A student loan is when you or your guardian borrows money in order to pay for college. You can take out student loans for a number of reasons, and apply them to many different degree programs. 

When a student loan is taken out, it’s usually only for one year of attendance. Most federal loans are disbursed per semester within an academic year. If you're borrowing for the academic year 2021-2022, you would get one installment at the beginning of fall semester 2021, and then another installment at the beginning of spring semester 2022. 

You don’t need to stick with the same student loan provider for 4 years. You can borrow only federal loans one year, and then borrow from Sallie Mae, for example, the next year. 

Federal Loans:  For grad students, professional students, and parents of dependent undergrads. These are loans offered by the federal government. 

Private Loans: For graduate students, professional students, and parents of dependent undergrads. These are loans offered by private lenders, like Sallie Mae. They usually have credit requirements set by lenders and may require a cosigner. Can be less expensive than PLUS loans for those with good credit.

Here’s a side-by-side comparison: 

Here some basic pros and cons between the two:

Interest Rate: An interest rate is best understood as the cost of borrowing a certain amount of money. When you take out a student loan or any loan, it will come with this cost. People normally look to get loans that have the lowest interest rates (keeping in mind any associated fees that add to the total cost). 

Some loans don’t begin charging interest until a certain time after you graduate, some start charging interest immediately. Interest is expressed as a percentage of the total loan amount. If you took out a $5,000 loan, and your interest was 10% fixed a year, that would mean that every year, $500 would be added to your original loan of $5,000 (assuming you only paid off the interest each year). 

While seemingly insignificant, the difference between a 10% and 5% fixed interest rate in the example above could mean more than $250 in savings each year. 

 

Rate Discount: Many lenders offer specific discounts to stated rates. 

Fees: Applying for loans can come with fees. Here are a few common ones you may run into.  

Your COA (Cost of Attendance) is estimated by universities using these factors: 

Schools include multiple estimates for singles, couples, and families. If you aren’t living on campus, already have health insurance, or have scholarships, you may not pay the full COA, as you won’t incur the full cost of the items listed. Keep this in mind when researching schools, and when making other decisions, like if you should move on-campus, get an apartment, or stay at home. 

It’s likely you’re going to be applying for financial aid in order to save money on the tuition portion of the COA. There are many different kinds of financial aid, and categories vary between universities. You will typically hear about merit-based aid as soon as you’re admitted. Most schools will have you apply for need-based financial aid after you’ve been admitted and accepted their offer. It’s within merit-based aid that most people are awarded things like scholarships or gift-aid by the school. Need-based aid will be based on separate applications, like FAFSA, or the university’s own need-based financial aid form. It typically takes 3-4 weeks to hear back about need-based aid. 

Once you hear back from your university’s aid office, you’ll be presented with an award letter. Think of your financial aid award letter as a first draft as opposed to a finished product. If you really want to go somewhere and the cost after scholarships and aid is too high, try asking for more. Schools won’t rescind your acceptance just because you ask politely for more financial help, so try!

 A few tips when asking for more aid: 

Now that that’s out of the way, we can talk about the next step, which is taking out loans to cover what scholarships, merit-aid, and need-based aid won’t cover. 

Undergraduate: 

Undergraduates have options when it comes to borrowing student loans. You can take out a federal student loan or a private student loan, you can also choose between taking out a loan in your name or if you have the option, having your parents take a loan for you, through a Parent Plus Loan, or a private student loan with your guardian as a co-signer.

When deciding between federal versus private student loans, there are a few things to consider. Federal Stafford loans will likely have the lowest interest rates but it’s common that students need to borrow more than that federal limit. The federal borrowing limit for dependent undergraduates is $5,500 for the first year. 

However, undergraduates who display exceptional financial needs may be eligible for a Pell Grant from the federal government. You should apply to FAFSA, which determines your eligibility for things like additional grants and work-study. Both public and private colleges use FAFSA to gauge your financial situation; applying is a great way to make sure you get access to the aid you are eligible for and don’t end up over-borrowing. 

