College Success
02.19.2023 • 13 min read
Subject Matter Expert
Here’s the best student loans list for the year. We’ll also explain the difference between federal and private loans and how to apply.
In This Article
Americans owe more than $1.7 trillion in student loan debt. That’s more than Amazon’s and Microsoft’s net worth combined.
The average college graduate owes around $37,000, according to the Education Data Initiative. That’s basically a new car.
This means millions of people are paying off their college education years after they’ve graduated.
Whether you’re right out of high school or considering going back to college in your 30s, the idea of starting a new career path with thousands of dollars of debt is scary.
By understanding the differences between student loans and how to access them, you can truly make loans work for you. This way you can take your time to focus on your college studies and graduate with confidence knowing financial freedom is right around the corner.
Figuring out which student loan is the right one for you takes some research since there are a few variables:
The average annual percentage rate of the loan
The loan terms
The availability of the loan
Federal loan programs are first on the list due to their lower rates, friendlier terms, and high availability. Private loans come after federal loans due to their higher rates.
Private loans are ranked on their average terms since they can vary based on factors like the borrower’s credit score, cosigner requirements, and the borrower’s chosen college.
Hands down, federal direct subsidized loans are the best student loans. The federal government issues these to students showing considerable financial need on their FAFSA.
Subsidized means the loans do not accumulate interest while you are in school. This is the only loan that does not gain interest right away.
Other benefits of federally subsidized loans include a low-interest rate of 4.99% and a 6-month grace period after graduation before interest accumulates and repayment begins.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| No credit check | 4.99% | $12,500 |
Federal unsubsidized loans are still a great option and have many of the benefits of subsidized loans. These loans start accumulating interest from the moment the loan is taken out, but they’re available to any student without eligibility requirements.
A wise student would make interest payments on these loans each month to reduce the amount of accumulating interest. The current interest rate of federal unsubsidized loans is 6.54% with a 6-month grace period.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| No credit check | 6.54% | $20,500 |
Two types of PLUS loans are available:
PLUS loans for graduate students
PLUS loans for parents
These loans are unsubsidized and accumulate interest right away.
A PLUS loan does not have a financial cap and can be used to cover any expenses other student loans do not pay for. PLUS loans have a higher interest rate of 7.54%, but also come with a 6-month grace period after graduation.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| No credit check | 7.54% | Total cost of school |
Since 1972, Sallie Mae has been a private student loan servicer. This company has a strong reputation in the banking world and provides several student services outside loans.
Sallie Mae requires a credit score in the mid-600s to qualify, or you must have a cosigner. A student loan from Sallie Mae can cover all education expenses, including resources like a computer.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| Mid 600s | 3.75% - 13.72% | Attendance minus aid |
In a few minutes, you can find out if you qualify for a student loan from College Ave through their online application. This student loan servicer offers loans to both students and parents of students in all 50 states.
College Ave offers student borrowers incentives for graduating, like reduced interest rates and flexible repayment plans.
Students have the option to borrow all the money they need for college, including tuition, fees, room and board, and additional expenses.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| Mid 600s | 3.39% - 13.95% | No maximum |
Students have the option to fund all of their undergraduate, graduate, or professional degree expenses through Earnest. Borrowers also have the opportunity to refinance their loans should better rates become available.
Earnest is one of the newer private student loan lenders on the list, but it has gained an A-rating with the Better Business Bureau (BBB).
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| 650 | 3.24% - 12.78% | Attendance minus aid |
Founded by Stanford Business School, SoFi offers loans to students seeking any degree. SoFi prides itself on not having any fees—such as origination fees—in its student loans.
Students interested in SoFi loans can allow the company to run a soft credit pull to prequalify without harming their credit.
Since students created the company, several repayment options are available to suit any individual needs.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| Not disclosed | 3.75% - 13.3% | Attendance minus aid |
Ascent offers student loans to students with or without a cosigner. Ascent also offers loans to students with a Deferred Action for Childhood Arrivals (DACA) status, also known as Dreamers.
A 1% cashback reward is available for student borrowers when they graduate with their degree. Ascent also offers a 1 percentage point discount for students who set up an automatic payment.
Parents of students cannot qualify for Ascent student loans, and no refinancing options are available.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| 540 | 3.22% - 13.61% | $200,000 |
LendKey is a digital platform that connects borrowers to local lenders from an extensive lender list. This means a community bank or credit union actually issues the loan.
