It’s an interesting time to be a college student. There is a current pause on existing student loans, but what does that mean for the many high school students set to graduate this year? Record low rates, for one thing.
Federal loans between July 1, 2020 and June 30, 2021 feature record-low interest rates, the lowest since 2005, with just 2.75% on undergraduate Stafford loans compared to 4.53% the previous year. However, with more than 3.4 million high school seniors estimated to graduate in 2021, federal money can quickly run dry.
Still, with college tuition only getting more expensive each year, it’s critical that students understand the massive financial obligation they are undertaking with a student loans.
Splash Financial
Fixed APR
2.88%–6.72%
Loan Amount
N/A
Offer Details
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan). Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
NEXTon lender’s secure website
Credible
Fixed APR
N/A
Loan Amount
N/A
Offer Details
Due to the nature of Credible’s student loan purchase and refinancing platform, we are unable to assign it a SimpleScore, as the rates, fees and loan amounts depend on the lender you choose from its marketplace.
Variable rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Rates are subject to change at any time without notice. Your actual rate may be different from the rates advertised and/or shown above and will be based on factors such as the term of your loan, your financial history (including your cosigner’s (if any) financial history) and the degree you are in the process of achieving or have achieved. While not always the case, lower rates typically require creditworthy applicants with creditworthy co-signers, graduate degrees, and shorter repayment terms (terms vary by lender and can range from 5-20 years) and include loyalty and Automatic Payment discounts, where applicable. Loyalty and Automatic Payment discount requirements as well as Lender terms and conditions will vary by lender and therefore, reading each lender’s disclosures is important. Additionally, lenders may have loan minimum and maximum requirements, degree requirements, educational institution requirements, citizenship and residency requirements as well as other lender-specific requirements.
NEXTon lender’s secure website
Discover, Member FDIC
Fixed APR
4.59%–12.99%
Loan Amount
Up to 100% of costs
Offer Details
1. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans and include a 0.25% interest rate reduction while enrolled in automatic payments.
2. Lowest APRs shown are available for the most creditworthy applicants for undergraduate loans and include an Auto Debit Reward. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including Undergraduate. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Learn more about Discover Student Loans interest rates.NEXTon lender’s secure website
What you need to know before taking out student loans
Current student loan interest rates
Current student loan rates apply to loans first disbursed on or after July 1, 2020, and before July 1, 2021, at the following rates, which fluctuate based on good and fair credit loans.
| Type of Loan | Borrower Type | Fixed Interest Rate | Loan fee |
|---|---|---|---|
| Direct Subsidized Loans, Direct Unsubsidized Loans | Undergraduate | 2.75% | 1.059% |
| Direct Unsubsidized Loans | Graduate or Professional Borrowers | 4.30% | 1.059% |
| Direct PLUS Loans | Parents and Graduate or Professional Students | 5.30% | 4.236% |
*Rates accurate as of December 10, 2020 and exclude autopay discounts.
Private student loan rates
| Lender | Fixed APR | Variable APR | Loan Amount | Term |
|---|---|---|---|---|
| College Ave | 3.74% – 13.24% | 1.34% – 12.23% | $ 1,000 – $ 150,000 | 5-20 years |
| SoFi | 4.38% – 11.77% | 2.03% – 12.14% | $ 5,000 – up to full cost of attendance | 5-15 years |
| Earnest | Starting at 3.74% | Starting at 1.74% | $ 1,000 – up to full cost of attendance | Varies |
| Sallie Mae | 4.74% – 14/12% | 1.50% – 13.37% | $ 1,000 – up to full cost of attendance | 5-15 years |
| Ascent | 3.78% – 14.75% | 2.94% – 13.23% | $ 1,000 – $ 200,000 | 5 – 20 years |
| Wells Fargo | 4.78% – 13.24% | 2.93% – 10.99% | $ 1,000 – $ 250,000 | Up to 15 years |
*Rates accurate as of December 10, 2020 and exclude autopay discounts.
Read More: The Best Student Loan Rates of 2020
Applying for scholarships
A scholarship is one way to obtain the funds you need to pay for college. Scholarships are typically merit-based, giving financial rewards to those with outstanding academic, athletic or artistic achievements.
