This comprehensive guide breaks down everything you need to know about the various types of federal student loans and how to apply for them.

Ultimate Guide to Federal Student Loans

<div class="markdown prose w-full break-words dark:prose-invert light">
Federal student loans are loans provided by the U.S. government to help students pay for their education. They are designed to make college more affordable and accessible by offering low-interest rates, flexible repayment terms, and various loan forgiveness programs. Some of the most common types of federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Grad PLUS Loans, and Parent PLUS Loans.
</div>

Federal student loans should be considered after exploring all other forms of financial aid, such as scholarships, grants, and work-study. If those options are not enough to cover the cost of college, then borrowing federal student loans can be a responsible and manageable way to finance your education. It&#8217;s important to only borrow what you need, as student loan debt can have long-term financial implications.

What are federal student loans?

As if paying for undergrad wasn’t bad enough, now you have to pay for grad school! (*cries in student debt*)

One of the options you may have for paying for grad school is a Grad PLUS loan. Let's break down what a Grad PLUS loan is, who is eligible for one, and what it's like to actually borrow one.
<h2>What is a Grad PLUS Loan?</h2>
A Grad PLUS loan is a federal loan, funded by the federal government, designed specifically for students pursuing graduate or professional school. 
<h2>Who is Eligible for a Grad Plus Loan?</h2>
In order to be eligible for a Grad PLUS loan, students must:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Fill out the FAFSA</li>
 	<li style="font-weight: 400;" aria-level="1">Exhibit creditworthiness</li>
</ol>
After <a href="https://www.sparrowfi.com/blog/6-simple-steps-to-fill-out-fafsa">filling out the FAFSA</a>, lenders will check the student’s credit history to determine eligibility. Students with good credit history often find it easier to borrow from this program. Similarly, students with poor credit history often find it more challenging to borrow from this program.

Having poor credit doesn’t mean you’re out of luck, though. Typically, bringing on a creditworthy cosigner allows students with poor credit to borrow funds through a Grad PLUS loan.

Unlike some undergraduate student loans, demonstrating financial need is not part of the eligibility requirements for Grad PLUS loans.
<h2>How Much Can I Borrow in a Grad PLUS Loan?</h2>
Grad PLUS loans can cover the entire cost of attendance minus any other <a href="https://www.sparrowfi.com/blog/ultimate-guide-to-figuring-out-your-financial-aid-package">financial aid</a> a student has.

For example, if the cost of attendance at your respective grad school was $30,000 and you received $10,000 in university scholarships, you could potentially pay the entire remaining $20,000 through a Grad PLUS loan.
<h2>What are the Interest Rates on Grad PLUS Loans?</h2>
Grad PLUS loans have a fixed interest rate set by the federal government. This fixed interest rate can shift, however, as the government makes changes to the interest rate each academic year. 

The interest rates on Grad PLUS loans do tend to be higher than other federal student loans. For example, for the July 2019 - July 2020 academic year, the rate was 7.08%.<a href="https://www.tun.com/blog/everything-you-need-to-know-about-grad-plus-loan/">1</a>
<h2>What Fees are There for Grad PLUS Loans?</h2>
One major fee you should be aware of when taking out a Grad PLUS loan is the origination fee. An origination fee is an upfront fee a lender charges to process a new loan. On a Grad PLUS loan, this origination fee tends to be around 4.3% of the total loan amount.

For example, if you are borrowing $20,000 in a Grad PLUS loan, you will pay $860 in origination fees. This fee will show up as part of your outstanding loan balance.
<h2>What are the Repayment Options for Grad PLUS Loans?</h2>
The typical repayment plan for Grad PLUS Loans is the standard repayment term of 10 years. This operates similarly to federal undergraduate student loans.

You may also be eligible for the typical repayment plans offered by the Department of Education such as the income-driven repayment plan, pay-as-you-earn plan, or graduated repayment plan.

Similar to federal undergraduate student loans, there is a grace period of 6 months after you graduate (or leave school) before payments are required. 

It’s important to think realistically when <a href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option">choosing a repayment plan</a>. While it may be ideal to make large payments each month, it may not make sense financially to do so. Pick what makes most sense.
<h2>Final Thoughts</h2>
As always, you should try to borrow as little as possible, and always look for <a href="https://www.sparrowfi.com/blog/top-6-college-scholarship-sites">scholarships</a> and grants first. When loans become the final option, make sure to compare loan rates with <a href="https://www.sparrowfi.com/student-loan-info">Sparrow</a> before jumping into any student loan.

Everything You Need to Know About Grad PLUS Loans

The Parent PLUS loan program was launched in 1980 through the Higher Education Act, giving high-asset families a bit of liquidity to cover their <a href="https://www.sparrowfi.com/blog/what-is-expected-family-contribution-efc-and-how-is-it-calculated">Expected Family Contribution</a> (EFC). Since then, the program has expanded to cover other demographics, providing a wider audience with federally-sponsored college financing.&nbsp;



If you’re considering borrowing a Parent PLUS loan to cover the cost of your child’s education, there are several factors to consider. This guide explains everything you need to know, from the eligibility criteria, to the interest rates, to how to navigate repayment.



Jump Ahead &gt; <a href="#eligibility-criteria">Eligibility Criteria</a> • <a href="#borrowing-process">Borrowing Process</a> •&nbsp;<a href="#repayment">Loan Repayment</a>



<h2 class="wp-block-heading">What is a Parent PLUS Loan?</h2>



A Parent PLUS Loan is a <a href="https://www.sparrowfi.com/blog/types-of-student-loans-which-one-is-right-for-me">type of Direct loan</a> provided by the U.S. Department of Education that allows eligible parents to borrow money to pay for their child’s education.



<h2 class="wp-block-heading" id="eligibility-criteria">Who is Eligible for a Parent PLUS Loan?</h2>



To be eligible for a Parent PLUS loan, you must:



<ul>
<li>Be eligible under the <a href="https://www.sparrowfi.com/blog/who-is-eligible-for-a-student-loan-what-you-need-to-qualify">general requirements</a> for federal student aid</li>



<li>Be a U.S. citizen or eligible non-citizen</li>



<li>Be the biological or adoptive parent (or sometimes stepparent) of an undergraduate, dependent student who is enrolled at least half-time at an eligible school</li>



<li>Have a <a href="https://www.sparrowfi.com/blog/what-credit-score-is-needed-for-a-student-loan">decent credit history</a> (although there are other additional requirements you can meet to get around this)</li>
</ul>



Note that grandparents and legal guardians are not eligible for Parent PLUS loans unless they have adopted the student.



The student you borrow for must also:



<ul>
<li>Be a U.S. citizen or eligible non-citizen</li>



<li>Not have any previous student loan defaults on their record that haven’t been resolved</li>
</ul>



<h3 class="wp-block-heading">Credit Requirements</h3>



When you borrow a Parent PLUS loan, your credit history will be checked. To pass, you must not have any of the following on your record within the 2 years prior to applying:



<ul>
<li>One or more debts that are more than 90 days overdue that total more than $2,085</li>



<li>A collection or charge off</li>
</ul>



You must also not have any of the following within the 5 years prior to applying:



<ul>
<li>A loan default</li>



<li>A discharge of debts via bankruptcy</li>



<li>A foreclosure</li>



<li>A repossession</li>



<li>A tax lien</li>



<li>Any wage garnishment</li>



<li>A write-off of a federal student aid debt</li>
</ul>



<h3 class="wp-block-heading">Can You Get a Parent Plus Loan with Bad Credit?</h3>



If you are concerned about meeting the credit requirements of a Parent PLUS loan, there are some ways to get around it:



Prove extenuating circumstances. If you believe your credit is insufficient due to extenuating circumstances, you can submit a<a href="https://studentaid.gov/plus-app/extenuatingCircumstancesInfo"> document</a> to the U.S. Department of Education. The document will require you to detail the circumstances leading to poor credit history. For example, situations of divorce or excessive medical bills may contribute to extenuating circumstances. While this doesn’t guarantee you eligibility, it is always worth a shot.



Obtain an endorser. An <a href="https://www.sparrowfi.com/blog/glossary">endorser</a> is an individual who agrees to sign onto the loan alongside you, taking legal responsibility for the loan just like you. In the realm of private student loans, this is called a <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">cosigner</a>.



Adding an endorser to the loan can help you qualify if your credit is not as established as it could be. Note that the endorser cannot be the child you are borrowing for.&nbsp;



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/best-student-loans-for-parents-with-bad-credit">Best private student loans for parents with bad credit</a>



<h2 class="wp-block-heading" id="borrowing-process">Borrowing a Parent PLUS Loan</h2>



To borrow a Parent PLUS loan, complete the <a href="https://studentaid.gov/plus-app/parent/landing">online application</a>. Note that the application will instruct you to <a href="https://www.sparrowfi.com/blog/ultimate-fafsa-guide">complete the FAFSA</a> prior to completing the Parent PLUS loan application.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/fafsa-requirements-everything-you-need-to-know">FAFSA requirements: Everything you need to know</a>



<h3 class="wp-block-heading">How Much Can I Borrow?</h3>



Parent PLUS loans can cover up to the cost of attendance minus other aid your child receives. For example, if the cost of attendance at your child’s school is $30,000, and they received $10,000 in additional aid, you may be eligible to borrow up to $20,000 in a Parent PLUS loan.



Note that you do not have to accept the full amount given. For example, if offered $20,000, you can choose to only borrow $15,000.



<h3 class="wp-block-heading">What Are the Interest Rates?</h3>



Parent PLUS loan rates change annually. For loans disbursed on or after July 1, 2022 and before July 1, 2023, the interest rate is <a href="https://studentaid.gov/understand-aid/types/loans/plus/parent">7.54%</a>. This interest rate is <a href="https://www.sparrowfi.com/blog/which-is-better-variable-vs-fixed-interest-rate-student-loans">fixed</a>, meaning it will remain the same throughout the life of the loan.



<h3 class="wp-block-heading">Are There Fees?</h3>



Parent PLUS loans do come with a loan fee. This loan fee is a percentage of the amount being borrowed and is deducted from each disbursement over the life of the loan. While the loan fee can and does change, it has remained at 4.228% the last two academic years.



So, for example, if you borrow $10,000, $422.80 will be deducted due to the loan fee, and $9,577.20 will be disbursed to the school. That said, you will still be responsible for repaying the entire $10,000.



<h2 class="wp-block-heading" id="repayment">Parent PLUS Loan Repayment</h2>



Repaying a Parent PLUS loan is the legal responsibility of the borrower – the parent. While you may ask your child to contribute to repayment, it is ultimately your responsibility. Before borrowing a Parent PLUS loan, take the time to understand what that means for you in terms of repayment and to discuss repayment with your child.



<h3 class="wp-block-heading">Do I Have to Make Payments While My Child is Still in School?</h3>



When borrowing a Parent PLUS loan, you will have the option to request a<a href="https://wordpress.sparrowfi.com/forbearance-vs-deferment-vs-forgiveness/"> deferment</a>. This deferment would excuse you from making payments while your child is enrolled and for an additional six months after your child graduates.



However, if a deferment is not requested, you will be expected to make payments immediately after the loan is disbursed.&nbsp;



Regardless of whether you decide to make payments while your child is in school, interest will continue to accrue on the loan.



<h3 class="wp-block-heading">What Repayment Options are Available?</h3>



Parent PLUS loans have a few <a href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option">repayment options</a>:



<ul>
<li>Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.</li>



<li>Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increase over time.</li>



<li>Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.</li>



<li>Income-Contingent Repayment Plan: You make payments that are set based on your income (typically 10-20% of your income). With an <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-an-income-driven-repayment-plan">income-contingent repayment plan</a>, you will likely pay more over the life of the loan in comparison to the standard repayment plan. Note that you will only qualify for income-contingent repayment if you <a href="https://www.sparrowfi.com/blog/what-are-direct-consolidation-loans">consolidate</a> your Parent PLUS loans.</li>
</ul>



<h3 class="wp-block-heading">What If I Can’t Repay My Parent PLUS Loan?</h3>



If you’re struggling to make payments on your Parent PLUS loan, there are a few things you can do:



Refinance the Parent PLUS loan(s) to a private student loan. By <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-refinancing-federal-student-loans">refinancing your federal student loan</a> through a private lender, you may be able to score a lower interest rate or longer repayment period, which could in turn, lower your monthly payment.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/student-loan-refi">Compare the best refinance rates for parents:</a>



[rate_table id="4616" type="slr"]



Switch repayment plans. If you are currently on the standard repayment plan, consider switching to the extended repayment plan. By doing so, your monthly payments will decrease, which may make it more manageable to repay.



Request a deferment or forbearance. Deferment and forbearance both allow you to temporarily postpone payments. You will need to be able to prove financial or other hardship, however, to qualify. Additionally, interest will still accrue during these periods, which could increase your monthly payment after you return to repayment.



Before making any decision regarding your Parent PLUS loan(s), contact your loan servicer. They can help you determine the best course of action to remedy your situation.



<h3 class="wp-block-heading">Can I Transfer My Parent PLUS Loan to My Child?</h3>



Parent PLUS loans cannot be directly transferred to a child. However, you can have your child refinance the loan through a private lender to remove your name from the loan.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/how-to-transfer-a-parent-plus-loan-to-a-student">How to transfer a parent PLUS loan to a student</a>



<h3 class="wp-block-heading">Are Parent PLUS Loans Eligible for Forgiveness?</h3>



Parent PLUS loans are eligible for a <a href="https://www.sparrowfi.com/blog/parent-plus-loan-forgiveness-everything-you-need-to-know">variety of student loan forgiveness programs</a>, such as:



<ol>
<li>Income-Contingent Repayment Forgiveness</li>



<li>Public Service Loan Forgiveness</li>



<li>Military Forgiveness Programs</li>



<li>Federal Agency Employment Forgiveness Programs</li>
</ol>



Note that each student loan forgiveness program will have its own unique requirements. To ensure you are eligible for a certain forgiveness program, make sure to read its eligibility requirements carefully.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/parent-plus-loan-forgiveness-everything-you-need-to-know">Parent PLUS loan forgiveness: Everything you need to know</a>



<h2 class="wp-block-heading">Final Thoughts from the Nest</h2>



A Parent PLUS loan is a great option for parents who want to help support their children through their education. Before agreeing to any loan, however, it’s a good practice to compare interest rates across all loans. In fact, you may be able to score an even lower interest rate with a <a href="https://www.sparrowfi.com/student-loan-info">private student loan</a>.

Parent PLUS Loans: What You Need to Know

Deciphering your student aid package is already like reading IKEA furniture instructions. Confusing.

One of the biggest points of confusion for prospective college students is the difference between subsidized and unsubsidized loans. Understanding the difference is important as it impacts your interest, repayment, and overall student debt.
<h2>What Are Direct Subsidized and Unsubsidized Loans?</h2>
Both Direct Subsidized and Direct Unsubsidized Loans are forms of federal <a href="https://www.sparrowfi.com/blog/ultimate-guide-to-figuring-out-your-financial-aid-package">financial aid</a> offered by the U.S. Department of Education to support students in paying for higher education.

Neither Direct Subsidized or Direct Unsubsidized loans require you to make payments while in school.
<h3>Direct Subsidized Loans</h3>
<h4>What is a Direct Subsidized Loan?</h4>
Direct Subsidized loans are available to undergraduate students who are deemed eligible. The US Department of Education pays the interest on Direct Subsidized loans during certain periods such as: 
<ul>
 	<li style="font-weight: 400;" aria-level="1">When you’re in school (if at at least half-time status)</li>
 	<li style="font-weight: 400;" aria-level="1">For 6 months after you graduate or leave school (This is called a grace period!)</li>
 	<li style="font-weight: 400;" aria-level="1">If you need to defer your loans (postponing loan payments)</li>
</ul>
During these periods, interest won’t accrue and your principal balance won’t grow (this means that your loan amount isn’t getting bigger - ideal scenario!).
<h4></h4>
<h4>Who is Eligible for Direct Subsidized Loans?</h4>
In order to qualify for Direct Subsidized loans, you must meet all of the federal student aid requirements. <a href="https://www.sparrowfi.com/blog/6-simple-steps-to-fill-out-fafsa">Filling out the FAFSA</a> will allow you to see if you qualify.

It’s important to note that Direct Subsidized loans are only available to undergraduate students who demonstrate financial need. This is one of the major differences between Subsidized and Unsubsidized loans. Each respective university will determine how much students can borrow in Direct Subsidized loans as the amount cannot exceed the determined financial need.