Since the loans are local, they tend to have much lower interest rates than many of the competitors on this list. The drawback is that their policies on fees and repayment options tend to vary. Read the terms carefully.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| Not disclosed | 3.99% - 8.49% | Attendance minus aid |
Citizens has a streamlined process to help borrowers continue to receive funds throughout their education. No credit check is done after the first year, and students are pre-approved each year.
International students can receive Citizens loans as long as they have a cosigner who is a U.S. citizen with good credit. A Citizens loan only applies to 4-year institutions, but it can be used for any undergraduate, graduate, or professional degree.
| Credit Score Needed | Fixed Interest Rate | Max Loan Amount |
| Not disclosed | 3.72% - 9.99% | $350,000 |
Student loans are personal loans. While these loans are for school, they’re given to borrowers to spend as they need. Students can use loans for most educational expenses—similar to the way a business loan or home improvement loan can be used for most expenses.
Federal and private student loans serve the same purposes but vary in terms of services. Today, over 90% of students who access student loans borrow federal loans.
Private student loans come from a financial institution, such as a bank or credit union. They’re like an auto loan or a home loan. In contrast, the U.S. Department of Education directly issues federal student loans with interest rates set by Congress.
Federal direct student loans are the most popular due to their lower fixed interest rate and friendly repayment programs. Some students even qualify for federal loan forgiveness programs after graduating college and starting their careers.
Taking out a federal direct student loan involves filling out a FAFSA (Free Application for Federal Student Aid). This application looks at the cost of attendance (COA) at your chosen school and the estimated amount of money your family can pay (EFC) to attend school. Based on the difference in these numbers, you can be approved for a federal loan for a certain amount.
Private student loans can usually be taken out for any amount you need to go to college. With a private student loan, the financial institution will run a credit check. To be approved, you must meet a minimum credit score.
For students without good credit or a lack of credit history, they need a cosigner to take out the loan. This is someone with good credit willing to take over the loan responsibility should the student default (not pay) on their monthly payments.
Think of a private student loan as you would a credit card. You can use the loan to cover several expenses, but it has high interest rates because there’s no collateral attached to it.
Compare this to lower interest loans like car loans or home loans. If these loans are not paid back, the bank can seize those assets. No assets are available to seize with a student loan, so the interest is much higher.
| PROS OF PRIVATE LOANS | CONS OF PRIVATE LOANS |
| Many options to choose from | Higher interest rate than federal loans |
| Simple application process | Must have good credit to qualify |
| Can cover all college costs | Accumulates interest while in school |
| PROS OF FEDERAL LOANS | PROS OF FEDERAL LOANS |
| Low interest rates | Only 3 types of loans |
| 6-month grace period for repayment | Must fill out a FAFSA |
| Qualifies for federal loan forgiveness | Fixed amount and may not cover all costs |
Both the federal government and private lenders recommend you first fill out a FAFSA before deciding on student loans. By filling this out, you will know how much you qualify for in low-interest federal loans.
Once you know your educational costs and how much you qualify for in federal loans, you can decide if taking out private loans to cover the remaining costs is the right choice for you.
Take some time to consider which career path you’re interested in. Create a list of possible schools with that program. Make sure the schools you choose meet your personal preferences for college.
Don’t narrow down schools yet, but have a firm grasp on what you want to do and where the program is.
You may want to consider taking a few community college courses or online courses to see if they pique your interests.
Outlier’s College Foundation allows you to earn 12 transferable credits online through their high-quality platform. These courses are a fraction of the cost of courses at a university and allow you to see if college interests you.
Once you know the schools you’re interested in, take the time to apply. Complete all parts of the applications to the best of your ability.
To apply for federal financial aid, you will need your tax information from the previous year. The IRS Data Retrieval Tool (DRT) can look up this information for you, but have a copy just in case.
For the FAFSA, you will also need your bank statements and any W-2s from the previous year. If other family members live with you, their financial information will also be required.
The FAFSA is not a long application, but it’s important to fill it out correctly. Take your time working on the FAFSA, and, remember, you can save the information and come back to it.
By filling out the FAFSA, you will know if you qualify for any federal grants, giving you free money to pay for college. The FAFSA will also let you know about work-study programs and the amount of student loans you’re eligible for.