[ More: Student Loan Fact Sheet 2021 ]
“Unlike student loans, scholarships are free money that does not need to be repaid. Every dollar you win in scholarships is a dollar less you’ll have to borrow,” says Mark Kantrowitz, five-time author and publisher of the FinAid, Fastweb, Edvisors, Cappex and Savingforcollege.com sites.
However, they can also be extremely difficult to obtain. Of students in bachelor degree programs, only one in eight receive a private scholarship, and only for an average amount of $ 4,200 — a figure that’s woefully inadequate for today’s tuition rates. It’s why scholarships cannot be relied upon to foot the entire bill, but they can absolutely provide an excellent head start.
Plus, there are many scholarships that could pay for your whole education, but these are much more rare and harder to obtain.
“So, scholarships are part of the plan for paying for college, but not the entire plan,” says Kantrowitz. “To find private scholarships, use a free scholarship matching service, such as Fastweb.com and the College Board’s Big Future.”
There are other ways to find help. Parents or family members may be able to extend a helping hand with either a financial donation or loan toward your tuition. If you are a member of a local group or organization, it’s possible that that could be an additional outlet for funding. Churches, employers, nonprofits and credit unions are all ways to gain extra private funds for college.
While there are many options for scholarships, these are some of the most popular moving into 2021.
| Scholarship Program | Organization | Amount | Deadline to Apply | Details |
|---|---|---|---|---|
| Amazon Future Engineer Scholarship Program | Amazon | $ 10,000 and paid Amazon summer internship | 12/21/ 2021 | High school seniorsIntended major in computer science, software engineering, computer engineering, or other computer-related fields.Completion of advanced placement computer science course or test |
| Davidson Fellow Scholarship | Davidson Institute | 1st prize: $ 50,0002nd prize: $ 25,0003rd prize: $ 10,000 | 02/10/2021 | Demonstrate extraordinary accomplishments in a specific field |
| The Dream National Scholarship | TheDream.Us | Up to $ 33,000 | 02/25/2021 | Exceptional DREAMers with significant financial need and demonstrated community service |
| Foot Locker Scholar Athletes | Foot Locker | $ 20,000 | 01/08/2021 | High school athletes with demonstrated leadership |
| McDonald’s HACER National Scholarship | McDonald’s | $ 25,000 per year for 4 years | 02/03/2021 | High school seniors of Hispanic descent Demonstrated excellence in educational and community leadership |
| GE-Reagan Foundation Scholarship Program | GE-Reagan Foundation | $ 10,000 per year for up to 3 years | 01/05/2021 | Students with demonstrated excellence in leadership, drive and integrityRenewable scholarship up to 3 years |
| College Board Opportunity Scholarships | College Board | Up to $ 40,000 | 02/28/2021 | High school students |
| Ron Brown Scholarship | Ron Brown Scholar Program | $ 10,000 per year, for up to 4 years | 01/09/2021 | African American high school seniorsDemonstrated commitment to academic excellence, public service and entrepreneurship |
| State Farm Companies Foundation Scholarship | State Farm | $ 5,000 per year for 4 years | 03/31/2021 | Legal dependents of State Farm employees100 student awards given |
Work-study programs
A Federal Work-Study is another way that students can find the funds for tuition. This is a way to earn money with a part-time job on campus. It helps students find guaranteed work placement so they don’t have to arrive at school with the extra headache of having to find a job during classes.
[ See: Should You Bank on Student Loan Forgiveness in 2021? ]
Not only does it give you extra money while enrolled, but a work study could prepare you for your career, too. Many university professors run work-study programs, giving participating students an extra edge on the classmates as they gain hands-on experience and build new, lasting relationships.
“If you are looking for experience in a particular field to give you a leg up once you graduate, then a work-study is better for that because it will put you in touch with the professors running the programs,” says Josh Simpson of Lake Advisory Group.
The Work Colleges Consortium is also a comprehensive resource to find schools that offer free or discounted tuition for work-study programs.
To be eligible for work-study, you must report an income that is below a certain threshold. This amount can vary by school and FAFSA requirements, but too often, a parent’s income can rule out a student’s eligibility.
The National Association of Student Aid Financial Administrators 2020 report shows that more than half a million students use the Federal Work-Study Program. However, coronavirus has stunted normal program availability and enrollment. Today, work-study students face more limited positions given COVID-related factors, including budget constraints, virtual learning and safety issues.