You are also only eligible to receive Direct Subsidized loans for 150% of your program length. This means that, for example, if you are in a 4-year program, you can only receive Direct Subsidized loans for 6 years (4 * 150%).
<h4>How Much Can I Borrow in Subsidized Loans?</h4>
There is a limit in how much you can borrow in Direct Subsidized Loans. The following chart breaks down the annual limits which are based on your year in school.
<table>
<tbody>
<tr>
<td>Year in School</td>
<td>Direct Subsidized Loan Limit</td>
</tr>
<tr>
<td>Undergrad Year 1 Annual Limit</td>
<td>$3,500</td>
</tr>
<tr>
<td>Undergrad Year 2 Annual Limit</td>
<td>$4,500</td>
</tr>
<tr>
<td>Undergrad Year 3 Annual Limit</td>
<td>$5,500</td>
</tr>
<tr>
<td>Lifetime Subsidized Loan Max</td>
<td>$23,000</td>
</tr>
</tbody>
</table>
<h3>Direct Unsubsidized Loans</h3>
<h4>What is a Direct Unsubsidized Loan?</h4>
Unsubsidized loans differ from subsidized loans in that interest begins to accrue as soon as the loan amount is disbursed (sent out) and you are responsible for that interest. So, if you use a Direct Unsubsidized loan to pay for your freshman year of college, interest will accrue on that loan for the entirety of your college career and beyond.
<h4>Who is Eligible for Direct Unsubsidized Loans?</h4>
Direct Unsubsidized loans are a tiny bit more flexible than Direct Subsidized loans in that they are available to both undergraduates and graduate students, and you don’t need to provide financial need in order to secure one.

Similar to Direct Subsidized loans, each university will determine how much you can borrow in unsubsidized loans based on the cost of attendance and the other elements of the financial aid package. So, for example, if the cost to attend your university was covered by scholarships and a Direct Subsidized loan, you might not be able to secure a Direct Unsubsidized loan.
<h4>How Much Can I Borrow in Unsubsidized Loans?</h4>
Unlike subsidized loans, unsubsidized loans don’t have a maximum eligibility period. They do, however, have a borrowing limit just like subsidized loans. This is where things could get a bit confusing, so stick with us.

Unsubsidized loan limits are based on your year in school, but also factor in how much you received in Direct Subsidized loans and your dependent status. So what does this mean? 

Let’s use the chart and scenarios below to illustrate this.
<table>
<tbody>
<tr>
<td>Year in School</td>
<td>Dependent Status Students</td>
<td>Independent Status Students</td>
</tr>
<tr>
<td>Undergrad Year 1 Annual Limit</td>
<td>$5,500</td>
<td>$9,500</td>
</tr>
<tr>
<td>Undergrad Year 2 Annual Limit</td>
<td>$6,500</td>
<td>$10,500</td>
</tr>
<tr>
<td>Undergrad Year 3 Annual Limit</td>
<td>$7,500</td>
<td>$12,500</td>
</tr>
<tr>
<td>Graduate/Professional Degree Annual limit</td>
<td>N/A</td>
<td>$20,500</td>
</tr>
<tr>
<td>Subsidized </td>
<td>$31,000</td>
<td>$57,500 for undergrads$138,500 for graduate/professional students</td>
</tr>
</tbody>
</table>
Scenario 1: Sara, a 1st year undergraduate student who filed as an independent
<ol>
 	<li style="font-weight: 400;" aria-level="1">Sara receives $1,500 in Direct Subsidized Loans</li>
 	<li style="font-weight: 400;" aria-level="1">Sara would be eligible for up to $8,000 in Direct Unsubsidized loans</li>
</ol>
($9,500 - $1,500 = $8,000)

Scenario 2: Michael, a 3rd year undergraduate student who filed as a dependent
<ol>
 	<li style="font-weight: 400;" aria-level="1">Michael receives $2,000 in Direct Subsidized Loans</li>
 	<li style="font-weight: 400;" aria-level="1">Michael would be eligible for $5,500 in Direct Unsubsidized loans</li>
</ol>
($7,500 - $2,000 = $5,500)
<h3>Are Subsidized or Unsubsidized Loans Better?</h3>
<img class="alignnone wp-image-1538" src="https://wordpress.sparrowfi.com/wp-content/uploads/2022/02/Blog-Imagery-5-300x169.png" alt="" width="646" height="364" />

In general, Subsidized loans will be a better option as interest won’t be accruing as it would with Unsubsidized loans.

However, if you aren’t eligible for Direct Subsidized loans because you don’t demonstrate enough financial need, then Direct Unsubsidized loans will be the better option (and your only option likely).

Either way, federal loans in general will likely be the best loan option in comparison to private lending options. Thus, you should take out what you can in federal loans before dipping into private loan options.
<h2>Final Thoughts</h2>
Federal Direct Subsidized and Unsubsidized loans are great options to explore if you are offered them. If federal loans don't cover your financial need entirely, it may be time to explore <a href="https://www.sparrowfi.com/student-loan-info">private loan options</a>.

The Difference Between Subsidized and Unsubsidized Loans

Let’s set the scene.

You got accepted into your dream school. You’re so excited you can hardly contain it. A few days go by and the reality sets in. How am I going to pay for this?

You log into your school’s payment portal and look at the total cost of attendance. Before you panic, let’s break down all the steps you’ll need to take to pay for college.
<h2>Before College</h2>
<h3>Step 1: Complete the FAFSA</h3>
Each year, the U.S. Department of Education offers financial aid to college students. The FAFSA, or Free Application for Federal Student Aid, is a form you will need to fill out to be considered for this aid.

The FAFSA determines which students receive financial aid and how much they get. The information you provide in the form is also used by colleges and universities to determine eligibility for their scholarships and aid programs.

The FAFSA opens each year on October 1st. Students should fill out the FAFSA the year before they plan to start school. For example, if you plan to be in school by October of 2022, you’ll want to fill out the FAFSA in October of 2021.

We recommend that prospective students fill out the FAFSA as soon as they can after it opens. Note that you do not need to know exactly where you plan to enroll to fill out the FAFSA. In fact, you will likely fill out the FAFSA before you even apply to some schools.

Most people elect to fill out the FAFSA online, although there are other ways to complete it. For a more in-depth guide to the FAFSA, check out <a href="https://www.sparrowfi.com/blog/6-simple-steps-to-fill-out-fafsa">6 Simple Steps to Fill Out the FAFSA</a>.
<h3>Step 2: Apply for Grants and Scholarships</h3>
<a href="https://www.sparrowfi.com/blog/the-4-types-of-financial-aid-scholarships-grants-work-study-and-loans">Grants and scholarships</a> are also known as “free money” because they don’t need to be repaid. They tend to be merit-based, need-based, or a combination of both.

What does that mean?

Merit-based → awarded based on academic achievement or excelling in an interest, trait, or talent

Need-based → awarded based on financial need

The amount of money you can get in scholarships and grants ranges quite a bit. Some grants and scholarships will cover the cost of books, and others will cover the entire cost of tuition. According to Education Data, students receive $7,500 worth of scholarships and grants, on average.

To find college scholarships and grants, you can do the following:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Ask your high school guidance counselor for local resources. Local organizations such as Veterans Clubs, Rotary programs, and small businesses may offer scholarships.</li>
 	<li style="font-weight: 400;" aria-level="1">Look to your employer or your parents’ employers. You’d be surprised how many companies offer scholarships!</li>
 	<li style="font-weight: 400;" aria-level="1">Research organizations that cater to identities you hold, such as:
<ol>
 	<li style="font-weight: 400;" aria-level="2">Ethnicity-based organizations</li>
 	<li style="font-weight: 400;" aria-level="2">Women’s/Men’s Clubs</li>
 	<li style="font-weight: 400;" aria-level="2">Volunteer or Service-based organizations (nonprofits, community organizations, civic groups)</li>
 	<li style="font-weight: 400;" aria-level="2">Professional associations</li>
 	<li style="font-weight: 400;" aria-level="2">Contact<a href="https://www2.ed.gov/about/contacts/state/index.html"> state grant agencies</a></li>
 	<li style="font-weight: 400;" aria-level="2">Use the U.S. Department of Labor’s<a href="https://www.careeronestop.org/toolkit/training/find-scholarships.aspx"> FREE Scholarship Search Tool</a></li>
 	<li style="font-weight: 400;" aria-level="2">Do service projects on<a href="http://dosomething.org/"> DoSomething.org</a> to be entered to win scholarships.</li>
 	<li style="font-weight: 400;" aria-level="2">Use reputable scholarship sites such as<a href="http://www.fastweb.com/"> FastWeb</a>,<a href="https://bigfuture.collegeboard.org/scholarship-search"> CollegeBoard</a>, and<a href="https://bold.org/"> Bold.org</a>.</li>
</ol>
</li>
</ol>
Note that deadlines for each scholarship will be different. We recommend making a Google Sheet to track each scholarship or grant you plan to apply to, the deadline, and the materials required to apply.
<h3>Step 3: Get a Work-Study Job</h3>
After filling out the FAFSA, you may qualify for <a href="https://www.sparrowfi.com/blog/what-is-work-study">work-study</a>. Work-study is a federal aid program that provides part-time jobs to college students with financial need. Qualifying for this program doesn’t guarantee you will receive a job, but it does open the door to various job opportunities not all students have.

To read more about work-study, check out this article.

Once you’ve selected which school you want to attend, look through their job portal online to find work-study jobs available to you.

Note: Again, not all students will qualify for work-study. Only those who demonstrate significant financial need based on their FAFSA will be eligible. If you are not eligible for work-study, there will still be other job opportunities you can take advantage of on or off campus.
<h3>Step 4: Examine Your Savings</h3>
Taking out private student loans is part of the average person’s college experience. But, as much as you can, you want to minimize how much you need to take. Examine your savings and see how much you can put towards paying for college.

Additionally, be smart about what you spend leading up to college. Maybe you just had a high school graduation party and received generous gifts. Instead of spending that money, consider putting it towards paying for college. (Trust me, your 22-year-old graduated self will thank you.)
<h3>Step 5: Take out Federal Student Loans</h3>
After filling out the FAFSA, you will receive a <a href="https://www.sparrowfi.com/blog/ultimate-guide-to-figuring-out-your-financial-aid-package">financial aid package</a> from the schools you applied to. Within these aid packages, you may see grants and federal student loans.

Federal student loans tend to have lower interest rates and more favorable terms in comparison to private student loans. Thus, many students opt to take whatever federal loans are offered to them.

You should remember to accept federal financial aid in the following order: grants/scholarships (free money) → work-study (earned money) → loans (borrowed money)

Loans should always be accepted last after any scholarships, grants, or work-study.
<h3>Step 6: Borrow Private Student Loans</h3>
The average college student will take out private student loans to cover their remaining balance. But, private student loans should always come after federal loans as they need to be repaid and tend to have higher interest rates.

Each private loan will offer different elements that will vary in importance depending on the person. This means that there isn’t a single best private loan option; it varies by person.

Finding the best private student loan for you is a seamless process on Sparrow. <a href="https://www.sparrowfi.com/sign-up">Create an account</a>, and in under 3 minutes, you can compare all your loan options in one place.
<h3>Payment Deadline Reminder</h3>
May 1st is the deadline for accepting a college’s offer for fall admission and for paying the tuition deposit to enroll.

This deadline is crucial to keep in mind because it impacts other parts of the process of paying for college. Be proactive and do things earlier than you think you may need to.
<h2>Every Summer While in College</h2>
<h3>Register and Pay for Classes</h3>
To be considered a full-time student and pay the same tuition rate, you need to make sure you enroll in classes. Try to register for classes as soon as your university will allow you to.

Before enrolling, consult with an advisor to ensure you’re taking the right classes to stay on track to graduating on time. If you plan ahead, you may be able to graduate early which would save you a lot of money in the long run.

Universities will typically send out tuition bills in July or August with the expectation that they are paid by the fall. If you have questions or concerns about when your tuition will be due, reach out to your university’s financial aid office.
<h3>Submit FAFSA for Next Year</h3>
If you’re using the FAFSA for any financial aid or loans, it will need to be resubmitted every year that you’re in college. This is because your financial situation may change from year to year, thus impacting the amount of money you qualify for.

If you submitted the FAFSA previously, you may be eligible to submit a Renewal FAFSA rather than having to fill out the entire form again. To reapply, simply log into the FAFSA portal online and click FAFSA Renewal.
<h3>Find a Job or Work-Study</h3>
If you previously qualified for work-study but haven't accepted a position, check for opportunities for the next school year. If you didn’t qualify when you initially filled out the FAFSA, but your financial situation has changed, you should resubmit the FAFSA as you may qualify now.

If you aren’t eligible for work-study, looking for an on or off campus job may help you pay for college or manage expenses such as books or food.
<h2>After You Leave School</h2>
<h3>Review Your Loan Repayment Plan</h3>
Regardless of whether you have federal or private student loans (or both!), you’ll want to review your repayment plan options. Find one that works for you and stick with it!

This is also a good time to determine how you want to allocate funds to make payments. We recommend using the Debt Avalanche method as it is most effective, but this won’t be for everyone. Do some research on the different methods and again, find one that works for you and stick to it!
<h3>Find a Job</h3>
Most of us attend college with the hopes of finding a job we love. Of course, we hope that it can financially support us as well. You will likely start the job search before graduating, but if you haven’t, post-grad is a great time to start looking.

Use sites like LinkedIn and Indeed to find roles that both suit you and will help you pay off your loans.
<h3>Consider Refinancing Your Loans</h3>
If your interest rates seem out of this world (and not in a good way), you may want to consider refinancing. Refinancing would allow you to take out a new loan with a lower interest rate to cover all of your initial loans. If the concept of refinancing sounds overwhelming, check out our <a href="https://www.sparrowfi.com/blog/the-ultimate-guide-to-refinancing-your-student-loans">guide</a>.
<h2>Summary</h2>
There is no one-size-fits-all solution to paying for college. You may end up with enough scholarships and grants to completely cover your college costs. Or, you may not get as much through the FAFSA as you expected, leaving you to take out more in private student loans.

Either way, there is no one solution to paying for college. This means that however you decide to pay for school, as long as it works for you, you’re making the right decision.

How to Pay for College

Learn more about federal student loans

Types of federal student loans

How to apply for federal student loans

Quick and easy guide

Sparrow recommends student loan payments consume no more than 10% of take-home pay. How much does that payment allow you to borrow?

How much debt can you afford to repay?

We won’t lie to you. The FAFSA is an animal.

The FAFSA, or Free Application for Federal Student Aid, is the form you fill out to get financial aid from the U.S. Department of Education to help <a href="https://www.sparrowfi.com/blog/how-to-pay-for-college">pay for college</a>. 

The information you provide on the FAFSA will determine your eligibility for thousands of dollars worth of financial aid. So, due to the nature of it, the form is big and asks for a lot of information. To make it more seamless, we’ve broken down the process of filling out the FAFSA into 6 simple steps.
<h2>Understanding FAFSA</h2>
FAFSA determines which students receive financial aid and how much they will get. Believe it or not, over 13 million students each year get more than $120 billion in grants when they file the FAFSA. (a.k.a. you better fill out the FAFSA!)

Note: We’re calling this the FAFSA process because you’re truly not finished with it until the final step when you complete entrance counseling. You could also call this the Federal Aid Process.
<h2>Completing the FAFSA Process in 6 steps:</h2>
<ol>
 	<li style="font-weight: 400;" aria-level="1">Get Informed</li>
 	<li style="font-weight: 400;" aria-level="1">Fill it Out</li>
 	<li style="font-weight: 400;" aria-level="1">Compare Aid Offers</li>
 	<li style="font-weight: 400;" aria-level="1">Reply to Aid Offers</li>
 	<li style="font-weight: 400;" aria-level="1">Sign a Loan Agreement </li>
 	<li style="font-weight: 400;" aria-level="1">Complete Entrance Counseling </li>
</ol>
<h3>Step 1: Get Informed </h3>
The FAFSA collects information to determine your eligibility for financial aid. Your <a href="https://www.sparrowfi.com/blog/what-is-expected-family-contribution-efc-and-how-is-it-calculated">Expected Family Contribution</a>, year in school, enrollment status, and the cost of attendance at the school are used to determine your eligibility.

Expected Family Contribution: A number that indicates a student's ability to pay for college.

This number is calculated using a formula established by law and uses information such as your family’s income, assets, and benefits.

Your Year in School: The amount you can borrow in federal student loans depends on whether you’re an undergraduate student, a graduate or professional student, or a parent.

Undergraduate student

You can borrow between $5,500 and $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans depending on what year you are in school and your<a href="https://studentaid.gov/apply-for-aid/fafsa/filling-out/dependency"> dependency status</a>.

Graduate or professional student

You can borrow up to $20,500 each year in Direct Unsubsidized Loans. Direct PLUS Loans can also be used for the remainder of your college costs, as determined by your school, not covered by other financial aid.

Parent of a dependent undergraduate student

You can receive a Direct PLUS Loan for the remainder of your child’s college costs, as determined by their school, not covered by other financial aid.