The FAFSA allows you to include up to 10 prospective schools, and it will let you know how much federal aid you can get to attend each school. Keep in mind: federal student loans have a much better interest rate than private loans, so you should use them first.
Scholarships are similar to grants in that they are free money to help you pay for school. The difference between scholarships and grants is that grants are based on financial need, while scholarships are based on merit—being particularly good at something.
Thousands of dollars in scholarship money are out there to help you pay for school. Taking the time to research scholarships and apply to them is a great way to get free money for college.
The good news is most scholarships only require a simple application and a short essay. Taking a little time to apply for scholarships can really pay off.
Once you’re done with your FAFSA and have your admissions decisions, you’ll receive a financial aid notification from each school. This information will tell you your estimated cost of attendance (COA) at the school. This includes tuition, fees, and room and board.
Your financial aid notification will also give you the total amount of federal aid you qualify for and the types of loans you can take. Be sure to also think about any scholarships you may have been awarded.
Look over the financial aid information from each school and make an informed decision on where you would like to go. Let the other schools know you will not be attending.
Once you know where you’re going, you can accept your federal financial aid package through the school’s financial aid office. You can choose to accept all of the aid offered or a partial amount.
When you know your federal aid offer and your cost of attendance, you also know how much more money you need to pay for college. This is where private loans can be beneficial.
You should do your research and look for the best private loan for you. To apply, you will need to fill out an application, and the financial institution will run a credit check. If you don’t have enough credit, you may need a cosigner.
Most private student loan lenders will give options for a variable or fixed interest rate. The best choice is to go with a fixed rate. This way you know how much your payments will be.
A variable interest loan may look good at first, but remember, that rate could change each month.
Student loans are for one academic year only. Loans go directly to the school each semester. If there are additional funds, the school will disburse this money to your bank account.
If you find you don’t need all the loan money, you can make payments on your loan at any time.
Both unsubsidized federal loans and private loans will start accruing interest from the time the loan is processed. Make loan payments on the interest amount each month so the interest is not gaining more interest—what’s known as compounding. By doing this, you will pay far less in the future.
No matter which loans you take out, you will have to reapply the following year. This is because your income levels and financial situation change each year.
Student loans are a great to pay for college, but it’s still money you need to pay back. By finding other ways to pay for school, you can save money in the long run.
Take time to apply for grants and scholarships. This free money is available to help college students. Doing some simple searches and talking to the school’s financial aid office can point you in the right direction.
Consider finding a college job as well. By earning money to pay for your living expenses, you can reduce your debt amount. A college job is also a great way to learn marketable skills and boost your resume.
Federal loans offer the best rates. While some private loans offer lower variable interest rates, avoid these fluctuating costs.
The current federal interest rates:
| TYPE OF LOAN | INTEREST UNTIL 7/2023 |
| Direct Subsidized Loans | 4.99% starting 6 months after graduation |
| Direct Unsubsidized Loans | 6.54% starting when the loan is taken out |
| Direct PLUS or Parent PLUS | 7.54% starting when the loan is taken out |
Source: studentaid.gov
Think deeply about the type of career you would like to have. Perhaps you’ve always been interested in learning more about a subject or work field?
Write down a few different fields. Talk to some people working in those fields. Chances are, you’ll have some great contacts close to your community. Reach out.
Once you know the field you would like to go into, look for schools with that major. Keep in mind that in-state schools are a lot cheaper than out-of-state. If money is a big factor for you, start locally.
Write down a few schools and create a pros list for each one. Weigh your options and talk to people you respect.
Once you have been accepted into a school and have your FAFSA completed, the school will notify you of your financial aid decision.
When you have your financial aid information, you can choose to accept all or a partial amount—depending on how much other money you have for school.
If you have scholarships and grants to help with the cost, you will end up taking out far less in loans. The same goes for having a college job and having a good college budget to manage your expenses.
Right at the beginning of the semester, the school will apply your loan toward your balance. After the loan covers all school costs, any additional funds will go to your bank account.
After you finish school, you have several options for repaying your student loans with different repayment terms. Look into federal student loan forgiveness and debt consolidation, where you can change your loan options to meet your needs.
Think of student loans as one way to help pay for school when you need the money. But they’re not the only way. By using other methods, you will learn valuable life skills and help your future self find financial freedom in a career you’re passionate about.
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