Finding a way to pay for college and navigating financial aid can be a daunting process. That’s why Sallie Mae recommends a simple “1-2-3 approach” to help families pursue financing opportunities in the most economical order:
- Look for free money. Seek out funds that don’t have to be paid back. These funds come in the form of scholarships, grants, work-study and gift aid. Be sure to fill out the Free Application for Federal Student Aid (FAFSA) to see if you qualify for need-based federal grants. Sallie Mae's free Scholarship Search offers access to more than 3 million scholarships worth up to $18 billion and is another way to find free money. You should also consider supplementing with your current income and money saved through a college savings plan, and explore an interest-free monthly payment plan.
- Consider federal loans. You may qualify for a federal loan with a fixed interest rate and flexible repayment options.
- Fill the gap with private education loans. Private student loans can help cover the rest of your college costs. Sallie Mae’s Smart Option Student Loan® encourages you to make small payments each month or pay your monthly interest while in school so you graduate with less debt, pay off your loan faster, and save significantly over the life of the loan, compared to conventional private loans. Securing a creditworthy cosigner may help you qualify or reduce your interest rate.
Consider Your Student Loan Options
Federal Student Loans
Federal student loans are available to U.S. citizens attending eligible higher education institutions at least half-time. The federal government sets the interest rate on federal student loans. It also sets the loan limits, based on the grade level of the student and whether the student is classified as a dependent student or an independent student. For example, current loan limits range from $5,500 to $7,500 for dependent students, and more for independent students. The FAFSA is required. This form may be completed and submitted online at www.fafsa.gov.
Federal Stafford Loans are available in two types. “Subsidized” Stafford Loans are available to students who demonstrate financial need as determined by a federal formula. No interest accrues while the student is in school and during the grace period and deferments. “Unsubsidized” Stafford Loans are available regardless of need. The student is responsible to pay interest that accrues on the loan, including while in school.
Federal PLUS Loans
These loans are available to parents who wish to help their child pay for school, as well as graduate students. With a PLUS Loan, parents and graduate students may borrow up to the full cost of a student’s education, less other financial aid received.
Private loans are available to undergraduate and graduate students from Sallie Mae and other financial institutions and are designed to fill the gap after exploring federal student aid. Unlike federal student loans, private loans are not sponsored or guaranteed by government agencies and do not require completion of a federal form to qualify. Private loan eligibility requirements, interest rates and terms vary from lender to lender. Private loans are credit-based, thus applying with a cosigner may help students access a lower interest rate. Many lenders, including Sallie Mae, offer private loans to help cover up to 100 percent of the cost of attendance, less other financial aid received. For Sallie Mae loans, the school’s financial aid office certifies the cost of attendance and funds are disbursed directly to the school.
College Planning CalculatorSM
The College Planning CalculatorSM is a free online tool from Sallie Mae, allows users to quickly and easily build their own unique college savings and funding plan. Based on what life stage the customer is in, the Planner can help the user build a savings plan for their child's future education, or help students and parents fund current or pending school costs.
The Planner delivers customized education funding guidance for each family based upon their own specific finances and goals. With this interactive tool, users can estimate the total cost of education, find ways to minimize or eliminate borrowing, estimate their potential monthly student loan payment, receive timely guidance about saving and planning for school, and much more
Illustration of the Terms of Federal and Private Loans
Sending a child to college can be one of the most important investments a family can make. The terms of federal loans and private loans are different, as illustrated with the following two examples. Mary is in need of a loan to help fund her bachelor’s degree and her mom wants to help out. Mary’s mom takes out a Federal Direct PLUS Loan after passing a basic credit test. Mary’s mom is the loan holder and solely responsible to pay the loan. The interest rate for the Federal Direct PLUS Loan is a fixed 6.41% with a 4.3% Disbursement Fee1. The standard repayment term is 10 years2 and begins on the final disbursement of the loan. Parents can opt to postpone payments until after their student graduates though interest would accrue during that period.
After exhausting other funding options, Oscar needs a private loan to help pay for his bachelor’s degree and his dad wants to help out. Oscar applies for a Sallie Mae Smart Option Student Loan. Since approval and rates for a private loan are based on a variety of underwriting factors, including credit history and income, Oscar’s dad cosigns to help his son improve the likelihood of approval and possibly receive a lower rate. With a Smart Option Student Loan, Oscar can choose to defer or make payments while in school. Oscar elects to make interest only payments and his dad helps out. Depending on creditworthiness and other factors, the APR on Oscar’s loan could be from 2.50% to 9.59%3 with no Disbursement Fee, but the APR is variable and could go up or down after the loan is approved. After Oscar graduates and makes 12 consecutive on-time principal and interest payments he can apply to release his dad as a cosigner.4 The repayment term on Oscar’s loan will be between 5 and 15 years, depending on the loan amount.
Both Mary’s and Oscar’s loans offer loan forgiveness in case of their death or permanent disability.5 In addition, interest paid on both federal and private education loans may be eligible for deduction from federal income taxes, subject to certain income restrictions.
Sallie Mae Private Loan Credit Application Approval and Pricing
Approval and pricing of a private student loan is based on many underwriting factors, including credit payment history, depth of credit history, credit score, ability to repay the loan, current level of indebtedness and presence of a cosigner.
The Importance of Paying Your Loan On–Time
Payment history can affect your future.
On-time student loan payments can positively impact your credit. Sallie Mae encourages customers to make payments online and to participate in auto-debit to reduce the likelihood of delinquency. Some loans may qualify for an interest rate reduction for making payments through the automatic debit program. Sallie Mae alerts customers who have missed a payment and reminds them to take action to return their account to current status.
For federal student loans, Congress created several repayment options including standard repayment, extended repayment and Income-Based Repayment, which can cap payments at 15 percent of the borrower’s discretionary income. For private education loans, repayment options vary with the lender and the loan and are typically outlined in the promissory note or contract signed before the loan is accepted.
Making late payments can be reported to all consumer credit reporting agencies, which can make it more difficult or more expensive to obtain future credit for additional student loans, auto loans, mortgages or credit cards. Depending on the type of loan, after six to nine months of non-payment, a student loan may be considered in default. The severe and lasting impacts of loan default may include damage to the customer’s credit, job prospects, denial or loss of professional licenses, the possibility of civil litigation, and the possibility of being denied other forms of consumer credit for years to come. On federally guaranteed student loans, the Department of Education can also recover funds through wage garnishment, the seizure of income tax refunds and federal benefit payments, or the loss of eligibility for additional federal student aid. Both Federal and private student loans typically do not qualify for discharge in bankruptcy.
Student loan borrowers experiencing difficulty are encouraged to contact their loan servicer to explore whether an alternative payment arrangement is available.