Cost of Attendance: The price tag (cost) of a year at school. This number includes everything from the basic tuition and fees to the cost of books, supplies, and transportation.

Enrollment Status: This indicates whether a student is full-time, three-quarter time, part-time, withdrawn, graduated, etc.
<h3>Step 2: Fill it Out</h3>
After you’ve taken some time to understand what you're actually applying to, you’ll need to sit down and apply. We won’t sugarcoat it - completing the application is quite an endeavor. However, if you come prepared with all the information you’ll need to fill it out, you can bang it out in around an hour.

Make sure you have the following on hand:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Your social security number (Make sure you verify this and don’t just go off of memory. It is crucial that you enter this correctly on the FAFSA form.)</li>
 	<li style="font-weight: 400;" aria-level="1">Your parent’s social security numbers (if you are a dependent)</li>
 	<li style="font-weight: 400;" aria-level="1">Your Alien Registration number (if you are not a US citizen)</li>
 	<li style="font-weight: 400;" aria-level="1">Tax Information such as tax returns including IRS W-2 information
<ul>
 	<li style="font-weight: 400;" aria-level="2">If applying as a dependent, make sure you have your parent(s) tax information as well</li>
</ul>
</li>
 	<li style="font-weight: 400;" aria-level="1">Records of any untaxed income such as child support, veteran benefits, etc.</li>
 	<li style="font-weight: 400;" aria-level="1">Information on cash you may have, such as:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Bank account (checking and savings) information</li>
 	<li style="font-weight: 400;" aria-level="2">Investments such as stocks and bonds</li>
 	<li style="font-weight: 400;" aria-level="2">Business assets</li>
</ol>
</li>
</ol>
Having this information at the ready will help speed up the process of filling out the FAFSA form. You can complete the form <a href="https://studentaid.gov/h/apply-for-aid/fafsa">here</a>.
<h3>Step 3: Compare Aid Offers</h3>
After you’ve filled out the FAFSA, the financial aid office at your school will send you an aid offer. Sometimes referred to as an aid letter, this will detail what financial aid you can receive. The offer will include the types of aid you may get from federal, state, private, and school sources. This sum of financial aid is your financial aid package.

Now, it’s a good idea to figure out the net price for each school you applied to. This will help you determine which school will be the most affordable. To do this:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Find the cost of attendance on the aid offer. If you cannot locate it on the aid offer, contact the school's financial aid office.</li>
 	<li style="font-weight: 400;" aria-level="1">Subtract <a href="https://www.sparrowfi.com/blog/the-4-types-of-financial-aid-scholarships-grants-work-study-and-loans">grants, scholarships</a>, and any savings you plan to put towards college from the total cost of attendance . This is known as your net or out-of-pocket cost.</li>
 	<li style="font-weight: 400;" aria-level="1">Compare the net costs and amount of debt you would be taking for each school.</li>
</ol>
<h3>Step 4: Reply to Aid Offer</h3>
Once you’ve decided where you want to attend, you will want to reply to the aid offer.

Accept financial aid in this order: free money (i.e. scholarships, grants), earned money (i.e. work-study), borrowed money (i.e. federal student loans).

When accepting federal student loans, you want to accept a <a href="https://www.sparrowfi.com/blog/the-difference-between-subsidized-and-unsubsidized-loans">subsidized loan</a> before an unsubsidized loan. This is because subsidized loans do not start accumulating interest until after you leave school.

Federal loans will typically have more favorable terms and conditions than private loans (interest rates, repayment periods, etc.). Evaluate your federal loan options and accept what makes sense before deciding on a private loan.

A few additional things you will want to be aware of:
<ol>
 	<li style="font-weight: 400;" aria-level="1">Some scholarship and grant programs have specific requirements to remain eligible. If you receive a scholarship that renews year over year, make sure you're informed of the ongoing requirements.</li>
 	<li style="font-weight: 400;" aria-level="1">Accepting work-study is a great idea, but be realistic with yourself. Make sure to balance your time between work and studying.</li>
</ol>
<h3>Step 5: Sign Loan Agreement</h3>
Okay, now you’ve decided what part(s) of your financial aid package you want to accept. (deep breath, only 2 more steps...we promise)

To receive federal student loans, you will need to sign a document called the Master Promissory Note (MPN). Signing the MPN signifies you agreeing to repay your loan(s) and any accrued interest and fees to the U.S. Department of Education. It also details the terms and conditions of the loan(s).

Find MPNs:

If you are an<a href="https://studentaid.gov/mpn/subunsub/landing"> Undergraduate Student</a>.

If you are a<a href="https://studentaid.gov/mpn/grad/landing"> Graduate/Professional Student</a>. Choose between Direct Unsubsidized Loans and Direct PLUS Loans.

If you are a<a href="https://studentaid.gov/mpn/parentplus/landing"> Parent of an Undergraduate Student</a>. Parents must log into their own account to submit.
<h3>Step 6: Complete Entrance Counseling </h3>
Entrance Counseling is the final step in the FAFSA process.

Through entrance counseling, you will learn what a loan is, how interest works, the terms and conditions of your loan, your options for repayment, and how to avoid default. Once you have completed counseling, a record of it will be sent to your school so your loan money can be disbursed.

Find Entrance Counseling:

If you are an<a href="https://studentaid.gov/entrance-counseling/"> Undergraduate Student</a>.

If you are a<a href="https://studentaid.gov/entrance-counseling/"> Graduate/Professional Student</a>.
<h2>Summary</h2>
After completing all these steps, you will have completed the FAFSA process and accepted financial aid. Following each step carefully is the most important part. If you have any questions, make sure to pause and find the answer before proceeding. (now deep breath #2 - you got this!)

6 Simple Steps to Fill Out FAFSA

There's no doubt that college can get expensive, and a lot of times you may need a student loan to pay for it. But what if you’re denied a loan? Here’s what you can do.&nbsp;



<h2>Why You’re Getting Denied a Student Loan&nbsp;</h2>



There are many different reasons why your student loan applications might be getting denied. It’s important to know what they are and why you got denied. That way, you can take steps to fix it so it doesn’t happen again. Here are some of the reasons you might get denied a student loan.&nbsp;



<h3>You Don’t Meet the Credit Requirements&nbsp;</h3>



Most private lenders have a <a href="https://www.sparrowfi.com/blog/what-credit-score-is-needed-for-a-student-loan">credit requirement</a>. They need to know that you’re trustworthy enough to pay back the loan, and your credit score is how they determine that. Not meeting the minimum credit score requirement makes you risky to lenders and a lot more likely to get denied a student loan.&nbsp;



<h3>You’ve Already Reached Your Borrowing Limit&nbsp;</h3>



Private lenders will have their own <a href="https://www.sparrowfi.com/blog/student-loan-limits-how-much-can-you-borrow-in-student-loans">borrowing limits</a>, often dependent on your school’s cost of attendance. These amounts are what institutions believe to be the amount you’ll need for college. If you’ve already borrowed either the lender’s limit or the total of your school’s cost of attendance, lenders may deny your loan application requesting more.&nbsp;&nbsp;



<h3>You Don’t Meet the Basic Eligibility Requirements&nbsp;</h3>



There are other requirements lenders will look at such as meeting a minimum income, your debt-to-income ratio, your employment and income history, and your future earning potential. All these, in one way or another, relate to your ability to pay back the loan. If you fall short on any of these according to the lender’s requirements, they may deem you too risky to give money.&nbsp;&nbsp;



<h2>What to Do If You’re Denied a Student Loan&nbsp;</h2>



Being denied a student loan can make you feel like there’s nothing left that you can do. But that’s not true. There are certain steps you can take to help your situation, even if you’ve been denied a loan. The following is a list of actions you can take that’ll help you.&nbsp;



<h3>#1: Submit An Appeal&nbsp;</h3>



If you were denied but now believe you would be eligible due to extenuating circumstances or incorrect information, you can <a href="https://www.sparrowfi.com/blog/how-to-write-a-financial-aid-appeal-letter">appeal the decision</a>. This is true for both federal and private student loans. In general, you’ll need to provide a written statement explaining your situation with evidence backing up your claim. Because each private lender is a unique entity, they each may have a unique appeal process, so be sure to check with them directly.&nbsp;



<h3>#2: Consider Adding a Creditworthy Cosigner</h3>



A lot of lenders require you to meet a minimum credit score. If you don’t meet that credit score, consider <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">adding a cosigner</a>. A cosigner is someone who signs onto the loan, taking legal responsibility for the loan alongside you. A good cosigner is someone with a good financial history and someone you can trust. Typically, a cosigner is a parent or a family member, but, in reality, they can be anyone, including friends, so long as they are able and willing. Even if you don’t need a cosigner, it’s still a good idea to get one because they can help you secure better loan terms.&nbsp;



<h3>#3: Check Your Credit Report&nbsp;</h3>



You’ll also want to check your credit report to see why you have a bad credit history and what you can do to fix it. Go to the <a href="https://www.annualcreditreport.com/index.action">Annual Credit Report </a>website where you can get a free credit report. These reports provide a detailed overview of your credit history. You can see where you fall short and <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">take steps to fix it</a>. This will raise your credit score and make it easier to apply for loans in the future. Even paying your bills on time can raise your credit score in as little as six months.&nbsp;



<h3>#4: Apply for More Scholarships and Grants&nbsp;</h3>



Loans aren’t the only source of funding you can use for a college education. You can also apply for college <a href="https://www.sparrowfi.com/blog/top-6-college-scholarship-sites">scholarships</a> and grants. Since they are free money, you’ll never have to pay them back, making them a great help in covering the costs of college. You’ll want to apply to as many scholarships and <a href="https://www.sparrowfi.com/blog/the-4-types-of-financial-aid-scholarships-grants-work-study-and-loans">grants</a>, small and large, as you can to help your chances of winning.



<h3>#5: Find a Job That Offers Tuition Assistance&nbsp;</h3>



There are many <a href="https://www.sparrowfi.com/blog/top-55-companies-with-tuition-reimbursement-programs">different jobs</a> out there that offer to pay for part or all of your school tuition if you work for them. The steady income you’ll get can help take care of college expenses. You might even have extra income left over to cover other things. This is great because not only do you get work experience but you’re, in essence, getting paid to go to school.&nbsp;



<h3>#6: Consider Community College&nbsp;</h3>



Community college is also another great option if you’re denied a student loan because it’s often more affordable than traditional 4-year schools. In some cases, you may not pay anything because your aid covers all the college costs. Or, you will more easily be <a href="https://www.sparrowfi.com/student-loan-info">approved for loans</a> because you’re asking for a lesser amount. Community colleges also have a lot of different programs that might interest you. This includes partnering with 4-year schools and having their own bachelor’s programs.&nbsp;



<h3>#7: Look Into Loan Options with Flexible Eligibility Criteria&nbsp;</h3>



There are lenders who offer <a href="https://www.sparrowfi.com/blog/best-private-student-loans-for-bad-credit">bad credit loans</a> or have more flexible eligibility criteria. While you can look for them online one-by-one, you can use Sparrow instead to save both time and money. Sparrow partners with lenders who offer these types of loans. That way more students can take advantage of them. Just fill out the <a href="https://www.sparrowfi.com/sign-up">Sparrow application</a> to see what rates you can get.&nbsp;



<h2>Final Thoughts from the Nest&nbsp;</h2>



In some ways, being denied student loans can feel like the end of the world. But don’t worry. There are still plenty of things you can do. And we, here at Sparrow, have got your back. <a href="https://www.sparrowfi.com/sign-up">Sign up</a> with us to apply for new loans and take some of the measures we’ve listed above. The important thing is to not give up. Trust us, you will make it to college.&nbsp;

7 Things to Do If You’re Denied a Student Loan

How Do I Compare Student Loans?

Forbearance, deferment, and forgiveness all have some element of not making payments on your student loan. If deciphering the difference seems a bit challenging, read on as we break it down!



<h2>What is Loan Forbearance?</h2>



Loan forbearance provides you the opportunity to suspend loan payments temporarily for no more than 12 months at a time. Typically, people choose to do so in times of severe financial stress.&nbsp;



While payments are postponed, you will not be responsible for paying the interest that is accruing. When the forbearance period ends, you will be responsible for that interest however.



<h3>Federal Student Loan Forbearance</h3>



With a <a href="https://www.sparrowfi.com/blog/whats-the-difference-between-federal-and-private-student-loans">federal loan</a> servicer, you can request a general forbearance for up to 12 months for a Direct, FFEL, or Perkins loan. If your financial hardship continues after the 12 month period, you can request an additional forbearance of up to 12 months. Borrowers are allowed 12 months of forbearance at any given time, but can only request forbearance up to 3 years total.



Whether or not you are granted a forbearance is at the discretion of the loan servicer. Oftentimes, for situations such as unexpected major medical expenses, unemployment, or intense financial difficulty that prevents the borrower from making loan payments, forbearance will be granted.



You can request a general forbearance by calling the loan servicer or filling out a form online, however, the specific process may differ from lender to lender.



<h3>Private Loan Forbearance</h3>



Private lenders are generally less flexible when it comes to forbearance. This makes sense with what we know about private lenders (less favorable loan terms, higher interest rates, etc.) in comparison to federal loans.



Some private lenders will grant you forbearance for similar circumstances that prevent you from making loan payments. However, these forbearance periods typically come in 2 month increments and cannot exceed 12 months total (quite different from federal forbearance!). Additionally, private lenders may charge a fee for each month you are in forbearance.



<h2>What is Loan Deferment?</h2>



Similar to loan forbearance, loan deferment allows you to temporarily postpone loan payments.



The difference between loan forbearance and deferment is that in deferment, you may be responsible for still paying the interest that accrues during the deferment period.&nbsp;



For example, even if you aren’t paying your typical $125/month loan payment, you will still be required to keep paying the $25/month in interest. (random numbers just for example's sake!)



<h3>Federal Student Loan Deferment</h3>



Some federal loans will require you to pay interest during the deferment period, and others will not. Here’s a full breakdown<a href="https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief/deferment">1</a>:



Federal Loan Types That Will Not Require You to Pay Interest in Deferment:



<ol><li>Direct Subsidized loans</li><li>Subsidized Federal Stafford loans</li><li>Federal Perkins loans</li><li>Subsidized portion of Direct Consolidation loans</li><li>Subsidized portion of FFEL Consolidation loans</li></ol>



Federal Loan Types That Will Require You to Pay Interest in Deferment:



<ol><li>Direct Unsubsidized loans</li><li>Unsubsidized Federal Stafford loans</li><li>Direct PLUS loans</li><li>Federal Family Education Loan (FFEL) PLUS loans</li><li>Unsubsidized portion of Direct Consolidation loans</li><li>Unsubsidized portion of FFEL Consolidation loans</li></ol>



With a federal loan deferment, there are various circumstances that would make a borrower eligible, such as:



<ol><li>Cancer treatment deferment</li><li>Economic hardship deferment</li><li>Graduate fellowship deferment</li><li>In-school deferment</li><li>Military service and post-active duty student deferment</li><li>Parent PLUS borrower deferment</li><li>Rehabilitation training deferment</li><li>Unemployment deferment</li></ol>



You can request a federal loan deferment by submitting a request form to your loan servicer.



<h3>Private Loan Deferment</h3>



Private student loan deferment is a bit more complicated. Many lenders do offer some form of deferment, although it doesn’t look quite like it does for federal loans.



Many private lenders will offer assistance programs first such as relief while in school. Even with that, the interest on the loan will continue to accrue and capitalize at the end of the deferment period. You can lessen this interest by paying interest-only payments while it accrues, however, this isn’t always accessible if deferring for financial reasons.



To defer a private student loan, you’ll need to contact your individual lender as the process varies. Typically, it will require the submission of a form to see if you are eligible.



<h2>What is Loan Forgiveness?</h2>



Loan forgiveness has become an especially hot topic ever since President Joe Biden announced his desire to <a href="https://www.sparrowfi.com/blog/impact-of-cancelling-student-debt">forgive a portion</a> of the federal student loan debt.



Loan forgiveness means that you are no longer required to repay some or all of your loans. (Yup, free of student debt.)



Loan forgiveness programs have existed well before Biden’s announcement of such and come in a variety of forms, typically via federal student loan programs such as:



<ol><li><a href="https://www.sparrowfi.com/blog/what-is-public-service-loan-forgiveness">Public Service Loan Forgiveness</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/teacher">Teacher Loan Forgiveness</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/closed-school">Closed School Discharge</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/perkins">Perkins Loan Cancellation and Discharge</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/disability-discharge">Total and Permanent Disability Discharge</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/death">Discharge Due to Death</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy">Discharge in Bankruptcy</a></li><li><a href="https://studentaid.gov/borrower-defense">Borrower Defense to Repayment</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/false-certification">False Certification Discharge</a></li><li><a href="https://studentaid.gov/manage-loans/forgiveness-cancellation/unpaid-refund">Unpaid Refund Discharge</a></li></ol>



We won’t do a deep dive into each one of these as some are fairly uncommon in comparison to the others. One of the most common forgiveness programs, however, is the <a href="https://www.sparrowfi.com/blog/what-is-public-service-loan-forgiveness">Public Service Loan Forgiveness Program</a> (PSLF).