Use the FAFSA
There’s a reason why the FAFSA is always on the tip of a high school student’s tongue.
There are several benefits to the FAFSA and federal student loans that private student loans cannot offer:
- Low, fixed interest rates
- The payment pause and interest waiver
- Longer deferments and forbearances
- Income-driven repayment plans
- Death and disability discharges
- Loan forgiveness options
The FAFSA is an application that must be completed in order for a student to be eligible for federal financial aid. Some specific states and schools also use the FAFSA as an official measurement of income for each student.
There are specific FAFSA deadlines that you will need to honor if you want to apply. These will vary depending on where you live and the school to which you are applying, but there are some general deadlines that students can plan on each year. Still, it’s important to check with each school for specific dates and eligibility details.
[ Read More: How to Apply for a Student Loan ]
As the author of an entire book dedicated to the FAFSA, Kantrowitz says the most important thing that you need to know are the deadlines. “The FAFSA application period is 21 months long, starting on October 1 and ending on June 30 (the end of the award year). It is important to file the FAFSA as soon as possible on or after October 1, since some states and colleges have very early deadlines.”
Many families use the Thanksgiving holiday as an opportunity to get a headstart and complete the forms together, because there is little time to waste — 13 states offer statewide grants on a first-come, first-serve basis.
“Students who file the FAFSA in the first three months tend to get twice as many grants, on average, as compared with students who file the FAFSA later,” adds Kantrowitz.
FAFSA Application Dates
| Date | Description |
|---|---|
| October 1 | Start of FAFSA enrollment |
| June 30 | End of FAFSA award year |
Understanding repayment options
Just as there are multiple ways to fund your college education, there are also several ways to pay it back. The repayment terms for your funding depend on the type of funding you are awarded.
There are four main repayment plans for your federal student loan:
- Standard repayment of 10 years
- Graduated repayment, where payments start small but become larger over time
- Extended repayment of 10 to 30 years
- Income-driven repayment, where the more you make, the more you pay for your loan.
[ Next: 10 Tips for Paying Back a Student Loan ]
For example, while a private student loan typically carries repayment terms of five to 20 years,
income-driven repayment plans offer payments based on your monthly income, never taking more than 10%–20% of your monthly discretionary income. Income-driven plans also forgive your balance after 20–25 years of payments on your loan, with the additional options of full and partial forbearances, which may suspend loan payments or require only interest payments.
Some private lenders, on the other hand, offer repayment terms based on how early you want to start making payments. For example, you can start paying your loan off immediately once funds are disbursed to your school or wait until six to nine months after you graduate when the deferment period ends.
Here are some typical private loan repayments options, depending on your lender:
- Pay after graduation, which includes making no payments during school
- Pay a flat monthly payment, like $ 25, while in school, then full principal and interest after graduation
- Pay interest while in school then full principal and interest after graduation.
If you’re able to make payments while in school, you will save on interest and greatly reduce the amount you’ll pay over the life of your student loan.
Affordable community college
In addition to traditional public and private universities, there are also local community colleges that offer a more affordable way to complete those General Education courses.
The National Society of High School Scholars reports a staggering difference in college tuition; while community college costs around $ 3,500 per year, out-of-state students can easily pay $ 35,000 per year when attending a public university. It’s a major reason why many experts recommend community college for your general studies.
- More cost-effective than most public and private colleges
- Often smaller classes with more one-on-one time with professors
- Same coursework and textbooks as many of the bigger schools
- Same professors in some cases
- Ability to live at home without additional room and board costs
- Can even take courses while in high school
“Think of it this way,” says Simpson of Lake Advisory Group. “Would you pay three or four times the price for a box of cereal because you buy it from Publix instead of going to Wal-Mart?”
As someone who paid for law school herself, Ashley Morgan takes a personal approach as a debt and bankruptcy attorney in northern Virginia. “Going to a community college and then transferring later can very much help people limit debt and get a degree from a bigger name school. Having less debt gives you more flexibility later in life,” she says.
Even if community college doesn’t have the classes you want to take, you can start enrollment at your four-year university but instead of living on-campus, you could attend classes at a satellite campus. Not only can you take these courses during high school, but you could also remain at home after graduation while you take classes nearby.