After you’ve applied to FAFSA, figured out your Pell-Grant eligibility, and borrowed to the federal cap, that’s where private loans come in. Private loans are best used for the remainder of financial need and can be used in lieu of a Parent PLUS loan (6.28% for 2021-2022 with a 4.228% origination fee) which can be more expensive than a private loan. Popular places to borrow private loans include Sallie Mae, College Ave, and Discover (Juno helps you get discounts from lenders like these). 

If you’re a DACA student, financing an education may be tricky, but not impossible. Check out our DACA-specific guide here. 

After you’ve borrowed and your loan has been dispersed, we highly recommend remaining organized from the get-go. That means organizing your loans even before you graduate, and knowing when your payback period starts, what kind of loans you’ve taken out, and where they’re held. That way, you won’t be blindsided by payments after your grace period. Here’s a checklist to help with getting organized: 

Federal direct unsubsidized student loans are offered by the federal government and can be a good option for borrowing money for graduate school for those with lower credit scores. You likely borrow up to $20,500 per year in Direct Unsubsidized Loans. The interest rate for 2020 was 4.30% fixed and there’s a fee of 1.057%. 

Then there are federal direct PLUS loans. Cap is the cost of attendance, so people can use this after the aforementioned option. For 2020 the interest rate is 5.30% with a fee of 4.228%. An alternative to this option is private student loans which can be less costly if you have a 670+ credit score. Both of the federal options are currently at 0% interest due to COVID-19. This is in effect through at least September 30, 2021 under the American Recuse Plan.

Both private loans and PLUS loans cap their borrowing amount at the COA of a given program or school. Usually, graduate students will take out direct loans to the federal cap and then turn to either private or PLUS loans to supplement whatever remaining costs they have left. These remaining costs could be tuition, but they could also be moving, books, housing, or other personal expenses. 

Both private loans vary in interest rates from person to person and offer both fixed and variable rates. There are no fees either, but with the potential, lower costs come some disadvantages. You’ll want to make sure you’re aware of the federal loan benefits you’re giving up like loan forgiveness and income-based repayment plans. You might want to look into loan forgiveness for federal loans before making any decisions.

If you took out federal loans during your undergraduate degree, those loans may qualify for a Graduate Fellowship Deferment or In-School Deferment upon you entering a graduate program. The federal government pauses your payments until 6 months after you graduate from your graduate program. The deferment is usually put in place automatically, but you can also request a deferment if you are enrolled in a graduate program. Keeping this in mind is important, as these loan payments will kick in addition to loan payments from your graduate loans.

Just like for undergraduates, we highly recommend getting organized early. Here’s a graduate student checklist to help get you started: 

In general, the situation is somewhat similar to getting a graduate degree. On the federal loan level, medical school students are eligible for the same $20,500 per year in Direct Unsubsidized Loans. After that, the rest of the COA has to be made up of a mix of Direct Plus Loans, Private Loans scholarships, or savings. 

Avoiding loans when getting an MBA is pretty difficult, so choosing the right financing options is important. When it comes to borrowing money for business school, it’s common for students to use federal loans to finance their MBA. Then, after graduating, many MBAs choose to refinance to get a lower rate or better terms. At the same time, a large number of MBAs choose to keep their federal loans because of the benefits they provide.

Although federal loans may have higher interest rates than private loans, weighing the pros and cons of each is important. MBAs usually enter high-income jobs after graduation, meaning many don’t qualify for federal programs like Income-Driven Repayment Plans and Public Service Loan Forgiveness. This high-income allows MBA graduates to pay down their debt quickly. Due to this, paying the higher interest rate of federal loans may not make the most sense, since it’s unlikely you’d be able to enjoy the program perks. That’s where private loans would come in, offering a lower interest rate. Remember that private loans usually require a credit check to evaluate your ability to repay and how risky you are. If you have a good credit score (650+) you will likely qualify for a loan, and the higher your score is, the better rate you will be offered. Adding a co-signer can also lower your rate. 

If you are considering a career in public service, like working for the IRS, carefully consider if federal programs would influence your decision in taking out and holding on to your federal loans, instead of refinancing them for better terms after graduation. IDR plans may help offset the lower salary of a public sector job. The PSLF program may help you get portions of your debt canceled after graduation and entering the public workforce, alleviating your debt burden. Keep in mind that there is no guarantee that these plans will always be around, or they may change their eligibility requirements.