<h3>Public Service Loan Forgiveness Program (PSLF)</h3>



The Public Service Loan Forgiveness Program offers loan forgiveness for borrowers with federal Direct Loans that pursue employment by a government or not-for-profit organization. Borrowers that are accepted will only be responsible for making 120 qualifying monthly payments on their loan while working full-time for their qualifying employer. After those payments, PSLF forgives the remaining loan balance.



It’s important to note that not everyone who applies will be granted loan forgiveness. Some resources state that only 2.41% of applicants are granted forgiveness through the PSLF program<a href="https://educationdata.org/student-loan-forgiveness-statistics">2</a>.&nbsp;



<h3>Federal vs. Private Loan Forgiveness</h3>



When discussing loan forgiveness, people are often referring to federal loan forgiveness. At this time, there aren’t many, if any, systems in place for private loan forgiveness.



<h2>Summary</h2>



While we all certainly hope that moves are made in regards to forgiving our student debt, forbearance or deferment might be the most viable option if experiencing financial hardship that prevents you from making loan payments.&nbsp;



Neither deferment nor forbearance will impact your credit score as both are done with the approval of your lender. So, know that whatever decision you make, it will be okay. We’ve <a href="https://www.sparrowfi.com/student-loan-refi">got your back</a>.

Forbearance vs. Deferment vs. Forgiveness

Explore our federal student loan tips

The term “<a href="https://www.sparrowfi.com/blog/what-is-student-loan-refinancing">refinancing</a>” is one we hear a lot in the realm of student loan repayment, but how many of us know what it actually means? 



Refinancing is actually surprisingly easy to understand: a lender will pay off your existing loans and give you a new one with a lower interest rate or shorter repayment plan. It’s basically a chance to swap your current loan for a better one, with better terms.



In the long run, the goal of refinancing is to help save you money. And the best part is, you are allowed to <a href="https://www.sparrowfi.com/blog/how-often-you-should-refinance-your-student-loans">refinance as many times as you like</a>, free of cost. Most lenders allow you to refinance both your federal and private student loans.



Jump Ahead > <a href="#how-refinancing-works">How It Works</a> • <a href="#before-refinancing">What to Consider Before Refinancing</a> • <a href="#eligibility">Am I Eligible to Refinance?</a> • <a href="#when-to-refinance">When You Should Refinance</a> • <a href="#prepare-for-refinancing">How to Prepare</a>



<h2 id="how-refinancing-works">So How Does Student Loan Refinancing Work?</h2>



Let’s say you took out a student loan of $50,000 at an interest rate of 5% during undergrad and you plan on paying it off over the next 10 years at a monthly rate of around $530. By the time you finish paying it off, you will have actually paid $63,640 -- the original $50,000 plus $13,640 in interest.



On the other hand, if you refinance at an interest rate of 2.5% over the same ten-year period, you can reduce your monthly payments to $471, and pay only $6,562 in interest, saving $7,078 over the lifetime of the loan.



<h2 id="before-refinancing">What to Consider When Refinancing</h2>



There are many <a href="https://www.sparrowfi.com/blog/should-i-refinance-my-student-loans">things to consider when refinancing</a>. Here are a few different factors that are important to consider: 



<h3>Financial situation</h3>



Most lenders require you to have a <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">good credit score</a> (in the mid 600s). Lenders also want proof of a stable income and cash flow to support your new loan.



If your credit score has improved since taking out your original student loan, you may be well-positioned to refinance.&nbsp;



If your credit score is poor, you may struggle to find a lender willing to help you refinance because you will be viewed as a higher risk. If this sounds like you, consider adding a <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">creditworthy cosigner</a> to your application to increase your changes of qualifying for a lower rate.



<h3>Change in interest rate and loan term</h3>



Before you refinance your student loans, consider the change in interest rate and loan term. A lower interest rate means you will pay less interest each month, resulting in a lower total payment.&nbsp;



The loan term dictates how long you will be paying back the loan. A shorter term typically means a higher monthly payment, but allows you to get out of debt faster. On the other hand, a longer term usually means a <a href="https://www.sparrowfi.com/blog/average-student-loan-monthly-payment-how-to-lower-yours">lower monthly payment</a>, but increases the amount of interest that you have to pay throughout the lifetime of the loan. 



<h3>Type of loans</h3>



When you refinance, you are essentially applying for a private loan. If you already have private loans, refinancing is a great way to decrease the amount of interest you pay on your loans.



If you have federal loans, however, you'll want to weigh the reduction of your interest rate with the loss of <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-refinancing-federal-student-loans">federal student benefits</a> that you'll miss out on when you refinance with a private lender, such as:



<h4>Income-driven repayment plans</h4>



<a href="https://www.sparrowfi.com/blog/pros-and-cons-of-an-income-driven-repayment-plan">Income-driven repayment plans</a> readjust the amount you pay as your income falls. This keeps your repayment from ever totaling more than 10% of your monthly income, and it can help you stay financially secure.&nbsp;



<h4>Loan forgiveness&nbsp;</h4>



Federal student loans have some loan forgiveness options, such as the <a href="https://www.sparrowfi.com/blog/what-is-public-service-loan-forgiveness">Public Service Loan Forgiveness</a> and <a href="https://www.sparrowfi.com/blog/best-teacher-loan-forgiveness-programs">Teacher Loan Forgiveness</a>. When you refinance a federal student loan, you lose access to all these long forgiveness programs. 



<h4>Deferment and Forbearance</h4>



Federal student loans include <a href="https://www.sparrowfi.com/blog/forbearance-vs-deferment-vs-forgiveness">deferment and forbearance</a> which allow you to postpone your loan payments if you suffer severe financial hardship. But if you refinance, you’ll likely lose these protections.&nbsp;



<h2 id="eligibility">Am I Eligible to Refinance My Student Loan?</h2>



While everyone’s situation is different, here are some of the qualities that will make you well-positioned to refinance your student loans.&nbsp;



<ol><li>You’ve graduated or are no longer in school.</li><li>You have a high-interest private or federal student loan</li><li>You earn a steady flow of income</li><li>You’ve kept up with your loan payments and have a credit score in the mid/high 600s or above.</li><li>You do not work for the government, and you do not foresee the need for an income-driven payment plan.&nbsp;</li></ol>



If this describes you, then you are in good shape to refinance your student loans, and will likely save a substantial amount by doing so. If you answered yes to some of these and not others, you should consider refinancing only your private student loans.&nbsp;



<h2 id="when-to-refinance">Situations Where it Makes Sense to Refinance</h2>



Here are some situations where it would make sense:



<h3>You have a private student loan with a high interest rate</h3>



If you've got a private student loan with a high interest rate, you should try refinancing as soon as possible. That will maximize your potential savings.



If you can lower your interest rate (even by just a half of a percentage point), it could save you thousands of dollars throughout the lifetime of the loan. If you previously refinanced your loans, you can&nbsp;refinance again to lock down an even lower rate. Since refinancing is free, you are almost guaranteed to save money.



Want to compare all your student loan <a href="https://www.sparrowfi.com/student-loan-refi" target="_blank" rel="noreferrer noopener">refinancing options</a>? Complete the free <a href="https://www.sparrowfi.com/sign-up" target="_blank" rel="noreferrer noopener">Sparrow application</a> to compare personalized rates from over 15 premier lenders. 



<h3>Your finances improve</h3>



Credit score and income are the two main factors that determine the interest rate on your private student loans. If your credit score increases or you get a pay raise, it could be a great time to shoot your shot at refinancing your student loans. Refinancing to a shorter repayment plan at a lower interest rate will allow you to pay off your loans faster and save money in the long term.



In order to refinance, you generally need a credit score at least in the high 600s and enough income to consistently pay your debts and other expenses. If you don't meet those criteria, you could refinance with a cosigner who does.



<h3>You have a federal student loan but don't plan on using of the federal protections</h3>



If you don’t plan on taking advantage of federal loan benefits, such as income-driven repayment and Public Service Loan Forgiveness, refinancing might be a good option for you. Only refinance your federal student loans if you know you can get a lower rate. There is no reason to refinance your loans unless you end up paying less in interest.&nbsp;



<h3>You have a creditworthy cosigner</h3>



A <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">cosigner</a> is a person – such as a parent, close family member or friend – who pledges to pay back the loan if you do not. If you can find a cosigner with strong credit and high income, you’ll have a better chance of qualifying for a low interest rate. This could end up saving you thousands of dollars of interest expense over the lifetime of your loan.&nbsp;



<h2 id="prepare-for-refinancing">How to Prepare For Refinancing</h2>



<h3>1. Explore all private loan options. </h3>



Determine if the private loan being considered will have a <a href="https://www.sparrowfi.com/blog/which-is-better-variable-vs-fixed-interest-rate-student-loans">fixed or variable interest rate</a>. A fixed interest rate remains the same throughout the lifetime of the loan, while variable rates will likely fluctuate throughout the lifetime of the loan depending on interest rates set by the banks. 



Although a variable rate may be lower at certain points throughout the loan, they are largely unpredictable. On the other hand, fixed-rate offers more stability since you’ll know exactly how much you owe each month. Both can be good options depending on your circumstance and the movement of variable rates.&nbsp;



<h3>2. Know where you stand. </h3>



A <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">strong credit score</a> will almost certainly be required. While most lenders want to see scores in the mid-to-high 600s, aiming for 700 or higher will help with both the approval process and the rate you will qualify for. This means you will need to know where they stand before starting the process.&nbsp;



<h3>3. Carefully examine your credit report and score.</h3>



There are a number of <a href="http://annualcreditreport.com">sites</a> that allow you to check your credit report for free. If there are mistakes, you will need to take the time to correct them before you start the process of applying for refinancing. If your score is not where it needs to be, you will need to take steps to improve your score before starting on the path to refinancing.



<h3>4. Shop around for the best rates.</h3>



Some borrowers may be concerned about damaging their credit score by having too many <a href="https://www.sparrowfi.com/blog/whats-a-soft-credit-inquiry-whats-a-hard-credit-inquiry">hard inquiries</a> over a short period of time. Luckily, we’ve built a free tool that allows you to see what rates you’ll qualify for without impacting your credit score.&nbsp;

The Ultimate Guide to Refinancing Your Student Loans

For the 2021-2022 academic year, the average interest rate for federal student loans was 3.73% for undergraduates, 5.28% for graduate students, and 6.28% for parents and graduate students taking out&nbsp;<a href="https://www.sparrowfi.com/blog/what-are-plus-loans">PLUS loans</a>. While it’s challenging to determine the average for private student loans simply due to how much the interest rates vary, they tend to be even higher.



Finding ways to lower your student loan interest rate could lower your overall monthly payment and save you money over time. Here’s how to lower your student loan interest rate for both federal and private student loans.



<h2>Can I Get a Lower Interest Rate on My Federal Loans?</h2>



Interest rates on federal student loans are set by Congress each year and are technically considered law. Unfortunately, this means that borrowers of federal student loans can’t negotiate their way into a better interest rate.&nbsp;



However, you may be able to get a small reduction on your interest rate by opting into <a href="https://www.sparrowfi.com/blog/how-to-save-thousands-on-student-loans-with-an-autopay-discount">automatic payments</a>. If you agree to make payments on your loan through autopay, a system that automatically takes the monthly payment amount straight from your bank account, you may be able to secure around a 0.25 to 0.50 percentage point reduction in your interest rate. &nbsp;&nbsp;



If you’re confident this method wouldn’t send you into a spiral of overdraft fees, it may be a good option to enroll in auto-debit payments to save you a bit of interest.



Note: Be sure to check with your federal loan servicer to see if they offer <a href="https://www.sparrowfi.com/blog/how-to-save-thousands-on-student-loans-with-an-autopay-discount">interest rate discounts</a> for setting up autopay.



<h2>Can I Get a Lower Interest Rate on My Private Loans?</h2>



Interest rates on private loans are set by the lender themselves and based on a variety of factors such as your credit score and income. This means that the rates are not set in stone as with federal student loans. Private lenders may be open to negotiation or reevaluating your interest rate.



<h2>Proactive Steps to Lower Your Private Loan Interest Rate</h2>



If you’re thinking about taking out a private student loan, there are a few things you should do beforehand that will help you secure a lower interest rate when you apply:



<h3>Take a Look at Your Credit Score</h3>



Interest rates are calculated based on a variety of factors, one of which being your credit score. Ensuring you have a solid credit score before applying for a private loan will help you get a lower interest rate.



Although each lender is different, in general, private lenders look for credit scores around 660 or above. While you can still get a private loan with a <a href="https://www.sparrowfi.com/blog/best-private-student-loans-for-bad-credit">bad credit score</a>, your interest rates will be higher. If your credit score isn’t great, don’t worry. There are things you can do to <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">raise it</a>.



<h3>Find Someone Willing to Cosign</h3>



A <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">cosigner</a> is someone who signs onto the loan alongside the borrower, agreeing to pay back the loan if the borrower doesn't. Having a cosigner with a good credit score can help you secure a lower interest rate on your private loan because lenders will assume less risk. Given that most young people have a limited credit history, cosigners are very common for private student loans. In fact, around 90% of undergraduate students use a cosigner for their student loans.



The only “risk” to having someone cosign is that they are technically equally responsible for the loan, meaning that if you fail to make payments on the loan, it could hurt their credit score.



<h3>Compare Interest Rates Carefully</h3>



As always, before jumping into any private loan, it’s important to compare multiple private lenders to find the lowest rate. Complete <a href="https://www.sparrowfi.com/sign-up">Sparrow’s application</a>&nbsp;to compare real rates from more than 10 different lenders to make sure you’re getting the best rate possible.&nbsp;



<h2>Lowering Your Interest Rate If You Already Have a Loan</h2>



If you already have a private student loan, you can lower your interest rate by:



<h3>Opting Into Automatic Payments</h3>



As with federal loans, many private lenders also offer a discount for opting into an <a href="https://www.sparrowfi.com/blog/how-to-save-thousands-on-student-loans-with-an-autopay-discount">autopay</a> system. While the rate may only drop by 0.25 to 0.5 percent, every bit makes a difference.



Even if you only saved $10 a month from this decrease in interest, that would be $1,200 over the course of a 10-year repayment.



<h3>Refinancing Your Student Loans</h3>



If you have a stable income and plan to pay off your student debt quickly, you should consider refinancing for a lower interest rate.&nbsp;



<a href="https://www.sparrowfi.com/blog/the-ultimate-guide-to-refinancing-your-student-loans">Refinancing</a> your loan is the process of taking out a new loan with a lower interest rate to pay off the loan you currently have. By doing this, you can reduce your payments and save on interest.



Borrowers can also choose to consolidate their federal student loans through a <a href="https://www.sparrowfi.com/blog/what-are-direct-consolidation-loans">Direct Consolidation Loan</a>. The new interest rate will be the average of the rates on the loans you are consolidating. However, you’ll want to consider some of the <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-refinancing-federal-student-loans">benefits</a> associated with federal student loans that you'd be giving up, such as <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-an-income-driven-repayment-plan">income-driven repayment</a>, the possibility of loan forgiveness, and other federal borrower protections.



<h3>Negotiate with the Lender</h3>



This method won’t guarantee you any savings in interest, but it’s always worth a shot. Look around online for private lenders offering competitive interest rates and present it to the lender you’re already working with. The lender might be willing to make alterations to the rate you previously agreed upon in an effort to keep you as a customer.



<h2>Final Thoughts from the Nest</h2>



Finding a way to lower your student loan interest rate is one of the best ways to save yourself money in the long run. While not all methods will work for everyone, it’s likely that if you’re trying different approaches, you’ll find at least one that will work.&nbsp;



When you’re ready to&nbsp;<a href="https://www.sparrowfi.com/student-loan-info">begin the student loan process</a>, or if you’re looking to&nbsp;<a href="https://www.sparrowfi.com/student-loan-refi">refinance</a>, we’re here to help.

How to Get Lower Interest Rates on Student Loans

A 2019 <a href="https://www.cnbc.com/2019/10/29/this-financial-mistake-takes-americans-nearly-20-years-to-recover-from.html">study</a> showed that most Americans live with some financial regret. One of the highest-ranked regrets was related to choices surrounding student loans.&nbsp;



Trying to figure out the difference between student loan options will leave you with gray hair by age 25. The truth is, there are tons of different options available, and it’s incredibly important to understand the differences to make the best decision for your education. The best place to start is understanding the differences between federal and private student loans.



So take a deep breath, and don’t worry. No gray hairs here. We’ll give you everything you need to know.