The true cost of student loans
To fully illustrate what a student loan could cost you in fees and interest, we ran some sample calculations.
$ 40,000 Student Loan Calculations
| Type of Loan | Interest Rate | Loan Fee | Monthly Payment | Total Interest Paid | Total Payments |
|---|---|---|---|---|---|
| Undergraduate Federal Stafford Loan | 2.75% | 1.06% | $ 385.73 | $ 5,859.46 | $ 46,288.00 |
| Federal PLUS Loan | 5.3% | 4.3% | $ 449.48 | $ 12,140.22 | $ 53,937.50 |
| Perkins Loan | 5% | 0% | $ 424.26 | $ 10,911.52 | $ 50.911.52 |
| Private Loan | 9% | 20% | $ 507.30 | $ 20,804.60 | $ 60,804.60 |
*Assumes 10-year loan term with 120 payments via finaid.org.
There are several factors that will impact your approval for a loan and the interest rate that you receive. The FAFSA will help determine your income eligibility, while other details like the size of your family and financial goals could affect repayment terms. Be sure to run the numbers of each offer in order to find the loan that offers the lowest monthly payment with terms you can afford.
[ See: You Don’t Have to Pay Federal Student Loans Until 2021 — But You Should ]
Refinancing student loans
For college students already committed to student loans, COVID has presented an unexpected but, nonetheless, lucrative opportunity. With interest rates at record lows, it is a great time for borrowers with existing federal loans to consider refinancing. In addition to a lower monthly payment, it also means less interest paid at the end of the loan.
“Borrowers with private student loans should refinance if they can qualify for a lower interest rate,” says Kantrowitz. “There are no prepayment penalties on student loans, so there isn’t really any drawback to refinancing a private student loan into a new private student loan with a lower interest rate.”
If you have a federal loan, refinancing means that your loan will become a private one. Any benefits that were formerly carried by your federal loan, such as loan forgiveness and income-based payments, will disappear when you convert your loan.
Consolidation student loans
Another popular option is to consolidate your student loans, which carries its own set of benefits. This is when you group several loans into one big loan, but when it comes to your student loans, your options depend on whether you own federal or private student loans.
[ More: Student Loan Refinance Guide ]
The Direct Loan Consolidation program refinances federal student loans, but you can only consolidate federal loans. Most students have a combination of private and federal student loans, and those private loans are ineligible for the Direct Loan Consolidation program. In this case, you would need to find a private lender for your consolidation or refinance private student loans.
Either way, consolidating your student loans can carry a few different benefits.
- One loan to track and pay instead of several
- Could lower your monthly payment
- Can receive a lower interest rate
- Ability to change from a fixed rate to a variable rate, or vice versa
However, when you consolidate your loans, you are still taking out a new loan, so it is likely to carry a longer repayment period than you originally had. Additionally, consolidating your federal loans means your new interest rate will be a weighted average of all your interest rates, so you may not be getting the best rate in the end. Regardless of which option you use, you should always consider the long-term implications of your choice.
Student loan FAQs
There are two main ways to get your student loan debt forgiven: through public service loan forgiveness on direct loans and teacher loan forgiveness, which is available for direct loans and Federal Family Education Loans.
There are three kinds of student loans. Federal loans are loans supplied by the government, while private loans and refinance loans are loans that you can take out from banks, credit unions and other lenders.
There are many banks that offer student loans, but we found Wells Fargo to offer some of the best rates, such as just 4.78% for fixed loans or less than 3% for a variable APR.
When you need to pay for college costs, such as tuition and room and board, a student loan is money you can borrow from the federal government or another type of lender at an additional fee.
Too long, didn’t read?
There are a lot of options to keep your student loans both affordable and attainable for the 2021 school year and beyond. Coronavirus has ushered in record-low rates on student loans, which suddenly begs another question: Is this a good time to refinance or consolidate my existing student loan?
Whether you are shopping for a new loan or want to reconfigure an existing one, 2020 has been kind to existing and burgeoning students. 2021 could be even better, but no matter how tempting the rates, it’s still important that you take the time to fully explore your options before choosing the right student loan for you.
We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.