Basically, to understand if federal loan protections are worth it, you need to know how much you are paying for them. Comparing federal loan options to private loan options is the best way to do that, and Juno can help you do this for free. 

We have a specific guide for financing a law degree, which you can check out here. In general, the situation is somewhat similar for both higher education tracks to getting a graduate degree. On the federal loan level, law and medical students should be eligible for the same $20,500 per year in Direct Unsubsidized Loans. After that, the rest of the COA has to be made up of a mix of Direct Plus Loans, Private Loans, scholarships, or savings.  

Avoiding loans for either degree is pretty difficult, so choosing the right financing options is important. When it comes to borrowing money for law or medical school, historically most students have turned to federal loans to finance their education. Then, after graduating, many doctors and lawyers choose to refinance to get a lower rate or better terms (see below for a full explainer). At the same time, a large number of doctors and lawyers choose to keep their federal loans because of the benefits they provide. Each option has unique pros and cons and what is best for you varies by your situation. 

Although federal loans may have higher interest rates than private loans, they do have some protections like Income-Driven Repayment Plans and Public Service Loan Forgiveness. The PSLF program specifically has an income eligibility cap, meaning if you make over a certain amount, you won’t be able to use the program. This usually disqualifies many law and medical graduates, since they enter high-salary jobs after graduation. This high-income can help you pay off large debt faster. If this is the bucket you think you’ll fall into, you likely won’t benefit from the federal protections, you may end up overpaying for benefits that you do not get to take advantage of, as federal loans may have a higher interest rate than private ones. Private loans may make more sense for you. 

If you are considering a career in public service, like being a public defender or a doctor at a VA hospital, carefully consider if federal programs would influence your decision in taking out and holding on to your federal loans, instead of refinancing them for better terms after graduation. IDR plans may help offset the lower salary of a public sector job. The PSLF program may help you get portions of your debt canceled after graduation and entering the public workforce, alleviating your debt burden. Keep in mind that there is no guarantee that these plans will always be around, or they may change their eligibility requirements.

When it comes to private loans, the interest rate offered to each person varies. Every private lender has its own unique underwriting process and standards for student loan applicants; these eligibility requirements help lenders decide whether to give an applicant a loan and at what interest rate. As part of the loan application process, lenders will require a credit check to evaluate your ability to repay and how risky you are. If you have a good credit score (650+) you will likely qualify for a loan, and the higher your score is the better rate you will be offered. Adding a co-signer can also lower your rate. 

Basically, to understand if federal loan protections are worth it, you need to know how much you are paying for them. Comparing federal loan options to private loan options is the best way to do that. 

What do you do after graduating? Well, you start having to pay back your loans. However, there is a way to save money through this process too, and that's refinancing. Refinancing basically means to finance (something) again, typically by taking out a new loan at a lower interest rate. The new, cheaper loan, pays off the old loan, and you save on the overall loan cost while likely lowering your monthly payment. 

When you first take out a loan, the interest rate is set by a variety of factors including your ‘riskiness’ – the likelihood you’ll pay it back. Once you have a steady income, your ‘risk’ is reduced and lenders are more willing to give you a better deal. Refinancing usually works best for graduates who have Unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. Refinancing federal loans may forfeit certain perks such as public service forgiveness and economic hardship programs.

It’s important to keep in mind what your career plans are and how those may affect your federal loans. If you are going into public service, you may want to keep your federal loans so that you may qualify for Public Service Loan Forgiveness. As we have mentioned already, there is also a federal student loan holiday in effect for federally-held student loans. Federal loans will have 0% interest accruing and no payment collections until September 30th, 2021. Refinancing these loans may not be in your best interest. If you have private loans, taking advantage of lower interest rates is a great way to save money on the loans you’re already paying for. If and when the federal loan holiday expires and you figure out your PSLF eligibility, there can be some serious perks to refinancing a federal loan into a private loan if your federal loan has a high interest rate.