<h2>Who Issues the Loan?</h2>



<h3>Federal</h3>



The federal government issues these loans. Federal tax dollars paid by US citizens each year fund federal student aid programs



<h3>Private</h3>



Banks and other financial institutions issue private student loans.



<h2>Who is Eligible for the Loans?</h2>



<h3>Federal</h3>



In order to become eligible for federal student loans, you must meet the following requirements:



<ul><li>Demonstrate financial need: Financial need is calculated by taking the difference between the cost of attendance (COA) at a school and your Expected Family Contribution (EFC). While COA varies from school to school, your EFC does not change based on the school you attend.&nbsp;</li><li>Be a U.S. citizen or <a href="https://studentaid.gov/understand-aid/eligibility/requirements">eligible noncitizen</a>: some legal U.S. residents without citizenship may qualify.&nbsp;</li><li>Have a valid Social Security number: with the exception of students from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau.</li><li>Be registered with <a href="https://studentaid.gov/#selective-service">Selective Services</a>: if you’re a male (you must register between the ages of 18 and 25).</li><li>Be enrolled or accepted for enrollment in an eligible degree or certificate program: You are not eligible to borrow federal loans unless you attend an eligible program.</li><li>Be enrolled at least half-time to be eligible for Direct Loan Program funds: most programs require you to be enrolled at least half-time.&nbsp;</li><li>Maintain satisfactory academic progress in college or career school: You must meet the standards for satisfactory academic progress toward a degree or certificate offered by your institution. Check with your school to find out its standards.</li><li>Complete and sign the Free Application for Federal Student Aid (FAFSA) form: FAFSA is used to determine your financial need.</li><li>Show you’re qualified to obtain a college or career school education: You must have a high-school diploma or a recognized equivalent such as a General Educational Development (GED) certificate.</li></ul>



<h3>Private</h3>



Not everyone will qualify for private student loans. Private lenders evaluate applicants based on a variety of factors, typically including the financial history and credit history of the applicant and/or the cosigner (if applicable). If the private lender deems you to be too risky of a borrower, they may not issue you a loan.



Applying with a cosigner who has a strong credit score could improve your chances of qualifying and allow you to access lower interest rates.



<h2>How Much Can You Borrow?</h2>



<h3>Federal</h3>



The amount you can borrow in federal loans depends on your student status. Undergraduate students can borrow between $5,500 and $12,500 maximum in <a href="https://www.sparrowfi.com/blog/the-difference-between-subsidized-and-unsubsidized-loans">Direct Subsidized and Direct Unsubsidized loans </a>each academic year. A parent can also borrow a maximum of $20,500 in Direct Unsubsidized Loans per academic year via a <a href="https://www.sparrowfi.com/blog/what-are-plus-loans">Direct PLUS Loan</a>. Graduate/professional students can also borrow a Direct PLUS Loan, however, the amount varies from person to person depending on the cost of attendance at their respective institution and the financial aid they received. To see how much money you can receive in federal loans, you will need to fill out the <a href="https://www.sparrowfi.com/blog/6-simple-steps-to-fill-out-fafsa">Free Application for Federal Student Aid</a> (FAFSA). This is essentially an application that gives the federal government an idea of your expected financial need.



<h3>Private</h3>



The amount one can borrow in private student loans varies by lender. Typically, borrowers are able to fill the remaining balance they owe after accepting scholarships and/or federal loans with private student loans. Regardless, the amount you borrow from any private lender cannot exceed the total cost of attendance at your institution.



<h2>What are the Interest Rates?</h2>



<h3>Federal</h3>



Congress sets the interest rates on federal student loans. The rates vary based on the loan type and the disbursement date of the loan (the date the funds are paid to the student or school directly).



The table below provides interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2021, and before July 1, 2022.



<figure class="wp-block-table"><table><tbody><tr><td>Loan Type</td><td>Borrower Type</td><td>Fixed Interest Rate</td></tr><tr><td>Direct Subsidized Loans &amp; Direct Unsubsidized Loans</td><td>Undergraduate</td><td>3.73%</td></tr><tr><td>Direct Unsubsidized Loans</td><td>Graduate or Professional</td><td>5.28%</td></tr><tr><td>Direct PLUS Loans</td><td>Parents &amp; Graduate or Professional Students</td><td>6.28%</td></tr></tbody></table><figcaption>Interest Rates for Direct Loans First Disbursed on or After July 1, 2021, and Before July 1, 2022</figcaption></figure>



All federal student loans have&nbsp;fixed interest, meaning that the rate will not fluctuate for the life of the loan. Perkins Loans (regardless of the first disbursement date) have a fixed interest rate of 5%.



If your loan was disbursed before July 1, 2021, you likely have a <a href="https://studentaid.gov/understand-aid/types/loans/interest-rates">different interest rate</a>.



<h3>Private</h3>



The interest rate on private student loans is based on a variety of factors. Most private lenders look at your financial history and credit score to assess the risk you pose as a borrower, which is reflected by the interest rate they offer you.&nbsp;



The lower your credit score, the more risk you present as a borrower -- this means a higher interest rate. Similarly, the higher your credit score, the less risk you present as a borrower -- this leads to a lower interest rate.&nbsp;



Unlike federal student loans, private student loan interest rates can be fixed or variable. You can <a href="https://www.sparrowfi.com/sign-up">use Sparrow</a> to compare real interest rates from more than 15+ different lenders to ensure you’re getting the best rate possible.



<h2>When Do I Have to Start Paying the Loan?</h2>



<h3>Federal</h3>



Federal loans will go into repayment if you graduate, go below part-time student status, or leave school entirely. If you have a Direct Subsidized, Direct Unsubsidized, or Family Educational Loan, you will have a 6-month grace period before you are required to make consistent payments.<a href="https://studentaid.gov/manage-loans/repayment">3&nbsp;</a>



It is important to note that Direct Unsubsidized loans and PLUS loans will accrue interest while you are in school. Direct Subsidized loans will not accrue interest while you are in school. So, while payments won’t be required until after the grace period, interest may be accruing depending on the loan type.



<h3>Private</h3>



Private loans typically don’t require consistent payments until after you leave school. Most lenders will implement a similar grace period to federal student loans, usually around 6 months after graduation. However, private student loans will accrue interest while in school, starting immediately after disbursement.



<h2>Is There an Advantage of One Over the Other?</h2>



<div class="wp-block-group">
<figure class="wp-block-table is-style-regular"><table><tbody><tr><td>&nbsp;</td><td>Federal Loans</td><td class="has-text-align-left" data-align="left">Private Student Loans</td></tr><tr><td>Pros</td><td>1. Typically don’t require good credit or a cosigner. 2. Come with additional benefits such as loan forgiveness programs and income-driven repayment options. 3. Interest rates tend to be lower than private loans.</td><td class="has-text-align-left" data-align="left">1. Higher borrowing limit, up to 100% of the cost of attendance 3. You can apply online in a couple of minutes 2. Lowest interest rates on the market, if you have excellent credit.</td></tr><tr><td>Cons</td><td>1. There is a cap to how much you can borrow in federal student loans. 2. Not all students will qualify for subsidized student loans.</td><td class="has-text-align-left" data-align="left">1. You may need a cosigner to qualify for a private student loan. 2. Not accessible to borrowers who lack a strong credit score or creditworthy cosigner</td></tr></tbody></table></figure>
</div>



<h2>Final Thoughts</h2>



There’s a lot to understand about federal and private student loans, but the good news is that if you’ve made it to this point in the article (shoutout to you!) you’re already one step closer to making an educated decision when it comes to your loans.

The 4 Big Differences Between Federal and Private Student Loans

Explore student loans

First, you should complete the FAFSA form to determine your eligibility for federal financial aid. This application will take into account your family's financial information and help you determine the different financial aid options available to you, including loans, scholarships, grants, and work-study.

Step 1: Submit the FAFSA

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After your FAFSA has been processed, you will receive a Student Aid Report, which tells you the amount and type of federal aid you are eligible for. You should start to receive financial aid award letters from the schools that accepted you sometime in the spring (mid March - mid June). 

Step 2: Review aid package

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You'll need to accept the loan offer and complete any required loan counseling before the loan funds can be disbursed to your school. Typically, the school first applies your loan money toward your tuition, fees, and room and board. Any money left over is paid directly to you for other education expenses.

Step 3: Accept the loan offer

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As graduation approaches, get ready to repay your student loans. Federal borrowers have a six-month grace period before you begin making payments. Use this time to get organized and choose a repayment plan. If you start falling behind on your payments, contact your loan servicer to discuss repayment options.




Step 4: Repay the loan

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Federal Student Loans in Four Steps

Direct Subsidized Loans

Direct Unsubsidized Loans

Parent PLUS loans

Grad PLUS loans

What's the difference between each type of federal student loan?

Compare your personalized, pre-qualified rates from these lenders in minutes.1

Parent Student Loan

Subtitle Text

Title

Ultimate FAFSA Guide

See how to qualify for federal student aid to help pay for college.

Ultimate Guide to the FAFSA

Ultimate Guide to Student Loans

Everything you need to know about student loans before you borrow.

Ultimate Guide to Private Student Loans

A step-by-step breakdown to ensure you're getting the right private student loan.

The Ultimate Guide to Student Loan Refinancing

Learn about how refinancing works and when you might want to do it.

Ultimate Guide to Refinancing

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Federal student loans are loans provided by the U.S. government to help students pay for their education. They are designed to make college more affordable and accessible by offering low-interest rates, flexible repayment terms, and various loan forgiveness programs. Some of the most common types of federal student loans include Direct Subsidized Loans, Direct Unsubsidized Loans, Grad PLUS Loans, and Parent PLUS Loans.

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Federal student loans should be considered after exploring all other forms of financial aid, such as scholarships, grants, and work-study. If those options are not enough to cover the cost of college, then borrowing federal student loans can be a responsible and manageable way to finance your education. It's important to only borrow what you need, as student loan debt can have long-term financial implications.

Direct Subsidized Loans are a type of federal student loan specifically created to assist undergraduate students with financial need to cover their college expenses.

One of the distinct features of Direct Subsidized Loans is that the government covers the interest payments while you are enrolled in college at least half-time, during the grace period following graduation, and during deferment. This advantage makes Direct Subsidized Loans a more cost-effective solution as they will incur less interest over the life of the loan in comparison to other student loan options.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/the-difference-between-subsidized-and-unsubsidized-loans" target="_blank" rel="noopener">The difference between subsidized and unsubsidized loans.</a>

Direct Unsubsidized Loans are a type of federal student loan available to both undergraduate and graduate students, regardless of their financial need.

In contrast to Direct Subsidized Loans, the government does not cover the interest payments on Direct Unsubsidized Loans while you are in school or during deferment. You are responsible for paying the interest that accrues on the loan. You can choose to pay the interest as it accrues, or you can allow it to accumulate and be capitalized (added to the loan balance), increasing the total amount to be repaid.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/the-difference-between-subsidized-and-unsubsidized-loans" target="_blank" rel="noopener">The difference between subsidized and unsubsidized loans.</a>

Parent PLUS loans are a type of federal student loan designed to help parents pay for their children's undergraduate education, regardless of the family's financial need. Parent PLUS loans are available to undergraduate students who have exhausted their federal student loan eligibility under other loan programs, such as Direct Subsidized and Unsubsidized Loans.
Compared to Direct Subsidized and Unsubsidized Loans, parent PLUS loans have higher interest rates and less flexible repayment options. Parent PLUS loans also have higher borrowing limits -- parents can borrow the full cost of attendance, minus any other financial aid received.
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/everything-you-need-to-know-about-parent-plus-loans" target="_blank" rel="noopener">Everything you need to know about Parent PLUS loans.</a>

Grad PLUS loans are a type of federal student loan designed to help graduate and professional students pay for their education. Grad PLUS loans are available to graduate and professional students who have exhausted their federal student loan eligibility under other loan programs.

Compared to Direct Subsidized and Unsubsidized Loans, grad PLUS loans have higher interest rates and less flexible repayment options. Grad Plus loans also have higher borrowing limits — students can borrow the full cost of attendance, minus any other financial aid received.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/everything-you-need-to-know-about-grad-plus-loans" target="_blank" rel="noopener">Everything you need to know about Grad PLUS loans.</a>

Perkins Loans are a type of federal student loan, specifically for undergraduate and graduate students with exceptional financial need. These loans are provided by the school and have a low-interest rate, with a maximum amount that can be borrowed annually based on your financial need, cost of attendance, and other financial aid received. Perkins Loans also offer loan cancellation benefits for certain professions such as teachers and public servants.
The authority for schools to make new Federal Perkins Loans ended on Sept. 30, 2017.

To receive a federal student loan, you must meet the following criteria:
- Be a U.S. citizen or eligible non-citizen
- Have a valid Social Security number
- Have a high school diploma or equivalent, such as a GED certificate
- Be enrolled in or accepted to a recognized degree or certificate program
- Maintain satisfactory academic progress

Step 1: Check your eligibility for federal aid

The <a style="color: #3366ff;" href="https://www.sparrowfi.com/guide/ultimate-fafsa-guide" target="_blank" rel="noopener">Free Application for Federal Student Aid (FAFSA)</a> allows you to apply for federal student aid to cover college expenses such as tuition, books, and housing. The U.S. government and many colleges use the FAFSA to determine your eligibility for scholarships, grants, loans, and work-study programs.
Completing the FAFSA is the first step for anyone pursuing higher education. Be sure to submit the FAFSA each year you’re in college – it typically only takes 30 minutes to complete once you have all the necessary information ready.
Submit the FAFSA at <a style="color: #3366ff;" href="https://studentaid.gov/h/apply-for-aid/fafsa" target="_blank" rel="noopener">StudentAid.gov.</a>

After submitting the FAFSA, you will receive a Student Aid Report, which tells you the amount and type of federal aid you are eligible for. You should start to receive financial aid award letters from the schools that accepted you sometime in the spring.

It is important to thoroughly review and compare your financial aid offers before making a decision on which college to attend. Accept the aid from the school that's best for you and inform them of other sources of aid (such as grants or scholarships) you expect to receive. If there's still a gap, you may need to explore private loan options to cover any remaining college expenses.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/ultimate-guide-to-figuring-out-your-financial-aid-package" target="_blank" rel="noopener">Ultimate guide to figuring out your financial aid package.</a>

If you've exhausted all other forms of financial aid (including grants, scholarships, work-study, and federal loans) and determined that you need more money to pay your college expenses, you may want to consider private student loans.
Private student loans are provided by private lenders, such as banks, credit unions, and state agencies. Private student loans usually require an income and credit check.
Sparrow's <a style="color: #3366ff;" href="http://www.sparrowfi.com/login/borrower">free search engine</a> helps you search and compare private student loans from multiple lenders through a single form.
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/best-private-student-loans-of-2022" target="_blank" rel="noopener">Best private student loans.</a>

Direct Subsidized Loans are available to undergraduate students who have financial need.

To apply for a Direct Loan, you must first complete and submit the <a style="color: #3366ff;" href="https://www.sparrowfi.com/guide/ultimate-fafsa-guide" target="_blank" rel="noopener">Free Application for Federal Student Aid (FAFSA) form</a>.

How do I apply for a Direct Subsidized Loan?

Your school determines the amount you can borrow. There are limits on the amount of Direct Subsidized Loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits).
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/student-loan-limits-how-much-can-you-borrow-in-student-loans" target="_blank" rel="noopener">Student loan limits: how much can you borrow in student loans?</a>

How much can you borrow in Direct Subsidized Loans?

Repayment options for Direct Subsidized Loans include the following:

1.) Standard Repayment Plan: A fixed monthly payment for up to 10 years.

2.) Graduated Repayment Plan: Payments start low and increase every two years, up to 10 years.

3.) Extended Repayment Plan: Fixed or graduated payments over a period of up to 25 years.

4.) Income-Based Repayment (IBR) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: Monthly payments are based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

Borrowers should consider their income and financial goals when selecting a repayment plan, and should also keep in mind that some plans may result in paying more interest over time compared to others. It is also possible to switch repayment plans if necessary.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option" target="_blank" rel="noopener">How to select the best federal student loan repayment option.</a>

What are the repayment plans for Direct Subsidized Loans?

The interest rates for Direct Subsidized Loans first disbursed on or after July 1, 2022 and before July 1, 2023 are:

– Undergraduate borrowers: 4.99%

– Graduate or professional borrowers: N/A

What’s the current interest rate for Direct Subsidized Loans?

The U.S. Department of Education pays the interest on a Direct Subsidized Loan:
1.) while you’re in school at least half-time,
2.) for the first six months after you leave school (referred to as a grace period), and
3.) during a period of deferment (a postponement of loan payments).

Who will pay the interest on Direct Subsidized Loans?

