federal student loans, including Parent PLUS loans, won’t be passed on to a child upon your death. Private student loans are not always so generous, so be sure to read the fine print of your agreement.

That doesn’t mean you should skip doing the math, though. Keep the length of the loan as similar to what you already have as possible, and then shop for a lower interest rate.

One great option for parents who are refinancing a Parent PLUS loan is the DRB Parent PLUS Refinance Program. Its interest rates are competitively low, you can request a term that will match your current pay off date and it is available in all 50 states.

If you cosigned on a loan with your graduate, you may want to look at getting released from that obligation. Doing so will not only release you from your financial responsibilities today, but it will also protect your grad from a potential financial nightmare should you pass away or for you if your child passes.

Some lenders, like Citizens Bank (RI), will allow you to be released as a cosigner from the loan without refinancing after a certain amount of payments have been made on time and in full. With other loans, you may have to look at refinancing to get everything in your child’s name only. Three financial institutions that allow this type of refinancing are:

Read Up Now

The best time to get educated about your student loan options is before you take them out. Understand when you will have to pay them back, how competitive the interest rates are, what your repayment options will be further down the line, and how and if you can release your cosigner after you’ve established you’re a responsible party. Doing your homework now could save you hundreds to thousands of dollars further down the line.

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