Yes, there is a loan fee on all Direct Subsidized Loans and Direct Unsubsidized Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed:
– Loans first disbursed on or after Oct. 1, 2019 and before Oct. 1, 2020: 1.059%

– Loans first disbursed on or after Oct. 1, 2020 and before Oct. 1, 2023: 1.057%

Note: Loans first disbursed prior to Oct. 1, 2019, have different loan fees.

Are there any fees on Direct Subsidized Loans?

Direct Unsubsidized Loans are available to undergraduate and graduate students; there is no requirement to demonstrate financial need.

To apply for a Direct Loan, you must first complete and submit the <a style="color: #3366ff;" href="https://www.sparrowfi.com/guide/ultimate-fafsa-guide" target="_blank" rel="noopener">Free Application for Federal Student Aid (FAFSA) form</a>.

How do I apply for a Direct Unsubsidized Loan?

Your school determines the amount you can borrow. There are limits on the amount of Direct Unsubsidized Loans that you may be eligible to receive each academic year (annual loan limits) and the total amounts that you may borrow for undergraduate and graduate study (aggregate loan limits).

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/student-loan-limits-how-much-can-you-borrow-in-student-loans" target="_blank" rel="noopener">Student loan limits: how much can you borrow in student loans?</a>

How much can you borrow in Direct Unsubsidized Loans?

Repayment options for Direct Unsubsidized Loans are similar to those for Direct Subsidized Loans and include:

1.) Standard Repayment Plan: A fixed monthly payment for up to 10 years.

2.) Graduated Repayment Plan: Payments start low and increase every two years, up to 10 years.

3.) Extended Repayment Plan: Fixed or graduated payments over a period of up to 25 years.

4.) Income-Based Repayment (IBR) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: Monthly payments are based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: Monthly payments are based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

It's important to note that with Direct Unsubsidized Loans, the borrower is responsible for paying the interest that accrues while they are in school, during the grace period, and during any deferment or forbearance periods. Borrowers can choose to pay the interest as it accrues, or they can allow it to accumulate and be capitalized (added to the loan balance), increasing the total amount to be repaid. It is also possible to switch repayment plans if necessary.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option" target="_blank" rel="noopener">How to select the best federal student loan repayment option.</a>

What are the repayment plans for Direct Unsubsidized Loans?

The interest rates for Direct Unsubsidized Loans first disbursed on or after July 1, 2022 and before July 1, 2023 are:

– Undergraduate borrowers: 4.99%

– Graduate or professional borrowers: 6.54%

What’s the current interest rate for Direct Unsubsidized Loans?

You are responsible for paying the interest on a Direct Unsubsidized Loan during all periods.

Who will pay the interest on Direct Unsubsidized Loans?

To receive a parent PLUS loan, you must:

1.) be the biological or adoptive parent (or in some cases, the stepparent) of a dependent undergraduate student enrolled at least half-time at an eligible school;

2.) not have an adverse credit history (<a style="color: #3366ff;" href="https://studentaid.gov/understand-aid/types/loans/plus/parent#adverse-credit" target="_blank" rel="noopener">unless you meet certain additional requirements</a>); and

3.) meet the <a style="color: #3366ff;" href="https://studentaid.gov/understand-aid/eligibility" target="_blank" rel="noopener">general eligibility requirements for federal student aid</a>

Note: Grandparents (unless they have legally adopted the dependent student) and legal guardians are not eligible to receive parent PLUS loans, even if they have had primary responsibility for raising the student.

To apply for a parent PLUS loan, go to the online <a style="color: #3366ff;" href="https://studentaid.gov/plus-app/parent/landing" target="_blank" rel="noopener">Direct PLUS Loan Application for Parents</a>.
Important: Most schools require you to apply for a Direct PLUS Loan online, but some schools have different application processes. This site has a list of schools that participate in the Direct Loan Program. When you select your child’s school from the list, the site will tell you if the school has a different application process. In that case, check with the school’s financial aid office to find out how to request a parent PLUS loan.
Note: Before applying for a parent PLUS loan, make sure your child has filled out the <a style="color: #3366ff;" href="https://studentaid.gov/h/apply-for-aid/fafsa" target="_blank" rel="noopener">FAFSA form</a>.

The maximum PLUS loan amount you can borrow is the cost of attendance at the school your child will attend minus any other financial assistance your child receives. The cost of attendance is determined by the school.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/student-loan-limits-how-much-can-you-borrow-in-student-loans" target="_blank" rel="noopener">Student loan limits: how much can you borrow in student loans?</a>

How much can I borrow in parent PLUS loans?

Parent PLUS loans have a few repayment options:
1.) Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.
2.) Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increases over time.
3.) Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.
4.) Income-Contingent Repayment Plan: You make payments that are set based on your income (typically 10-20% of your income). With an <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/pros-and-cons-of-an-income-driven-repayment-plan" target="_blank" rel="noopener">income-contingent repayment plan</a>, you will likely pay more over the life of the loan in comparison to the standard repayment plan. Note that you will only qualify for income-contingent repayment if you <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-are-direct-consolidation-loans" target="_blank" rel="noopener">consolidate</a> your parent PLUS loans.
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option" target="_blank" rel="noopener">How to select the best federal student loan repayment option.</a>

What are the repayment plans for parent PLUS loan?

For Direct PLUS Loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54%. This is a fixed interest rate for the life of the loan.

What's the current interest rate for parent PLUS loans?

You are responsible for paying the interest on parent PLUS loans during all periods.

Who will pay the interest on parent PLUS loans?

Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed.
- Loans first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022: 4.228%
- Loans first disbursed on or after Oct. 1, 2022, and before Oct. 1, 2023: 4.228%
Note: Loans first disbursed before Oct. 1, 2021, have different loan fees.

To receive a grad PLUS loan, you must
1.) be a graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate;
2.) not have an adverse credit history (<a style="color: #3366ff;" href="https://studentaid.gov/#adverse-credit" target="_blank" rel="noopener">unless you meet certain additional eligibility requirements</a>); and
3.) meet the <a style="color: #3366ff;" href="https://studentaid.gov/understand-aid/eligibility" target="_blank" rel="noopener">general eligibility requirements for federal student aid</a>.

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To apply for a grad PLUS loan, go to the online <a href="https://studentaid.gov/plus-app/grad/landing" target="_blank" rel="noopener">Direct PLUS Loan Application for Graduate/Professional Students</a>.

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Important: Most schools require you to apply for a Direct PLUS Loan online, but some schools have different application processes. This site has a list of schools that participate in the Direct Loan Program. When you select your child’s school from the list, the site will tell you if the school has a different application process. In that case, check with the school’s financial aid office to find out how to request a parent PLUS loan.

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Note: Before applying for a parent PLUS loan, make sure your child has filled out the <a style="color: #3366ff;" href="https://studentaid.gov/h/apply-for-aid/fafsa" target="_blank" rel="noopener">FAFSA form</a>.

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The maximum PLUS loan amount you can borrow is the cost of attendance (determined by the school) minus any other financial assistance you receive.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/student-loan-limits-how-much-can-you-borrow-in-student-loans" target="_blank" rel="noopener">Student loan limits: how much can you borrow in student loans?</a>

How much can I borrow in grad PLUS loans?

Grad PLUS loans are eligible for the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and all income-based plans.

1.) Standard 10-Year Repayment Plan: You make equal monthly payments for 10 years. With a standard repayment plan, you’ll pay less in interest and pay off your loans faster than you would on other plans.

2.) Graduate Repayment Plan: You make small monthly payments over the course of 25 years, with the monthly payment increasing every two years. Graduated repayment plan would result in smaller monthly payments upfront that gradually increase over time.

3.) Extended Repayment Plan: You make equal monthly payments for the entire 25-year repayment period. With the Extended Repayment Plan, you will have smaller monthly payments, but you will pay more over the life of the loan.

4.) Income-Based Repayment (IBR) Plan: You make monthly payments based on income and family size, and the loan is forgiven after 20-25 years of payments.

5.) Pay As You Earn (PAYE) Plan: You make monthly payments based on income and family size, and the loan is forgiven after 20 years of payments.

6.) Revised Pay As You Earn (REPAYE) Plan: You make monthly payments based on income, regardless of family size, and the loan is forgiven after 20-25 years of payments.

Note: You do not have to make any payments on your grad PLUS loan while you're still enrolled in school. You will also have a 6-month grace period following graduation where you won’t have to make payments. However, interest will accrue on your grad PLUS loan as soon as it's disbursed.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/how-to-select-the-best-federal-student-loan-repayment-option" target="_blank" rel="noopener">How to select the best federal student loan repayment option.</a>

What are the repayment plans for grad PLUS loan?

For Direct PLUS Loans first disbursed on or after July 1, 2022, and before July 1, 2023, the interest rate is 7.54%. This is a fixed interest rate for the life of the loan.

What's the current interest rate for grad PLUS loans?

You are responsible for paying the interest on grad PLUS loans during all periods.

Who will pay the interest on grad PLUS loans?

Yes, there is a loan fee on all Direct PLUS Loans. The loan fee is a percentage of the loan amount and is proportionately deducted from each loan disbursement. The percentage varies depending on when the loan is first disbursed.

- Loans first disbursed on or after Oct. 1, 2021, and before Oct. 1, 2022: 4.228%

- Loans first disbursed on or after Oct. 1, 2022, and before Oct. 1, 2023: 4.228%

Note: Loans first disbursed before Oct. 1, 2021, have different loan fees.

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Ultimate Guide to Federal Student Loans - Sparrow Nest

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This guide explains how student loan refinancing works and the advantages and drawbacks to consider.

Ultimate Guide to Student Loan Refinancing

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Student loan refinancing is when a private lender pays off your existing loan(s) and gives you a new loan, ideally with a lower interest rate or shorter repayment plan. It’s a chance to swap your current loan for a new one with more favorable terms. The goal of refinancing is often to reduce your monthly payment, interest rate, time in debt, or all the above.
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By refinancing, you can consolidate multiple loans into one, and the new loan may have more favorable terms than the original loans. It&#8217;s important to note that refinancing federal student loans with a private lender will result in the loss of certain federal student loan benefits, such as income-driven repayment plans and loan forgiveness options.

What is student loan refinancing?

Refinancing your student loan can be an excellent way to save money and improve your finances. By refinancing, you can take advantage of your improved credit score, higher income, and other positive financial changes to secure a better interest rate or more favorable terms.



However, it's important to note that refinancing your student loans can also have a temporary negative impact on your credit score. We'll explore why this happens, whether the benefits of refinancing outweigh the costs, and what you can do to minimize the impact on your credit score. 



<h2>How Student Loan Refinancing Works</h2>



Student loan refinancing is the process of swapping your current student loan(s) for one with a lower interest rate or better terms, like a shorter repayment term or better monthly payments. Refinancing can occur with both federal and private student loans whereas the <a href="https://www.sparrowfi.com/blog/what-are-direct-consolidation-loans">federal loan consolidation</a> program only considers federal loans.&nbsp;



<h2>Does Refinancing Hurt Your Credit?</h2>



When you apply for a student loan refinance, you will have to go through a process which involves a hard credit inquiry. Generally, credit inquiries occur when there is a legally permitted request to see your credit report from either a company or person. This check could adversely affect your overall credit score, as the more checks that happen, the higher probability a credit bureau would think that you may be “over-extending.”&nbsp;



The key difference with credit inquiries are the version of check they are. A credit inquiry can either be a hard or soft credit check. <a href="https://www.sparrowfi.com/blog/soft-credit-check">Soft inquiries</a> don’t impact your credit score, are done by creditors to provide “pre-approved” offers, and can be done without your consent. Contrary to that, <a href="https://www.sparrowfi.com/blog/whats-a-soft-credit-inquiry-whats-a-hard-credit-inquiry">hard inquiries</a> do impact your score, are done by creditors and lenders when you apply for a credit or loan, and require written consent.



Although the impact varies drastically for everyone, rarely is it significant.



To further understand how refinancing your student loans will impact your credit, it’s important to understand how your credit score is determined in the first place. Here are the factors that contribute to your credit rating:



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<li>Payment history</li>



<li>Amounts owed</li>



<li>Credit history length</li>



<li>Credit mix</li>



<li>New credit</li>
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Let’s examine the 3 most influential factors in regards to a FICO credit score.



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<h3>Payment History</h3>



According to <a href="https://www.myfico.com/credit-education/whats-in-your-credit-score">FICO</a>, your credit score consists of 35% payment history, ranking this as the most important factor in the score. This means that even while refinancing, you should ensure that your income can support any payments that need to be made so you don’t end up with an inconsistent payment history which would affect your credit score.&nbsp;



If, for any reason, there is an outstanding unpaid balance for more than 30 days, it will get dinged in your credit report and will stay on the report for several years. Fundamentally however, paying your loans or credit cards on time is a strict practice that should be adhered to whenever possible. This will <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">improve your credit score</a> and will allow you to better manage your financial situation.



<h3>Amount Owed</h3>



This element refers to the total amount of money owed and is the second largest component of a credit score, exactly 30%. One thing many borrowers get confused about is that when <a href="https://www.sparrowfi.com/student-loan-refi">refinancing</a>, your total amount of money owed does not change.



<h3>Credit History</h3>



Your credit history is about 15% of your FICO score, and it speaks to how long you have been using credit as well as the average age of all your credit accounts. This is why it is important to start using credit early, to build a solid foundation. Also, some key things to remember are that whenever you open a new line of credit, that counts as a “0” age, which reduces your overall average age for existing credit.&nbsp;



<h2>How to Minimize the Credit Impact of Refinancing</h2>



Despite the fact that student loan refinancing will impact your credit score, there are ways to minimize the impact.



First, pay close attention to the application quantity and timing. When you are looking around for loan options, many lenders will allow you to see what you qualify for without incurring a hard credit check, which would impact your credit rating. This means that you should only send off formal applications to lenders where you believe there is a great chance that you will end up using their product. At the end of the day, the more formal applications you submit, the more hard credit checks occur, and the more your credit can degrade



Additionally, you should be aware of the different timing rules with FICO and Vantage credit scores. While applying to loans, if done in a certain time period, multiple applications may not harm your score. For FICO, this period is 30 days, and for Vantage, it is 2 weeks.&nbsp;



The next two tips are quite straightforward. Continue <a href="https://www.sparrowfi.com/blog/whats-the-best-repayment-plan-for-private-student-loans">making payment</a>s on your existing student loans before the refinance, and make payments for your refinance loan on time. Many students often forget to pay their student loan payments on time as they are in the process of having it refinanced. Even during this process, it is vital you stick with your schedule and pay off the loan, otherwise you will have an impact on your credit history. The same applies for the refinanced loan. Be sure you know the exact terms of the loan and adhere to the schedule for the payments, ensuring never to miss a payment.&nbsp;



<h3>Using Sparrow</h3>



Finally, you could use Sparrow! When using Sparrow to <a href="https://www.sparrowfi.com/student-loan-refi">compare student loan refinancing offers</a>, your credit score won’t be impacted. Sparrow aggregates all the available options in one centralized location where you will be able to see the details of each loan. Then, you can decide which one to submit a formal application with. This reduces the number of applications necessary and thus protects your credit score!



<h2>Is Refinancing a Student Loan Worth It?</h2>



Knowing <a href="https://www.sparrowfi.com/blog/what-to-consider-before-refinancing-your-student-debt">when to refinance</a> is tricky. Additionally, many borrowers can’t, or shouldn’t, refinance their student loans. Passing the credit check and showing stable income are generally known criteria that are used to determine eligibility. Without them, you may need a <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">cosigner</a> to qualify. If you are already halfway through repaying your loans, refinancing may only prolong the duration of the term, albeit with lower monthly payments.



A checklist that you could use to figure out if refinancing is worth it can be found <a href="https://www.sparrowfi.com/blog/when-should-i-refinance-my-student-loans">here</a>. Essentially, you should refinance your student loans if you are in a better financial position now than when you originally got the student loans or if you have a private student loan. Also, if the current economic conditions are favorable — this happens when the Federal Reserve cuts interest rates — then it may be beneficial to refinance to obtain a student loan with a lower interest rate.



<h2>Final Thoughts from the Nest</h2>



After understanding the complexities of student loan refinancing and if it is worth the potential impact on your credit rating, it’s important to know that everyone will be in a different situation. Contextualize and understand if your personal landscape will benefit from a refinance. And lastly, be sure to know the <a href="https://www.sparrowfi.com/blog/best-place-to-refinance-private-student-loans">best rates</a> that are out there and compare from several lenders. Using tools like <a href="https://www.sparrowfi.com/sign-up">Sparrow</a> will speed up this process and make it much easier to navigate.

Does Refinancing Student Loans Hurt Your Credit?

Guide on How to Refinance Student Loans

Choosing to refinance your student loan can be a difficult decision. You must consider your loan type, interest rate, and income. The decision is not easy, so here's what you need to know before moving forward with it:



<h2 class="wp-block-heading" id="h-what-is-student-loan-refinancing">What is Student Loan Refinancing? </h2>



When you refinance your student loans, you’re allowing the lender pay off your current loans. You’ll then get a new private loan to pay your new lender back. This new loan often comes with better terms than your first loan (such as a lower interest rate or monthly payment).



<h2 class="wp-block-heading" id="h-reasons-to-refinance-your-student-loans">Reasons to Refinance Your Student Loans</h2>



<ul>
<li>Lower monthly payments: Refinancing lets you alter your payment plan. Accordingly, you can choose to extend the repayment term and lower monthly payment.</li>
</ul>







<ul>
<li>Pay off loans faster: If you're in a better financial position and now want to pay off your loans faster, refinancing can let you shorten the payment period. Although this may result in higher monthly payments, it can save you a significant amount in the long run</li>
</ul>







<ul>
<li>Lower interest rates: If you believe you now qualify for a lower interest rate than before, refinancing can help you save thousands of dollars over the loan's lifetime. Factors such as improved credit score, more stable income, or better macroeconomic conditions can help you secure better rates for your new loan. </li>
</ul>







<ul>
<li>Simplified payments: Refinancing lets you group all payments into one (instead of owing multiple monthly payments to various different lenders).</li>
</ul>



<h2 class="wp-block-heading" id="h-reasons-not-to-refinance-your-student-loans">Reasons NOT to Refinance Your Student Loans</h2>



Refinancing may not be the best choice in certain situations:



<ul>
<li>Loss of Federal Loan Benefits: Federal student loans provide benefits and protections not available with private loans. These include <a href="https://www.sparrowfi.com/blog/what-is-student-loan-forgiveness">student loan forgiveness</a>, income-driven repayment plans, and the suspension of payments and interest accrual. Refinancing results in the loss of these benefits. If you plan to utilize these benefits, it's best to hold off on refinancing.</li>
</ul>







<ul>
<li>Bad Loan Timing: If you are near the end of repaying an existing loan, refinancing may be a bad decision. Doing so would subject you to new terms and longer repayment periods.</li>
</ul>



<h2 class="wp-block-heading" id="h-how-to-find-the-best-student-loan-refinance-option">How to Find the Best Student Loan Refinance Option</h2>



Finding the right refinancing option should be a simple. Use <a href="https://www.sparrowfi.com/">Sparrow</a> to find the <a href="http://sparrowfi.com/student-loan-refi" target="_blank" rel="noreferrer noopener">best student loan refinance option</a> for you. Sparrow shows you the most important information and simplifies the entire process.



[rate_table id="4616" type="slr"]

Should I Refinance My Student Loans?

As a borrower, refinancing your student loans can be beneficial. For example, borrowers who <a href="https://www.sparrowfi.com/student-loan-refi">use Sparrow to refinance</a> save, on average, $17,000 over the life of their loan. 



That said, the savings can vary greatly depending on the borrower. With that in mind, you might be wondering, “Is refinancing student loans worth it?.”



It’s always a good choice to explore your options to make a financially sound decision for yourself. To determine whether refinancing is worth it for you, here’s what you should know.



<h2>How Student Loan Refinancing Works</h2>



<a href="https://www.sparrowfi.com/blog/what-is-student-loan-refinancing">Loan refinancing</a> is the process of taking out a new loan to pay for your current debt. The new loan should have more favorable terms, such as a lower interest rate or monthly loan payment.



For example, let’s say you currently have a student loan of $80,000 with an 8% interest rate and a 10-year repayment plan. You decide to refinance and qualify for a new loan of $80,000 with a 5% interest rate, with a 15-year repayment plan.



Through refinancing, you have a new loan with a lower interest and longer repayment period.



To refinance your student loans, you need to <a href="https://www.sparrowfi.com/sign-up">submit a formal application</a> to the lender of your choice. Generally, lenders are looking for borrowers who have a <a href="https://www.sparrowfi.com/blog/what-credit-score-is-needed-for-a-student-loan">strong credit history</a> and a low debt-to-income (DTI) ratio.



<h2>The Pros and Cons of Refinancing</h2>



To better understand if refinancing student loans is worth it for you, consider the pros and cons:



<h3>Pros of Refinancing</h3>



<h4>You Can Have Lower Monthly Payments</h4>



If your student loan payments are too high, refinancing can help relieve the financial strain. You can extend your repayment plan to reduce monthly payments and pay the loan over a longer period of time.



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<h4>You Can Save More Money</h4>



By refinancing to a lower interest rate, you can save more money in the long run.



For example, let’s say you currently have a student loan of $80,000 with an 8% interest rate and a 10-year repayment plan. You decide to refinance and qualify for a new loan of $80,000 with a 5% interest rate.



After refinancing, instead of paying $36,474.49 in interest with a 8% interest rate, you’d only need to pay $21,822.89, saving you roughly $15,000.



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<h4>You Can Pay Off The Loan Quicker</h4>



Just like you can extend your repayment period through refinancing, you can shorten it if you want to pay off the loan quicker. This will mean that your monthly payments will be higher, but if your financial situation allows for this increase, it may be desirable for some borrowers.



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<h4>You Don’t Qualify for Student Loan Forgiveness</h4>



Refinancing may be the way to go if:



<ul>
<li>You have private student loans, which do not qualify for <a href="https://www.sparrowfi.com/blog/the-ultimate-guide-to-student-loan-forgiveness">loan forgiveness</a>.</li>



<li>You do not have an income-driven repayment plan for your federal loans.</li>



<li>You do not work in a qualifying public service position for Public Service Loan Forgiveness.&nbsp;</li>
</ul>



Refinancing is done through private student loans. If you opt to refinance a federal student loan into a private student loan, you will lose the benefits that come with federal student loans. However, if you plan to refinance a private student loan, these benefits are not at risk.



<h3>Cons of Refinancing</h3>



<h4>You Can Lose Federal Borrower Protections</h4>



If you <a href="https://www.sparrowfi.com/blog/pros-and-cons-of-refinancing-federal-student-loans">refinance your federal student loans</a>, they will become private loans. This means that you’ll lose out on federal borrower protections, including the opportunity for loan forgiveness, more flexible repayment plans, and loan deferment and forbearance options.



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<h4>You Can’t Get a Lower Interest Rate And/Or Monthly Payment</h4>



If you don’t have a high enough credit score or a <a href="https://www.sparrowfi.com/blog/what-is-a-private-student-loan-cosigner">cosigner</a> with a strong credit history, you may not qualify for a lower interest rate and/or monthly payment. If this is the case, you shouldn’t refinance your student loans because you wouldn’t be gaining anything from doing so. 



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<h4>You’re Almost Done Paying Off Your Student Loans</h4>



If you only have a few more payments left on your student loans, it may be better to not refinance your loans. When you refinance your loans, you have to choose a new repayment plan that can extend the life of the loan, increasing the amount you have to pay.



Instead of refinancing, pay off your loan with your current plan.&nbsp;



<h2>Is Refinancing Student Loans Worth It? It Depends.</h2>



You should consider refinancing if:



<ul>
<li>You qualify for a lower interest rate or monthly payment.</li>



<li>You do not qualify for federal loan forgiveness.</li>



<li>It will save you money in the long run.</li>
</ul>



You should not consider refinancing if:



<ul>
<li>You are almost done with paying off your loans.</li>



<li>You do not qualify for more competitive terms than the ones you already have.</li>



<li>You are eligible for federal student loan forgiveness.</li>
</ul>



<h2>Closing Thoughts From the Nest</h2>



Consider the pros and cons of student loan refinancing to determine whether the decision is worth it for you in the long run.



If refinancing your student loans is beneficial to you, consider using Sparrow as a tool to see your loan refinancing options. You can compare personalized offers across <a href="https://www.sparrowfi.com/blog/best-student-loan-refinance-companies-for-bad-credit">15+ different lenders</a>, all for free.

Is Refinancing Student Loans Worth It?

Learn more about student loan refinancing

Pros

Cons

Pros and cons of refinancing student loans

First, determine if refinancing is right for you. Consider the type of loan you currently have (federal vs private), your current interest rate, credit score, and financial situation. If you don't plan on utilizing any federal student loan benefits (or have a private student loan), refinancing is an easy way to get out of debt sooner and possibly reduce your monthly payments.

Step 1: Do your research

If you determine that you want to refinance, start by comparing rates. Sparrow's free search engine allows you to compare pre-qualified rates from multiple lenders, without impacting your credit score. We'll help you compare interest rates, repayment terms, and other loan features. Once you've found the right loan, we'll bring you to the lender's website to complete the process. 

Step 2: Compare rates

After selecting a lender, you will need to complete an official loan application. This typically triggers a hard credit check, which gives the lender access to your complete credit report and may temporarily impact your credit score. As part of the application process, you may be required to provide and verify personal, financial, and employment information. 

Step 3: Complete the application

If your loan application is approved, you will be asked to sign new loan documents. Once you have signed the loan documents, your existing loan will be paid off by your new lender and you will start making payments on the new loan to your new lender. Before signing, make sure you fully understand the new loan terms and what you are agreeing to. 

Step 4: Sign and start repayment

Student Loan Refinancing in Four Steps

A great way to reduce your student loan debt is to refinance. An important part of that is looking for a good lender that will offer you good terms. In fact, the best refinance companies are going to give you the best terms. But, what do you even look for? And where do you start?



<h2>What to Look for in a Student Loan Refinancing Company&nbsp;</h2>



The purpose of <a href="https://www.sparrowfi.com/blog/what-is-student-loan-refinancing">refinancing</a> your student loan(s) is to secure a better interest rate or terms.



So, when looking for a student loan refinancing company, you first want to look at their terms and policies. This includes their requirements for approval, the loan terms, cosigner policies, and fees. Here’s a couple <a href="https://www.sparrowfi.com/blog/what-to-consider-before-refinancing-your-student-debt">things to consider</a>:



<ul>
<li>Is the interest rate on the loan lower than what you currently have?</li>



<li>Does the lender offer more favorable terms (ie. a longer repayment period) than what you currently have?</li>
</ul>



Additionally, find out what kind of benefits they offer if any. Do they offer help in the event of financial hardship like the loss of a job? This includes things like <a href="https://www.sparrowfi.com/blog/forbearance-vs-deferment-vs-forgiveness">forbearance</a> and deferment options.



Make sure the new loan you select offers you a better interest rate or more favorable terms than what you currently have. If it does neither, then refinancing is not an advantageous decision.



<h2>Best Student Loan Refinancing Companies in 2023</h2>



To help you in your search, we’ve made a list of the best student loan refinancing companies in 2023.



<a href="https://asla.accountcenter.studentloan.org/refinance/default/welcome?ref=arspar&amp;utm_source=sparrow&amp;utm_medium=referral&amp;utm_campaign=spar-refi&amp;qfid=affiliate-000-000">Arkansas Student Loan Authority (ASLA)</a>



The Arkansas Student Loan Authority offers loans to Arkansas residents or students who have attended a school in the state. They offer competitive rates and flexible terms to those who qualify. <a href="https://www.sparrowfi.com/blog/arkansas-student-loan-authority-refinancing-review">ASLA</a> is best if you either live in or attended school in Arkansas and want competitive interest rates and flexible loan terms.&nbsp;



<figure class="wp-block-table"><table><tbody><tr><td>Best Features&nbsp;</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates • Ability to refinance several types of loans • Variety of repayment options • Cosigner release option after 48 months • Offers 0.25% interest rate reduction for opting into auto-debit payments</td><td>• Strict residency requirements • Inaccessible for international students </td></tr></tbody></table></figure>



<a href="https://studentloans.com/student-loan-refinance.html?mc=0000009i">Brazos</a>&nbsp;



Brazos is a nonprofit lender that provides student loan refinancing to Texas residents. Students must have at least an undergraduate degree in order to take out a refinance loan with them. <a href="https://www.sparrowfi.com/blog/brazos-student-loan-refinance-review">Brazos</a> offers competitive interest rates and flexible terms to those who qualify. Brazos is best if you are a Texas resident and have at least an undergraduate degree, though the degree does not have to be from a Texas school.



<figure class="wp-block-table"><table><tbody><tr><td>Best Features</td><td>Drawbacks</td></tr><tr><td>• Work with a nonprofit, rather than a traditional lender • Competitive interest rates • Variety of repayment terms ranging from 5 to 20 years • Generous forbearance options</td><td>• Strict eligibility criteria • No cosigner release • No bi-weekly payment via autopay • Students cannot take over parent PLUS loans that parents took out on their behalf&nbsp; </td></tr></tbody></table></figure>



<a href="https://www.collegeavestudentloans.com/application/?SC=CARF01&amp;ACT=US&amp;utm_campaign=affiliate%20ongoing&amp;utm_source=sparrow&amp;utm_medium=aggregator&amp;utm_content=apply&amp;brand=college%20ave&amp;product=refi&amp;p_aff=sparrow&amp;goal=acquisition&amp;agg_ref_id=affiliate-000-000">College Ave</a>



College Ave offers student loan refinancing and is known for their strong customer service, competitive interest rates, and flexible loan terms. For example, <a href="https://www.sparrowfi.com/blog/college-ave-student-loan-refinancing-review">College Ave</a> offers nonstandard 6- or 9-year loans, which is unlike many other private lenders. College Ave is best if you want access to good customer service and a flexible repayment term that better matches your budget.



<figure class="wp-block-table"><table><tbody><tr><td>Best Features&nbsp;</td><td>Drawbacks</td></tr><tr><td>• Strong customer experience •&nbsp;Competitive rates • Choose any loan term between 5 and 15 years including nonstandard terms such as 6 or 9 years&nbsp; </td><td>• Limited eligibility criteria • Unclear forbearance policy • Not available to borrowers without a degree, visa holders, or those with parent PLUS loans • Doesn’t allow spousal consolidation loans&nbsp;</td></tr></tbody></table></figure>



<a href="https://partner.earnest.com/referral/67b24d45-5441-47b1-b1a3-cff2107aba71?utm_source=sparrow&amp;utm_medium=referral&amp;utm_content=affiliate-000-000">Earnest</a>



Earnest offers student loan refinancing with customizable repayment plans where you can choose your repayment term down to the month. <a href="https://www.sparrowfi.com/blog/earnest-review-student-loan-refinance">Earnest</a> also has forward-looking eligibility criteria and offers competitive interest rates. Earnest is best if you don’t have a cosigner and want a repayment plan customized to your situation.&nbsp;



<figure class="wp-block-table"><table><tbody><tr><td>Best Features&nbsp;</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates • Customizable payments and loan terms • Option to skip one monthly payment every year • Allows biweekly payments via autopay</td><td>• Refinancing is unavailable in Kentucky and Nevada • Variable interest rates aren’t available for borrowers in all states • You can’t apply with a cosigner • Student borrowers cannot take over parent PLUS loans that parents took out on their behalf&nbsp; </td></tr></tbody></table></figure>



<a href="https://www.investedindiana.org/lending/refi/invested-refi-loan/?ref=SPRaffiliate-000-000">INvestED</a>



INvestED offers student loan refinancing to Indiana residents and students who attended school in Indiana. They offer a variety of repayment options, competitive interest rates, and flexible terms. <a href="https://www.sparrowfi.com/blog/invested-student-loan-refinance-review">INvestED</a> is best if you are an Indiana resident or attended school in Indiana and want access to different repayment options.



<figure class="wp-block-table"><table><tbody><tr><td>Best Features&nbsp;</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates • You can refinance without a degree • Offers up to 36 months of academic deferment&nbsp; </td><td>• Only available to students that are residents of or attended school in Indiana • No biweekly payment via autopay • You can’t refinance parent PLUS loans in your name • Cosigner release option after 48 months of timely payments</td></tr></tbody></table></figure>



<a href="https://www.iowastudentloan.org/refinance-loan/student-loan.aspx?ref=SPAR&amp;utm_source=sparrow&amp;utm_medium=referral&amp;utm_campaign=reset&amp;campaign=sparrow">ISL Education Lending</a>



ISL Education Lending is a nonprofit student lender offering both private student loans and student loan refinancing. <a href="https://www.sparrowfi.com/blog/isl-education-lending-student-loan-refinancing-review">ISL Education Lending</a> is best for borrowers who want to work with a nonprofit lender, want competitive interest rates, or want to refinance without having a degree.



<figure class="wp-block-table"><table><tbody><tr><td>Best Features</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates and zero fees • You can refinance without a degree • Cosigner release option after 24 months</td><td>• Only one loan repayment term for in-school refinancing • Students cannot take over parent PLUS loans that parents took out on their behalf • No biweekly payment via autopay </td></tr></tbody></table></figure>



<a href="https://www.lendkey.com/student-loan-refinancing/?sk=AFF-sparrowfi-affiliate-000-001&amp;utm_source=AFF-sparrowfi&amp;utm_medium=referral&amp;utm_campaign=AFF">LendKey</a>



LendKey’s student loan refinancing is a good option if you have graduated, have a strong credit score, and have stable income. A great feature of <a href="https://www.sparrowfi.com/blog/lendkey-student-loan-refinance-review">LendKey</a> is that they will connect you with a network of 100+ lesser known credit unions and community banks so you can work with and take out loans from smaller institutions. LendKey is best if you are a creditworthy borrower and want to work with smaller lenders with low rates and good customer service.



<figure class="wp-block-table"><table><tbody><tr><td>Best Features</td><td>Drawbacks</td></tr><tr><td>• Work with a credit union or community bank, rather than a traditional lender • Access to competitive interest rates • Offers up to 18 months of forbearance&nbsp; • Free borrower benefits like Career Assistance, Credit Health Analysis, and Federal Student Loan Assistance </td><td>• Eligibility criteria excludes part-time students, parents, and non-U.S. citizens/permanent residents •&nbsp;Varying cosigner release policies • Loans aren’t available in Maine, Nevada, North Dakota, Rhode Island, or West Virginia • Biweekly payment via autopay is not available • You may have to become a member of a credit union</td></tr></tbody></table></figure>



<a href="https://www.nelnetbank.com/partners/sparrow/?utm_source=sparrow&amp;utm_medium=paidreferral&amp;utm_campaign=refi_sparrow_referral&amp;utm_content=sparrow&amp;product_code=r&amp;subID=affiliate-000-000">Nelnet Bank</a>



Nelnet Bank offers student loan refinancing for both private and federal student loans, including parent PLUS loans. <a href="https://www.sparrowfi.com/blog/nelnet-bank-student-loan-refinance-review">Nelnet Bank</a> also offers a flexible forbearance policy and competitive interest rates. Nelnet Bank is best if you are looking for competitive rates and want the ability to refinance student loans, including parent PLUS loans.&nbsp;



<figure class="wp-block-table"><table><tbody><tr><td>Best Features</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates • You can refinance parent PLUS loans in your name • Offers 12 months of forbearance due to economic hardship or natural disaster • Cosigner release option after 24 months of timely payments • Flexible repayment options</td><td>• Strict eligibility criteria • No biweekly payment via autopay • Not accessible to international students or borrowers with student visas </td></tr></tbody></table></figure>



<a href="https://refer.sofi.com/c/2776865/843614/11190?adcampaigngroup=refi&amp;adnetwork=BD&amp;sharedID=">SoFi</a>



SoFi is one of the biggest student loan refinancing companies in the industry. You have to have an associate’s degree or higher to qualify, but if you do qualify, you’ll have access to a wide variety of repayment options and exclusive member benefits. <a href="https://www.sparrowfi.com/blog/sofi-student-loan-refinance-review">SoFi</a> is best if you have at least an associate’s degree, are a creditworthy borrower, and want to take advantage of their benefits.&nbsp;



<figure class="wp-block-table"><table><tbody><tr><td>Best Features</td><td>Drawbacks</td></tr><tr><td>• Competitive interest rates • Students can refinance parent PLUS loans in their own name • Comes with borrower protections (forbearance and deferment) • Includes membership perks like career coaching, job search assistance, and wealth management&nbsp;</td><td>• Unclear about credit requirements • No cosigner release • Refinancing is unavailable to borrowers without a degree • No spousal consolidation loans </td></tr></tbody></table></figure>



<h2>Final Thoughts from the Nest&nbsp;</h2>



While there are a variety of factors that make a lender or refinance loan good, the best loan will always be the one that works best for you. To discover the best refinancing companies and which option is best for you, complete the <a href="https://www.sparrowfi.com/sign-up">Sparrow application</a>.



 In just a few minutes, we’ll show you what refinance loans you qualify for with 15+ top lenders. Then, we’ll help guide you through the process of selecting the <a href="https://www.sparrowfi.com/student-loan-refi">best refinance loan</a> so you can be confident in your lending decision.



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Sparrow's goal is to give you the tools and confidence you need to improve your finances. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

Best Student Loan Refinancing Companies in 2023

Best Refinance Rates for Student Loans | March 2024

Explore our top student loan refinancing picks

Student Loan Refinancing: Compare 9 Best Lenders

With rising college costs, student loans are placing a strain on more and more people’s lives. Student loan refinancing can help with that. This is what you need to know about when to refinance your student loan:&nbsp;&nbsp;



<h2 class="wp-block-heading" id="h-what-is-refinancing">What is Refinancing?&nbsp;</h2>



Refinancing is when a lender agrees to pay off your current loan(s) in their entirety. You’ll then take out a new loan to pay this lender back. A big reason why refinancing is popular is that you can change the terms of this new loan. For example, you can secure a lower interest rate or change the repayment plan.&nbsp;



<h2 class="wp-block-heading" id="h-how-does-student-loan-refinancing-work">How Does Student Loan Refinancing Work?&nbsp;</h2>



When you refinance your student loans, you combine one, some, or all of your current loans into single a new loan. You can do this with both federal and private loans. By doing this, you can choose new terms for the loan such as:&nbsp;



<ul>
<li>Changing the length of the loan&nbsp;</li>



<li>Getting a new interest rate&nbsp;</li>



<li>Switching from variable to fixed rates</li>
</ul>



<h2 class="wp-block-heading">How to Find the Best Student Loan Refinance Option</h2>



Finding the right refinancing option should be a simple. Use <a href="https://www.sparrowfi.com/">Sparrow</a> to find the <a href="http://sparrowfi.com/student-loan-refi" target="_blank" rel="noreferrer noopener">best student loan refinance option</a> for you. Sparrow shows you the most important information and simplifies the entire process.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/best-place-to-refinance-private-student-loans">Compare student loan refinance options:</a>



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<h2 class="wp-block-heading" id="h-how-do-i-qualify-for-student-loan-refinancing">How Do I Qualify for Student Loan Refinancing?&nbsp;</h2>



There are certain aspects that lenders look at to see if you’re qualified for refinancing. The main things you want to keep in mind are having a steady income, a good credit score, and a good payment history.&nbsp;



<h3 class="wp-block-heading" id="h-steady-income">Steady Income&nbsp;</h3>



Lenders look at your income to ensure you've got enough money coming in each month to pay off your monthly payments. You want enough to be able to support your current lifestyle in addition to making payments on your loan. A good way to determine this is by looking at your <a href="https://www.sparrowfi.com/blog/glossary">debt-to-income ratio</a>. Take your monthly debt and divide it by your monthly income. The lower the number, the better condition you are in.&nbsp;



<h3 class="wp-block-heading" id="h-good-credit">Good Credit&nbsp;</h3>



Your credit score is another important factor that lenders use to access whether or not you qualify for student loan refinancing. You want to have a credit score at least in the high 600s. The higher, the better. A high credit score helps lenders know that they can trust to make timely payments on the loan. On top of that, a <a href="https://www.sparrowfi.com/blog/5-ways-to-improve-your-credit-score">good credit score</a> will allow you to access lower interest rates.



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/what-credit-score-is-needed-for-a-student-loan">What credit score is needed for a student loan?</a>



<h3 class="wp-block-heading" id="h-payment-history">Payment History&nbsp;</h3>



Lenders want to make sure that they can trust you to make payments on time. Because of that, you’ll want to make sure that you maintain a strong payment history on all debts, particularly your student debt. For example, if your record shows that you’ve always made payments on time, you’re more likely to qualify. On the other hand, a record of missed payments might make lenders think twice about letting you borrow money.&nbsp;



<h3 class="wp-block-heading" id="h-how-much-will-i-save">How Much Will I Save?&nbsp;</h3>



The amount of money you’ll save depends largely on your personal situation and the terms of your new loan. However, people can save anywhere between hundreds to tens of thousands of dollars over the life of the loan.&nbsp;



Borrowers who used<a href="https://www.sparrowfi.com/student-loan-refi"> </a><a href="https://www.sparrowfi.com/student-loan-refi">Sparrow</a> to refinance reduced their interest rate by 2.29 percentage points on average, saving them around $17k over the life of their new loan.



<h2 class="wp-block-heading" id="h-when-should-i-refinance-my-loans">When should I refinance my loans?&nbsp;</h2>



There are certain factors to look at to see if now is the right time to refinance your loans. Here are some of them:&nbsp;



<h3 class="wp-block-heading" id="h-good-financial-situation">Good Financial Situation&nbsp;</h3>



Has your financial situation improved since you got your loans? Do you have a better income or credit score? Are you currently in a good financial position? If so, now would be a good time to refinance your student loans.&nbsp;



<h3 class="wp-block-heading" id="h-you-have-private-student-loans">You Have Private Student Loans</h3>



Refinancing when you have private student loans has little to no downsides, as long as you can secure better terms. If you have private student loans, it might be a good move to refinance.&nbsp;



&gt;&gt; MORE: <a href="http://sparrowfi.com">Compare private student loan lenders</a>



<h3 class="wp-block-heading" id="h-interest-rates-are-low">Interest Rates are Low</h3>



Student loan interest rates can change based on the Federal Reserve's actions. When the Federal Reserve cuts interest rates, it might be a good time to refinance your student debt while rates are low. Similarly, if you've been waiting to refinance and it looks like the Federal Reserve will be hiking interest rates in the near future, you may want to take advantage of the current situation by refinancing. Assuming you can get a lower rate and better terms, refinancing is typically a smart move since you are almost guaranteed to save money over the lifetime of your loan.&nbsp;



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/what-is-the-average-student-loan-interest-rate">What is the average student loan interest rate?</a>



<h3 class="wp-block-heading" id="h-your-current-interest-rate-is-high-or-variable">Your Current Interest Rate is High or Variable&nbsp;</h3>



If your current interest rate is high or variable, refinancing is a good option. You may be able to switch over to a lower fixed rate, which can help make handling your monthly payments a lot easier.&nbsp;



<h2 class="wp-block-heading" id="h-can-i-refinance-my-student-loans-more-than-once">Can I Refinance My Student Loans More Than Once?&nbsp;</h2>



Yes. There is no limit to how many times you can refinance your loans. Additionally, there are typically no fees for refinancing your student loans. So, if your credit score or income has recently improved, you can consider refinancing as many times as you want until you've got the best student loan for your financial situation.&nbsp;&nbsp;



<h2 class="wp-block-heading" id="h-why-shouldn-t-i-refinance-my-student-loans">Why Shouldn’t I Refinance My Student Loans?&nbsp;</h2>



Just like there are many reasons why you should refinance, there are just as many for why you shouldn’t. Here are some of them:&nbsp;



<h3 class="wp-block-heading" id="h-you-plan-to-use-federal-loan-benefits">You plan to use federal loan benefits</h3>



If you refinance your federal loans, you’re turning them into private loans. This means giving up the option to participate in programs that come with having a federal loan such as federal student loan relief or income-based repayment plans. If you would still like to take advantage of those benefits, then don’t refinance.&nbsp;



<h3 class="wp-block-heading" id="h-you-are-pursuing-loan-forgiveness">You are Pursuing Loan Forgiveness&nbsp;</h3>



People who refinance their loans don’t qualify for federal loan forgiveness programs such as the <a href="https://www.sparrowfi.com/blog/what-is-public-service-loan-forgiveness">Public Service Loan Forgiveness Program</a>. If this is something you’re hoping to do, then don’t refinance your loans.&nbsp;



<h3 class="wp-block-heading" id="h-you-recently-declared-bankruptcy">You Recently Declared Bankruptcy&nbsp;</h3>



It’s not impossible to refinance after declaring bankruptcy, but it can be harder. Most lenders won’t consider lending to you until 4-10 years have passed since you went bankrupt.&nbsp;



<h3 class="wp-block-heading" id="h-you-don-t-have-a-good-financial-situation">You Don’t Have a Good Financial Situation&nbsp;</h3>



If you don’t have a steady income or good credit, then it’s not a good idea to refinance your student loans now.&nbsp;



&gt;&gt; MORE: <a href="https://www.sparrowfi.com/blog/should-i-refinance-my-student-loans">Should I refinance my student loan?</a>



<h2 class="wp-block-heading" id="h-final-thoughts-from-the-nest">Final Thoughts from the Nest</h2>



There’s a lot to think about when deciding to <a href="https://www.sparrowfi.com/blog/best-place-to-refinance-private-student-loans">refinance your student loans</a>. At the end of the day, though, if you’re in a good position to make this move, then do it. Refinancing could save you a lot of time and money over the lifetime of the loan.&nbsp;



<a href="http://sparrowfi.com">Sparrow</a> is a great place to get started.&nbsp; Sparrow is the fastest way to compare real, personalized student loan rates. Complete the <a href="https://www.sparrowfi.com/sign-up">Sparrow application</a> to get prequalified offers from 15+ lenders through one application.

When Should I Refinance My Student Loans?

Explore our student loan refinancing tips

The nuts and bolts

Student Loan Refinancing FAQS

An overview of the types of federal student loans and how to apply.

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Student loan refinancing is when a private lender pays off your existing loan(s) and gives you a new loan, ideally with a lower interest rate or shorter repayment plan. It’s a chance to swap your current loan for a new one with more favorable terms. The goal of refinancing is often to reduce your monthly payment, interest rate, time in debt, or all the above.

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By refinancing, you can consolidate multiple loans into one, and the new loan may have more favorable terms than the original loans. It's important to note that refinancing federal student loans with a private lender will result in the loss of certain federal student loan benefits, such as income-driven repayment plans and loan forgiveness options.

Refinancing can result in a lower interest rate on your loans, which can reduce the total cost of your debt.

For example, say you have $60,000 in student loan debt at 7% interest on a 10-year term. If you were able to refinance that amount at a lower rate of 4% for the same term, you would save $10,701.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/best-rates-for-student-loan-refinance" target="_blank" rel="noopener">Best refinance rates for student loans.</a>

Refinancing allows you to choose a loan term that fits your individual needs, such as a longer-term for lower monthly payments or a shorter term for a quicker payoff.  This makes it easier to manage your debt.

Keep in mind that a longer loan term will lead to lower monthly payments, but a higher total loan cost. On the other hand, a short loan term will lead to higher monthly payments, but a lower total loan cost.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/best-place-to-refinance-private-student-loans" target="_blank" rel="noopener">Best place to refinance private student loans.</a>

If you have multiple student loans, refinancing can simplify the repayment process by consolidating all of your loans into one loan with a single monthly payment. This can help reduce your chances of missing payments and paying late fees.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-exactly-is-student-loan-consolidation" target="_blank" rel="noopener">What exactly is student loan consolidation?</a>

Refinancing allows you to release your cosigner from your current loan. This means the cosigner to no longer responsible for the loan, freeing them from the obligation to repay it in the event that you default.
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-is-a-cosigner-release-policy-how-can-it-protect-you" target="_blank" rel="noopener">What is a cosigner release policy?</a>

If you're dissatisfied with the service provided by your current student loan servicer, refinancing can fix that. As you assess which lenders to refinance with, look for lenders that have a strong reputation for customer service.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/student-loan-servicers-everything-you-need-to-know" target="_blank" rel="noopener">Student loan servicers: everything you need to know.</a>

Private lenders typically require you to have a high credit score and meet a specific income threshold, which can make it difficult to refinance your student loan.
While eligibility requirements vary lender by lender, in general, you must have a stable job, a completed degree, a credit score of 650 or above, and maintain a debt-to-income ratio of less than 50%.
More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-is-the-required-credit-score-to-refinance-student-loans" target="_blank" rel="noopener">What credit score do I need to refinance my student loans?</a>

If you refinance your federal student loans, you are no longer eligible for Public Service Loan Forgiveness (PSLF), which is accessible to borrowers who work for the government or non-profit employer. This includes teachers, firefighters, first responders, nurses, military members, and other public service workers.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-is-student-loan-forgiveness" target="_blank" rel="noopener">What is student loan forgiveness?</a>

If you have federal student loans, you might be eligible to enroll in an income-driven repayment plan, which bases your monthly payments on a percentage of your earnings. These plans are designed to make your payments more manageable as your income changes.

If you choose to refinance a federal loan into a new private loan, you will no longer have access to this alternative, as private student lenders do not offer income-based repayment plans.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/pros-and-cons-of-an-income-driven-repayment-plan" target="_blank" rel="noopener">Pros and cons of an income-driven repayment plan.</a>

Most federal student loans offer a six-month grace period after graduation before you are required to begin making loan payments. However, if you opt to refinance your federal student loans immediately after graduation, you will forfeit this grace period and must begin making payments right away.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-is-a-student-loan-grace-period" target="_blank" rel="noopener">What is a student loan grace period?</a>

The eligibility requirements for student loan refinancing vary by each lender. In general, to be eligible to refinance your student loans, you typically need to meet the following criteria:

1.) Credit Score: Most lenders require a minimum credit score of 650 or higher to refinance student loans. A higher credit score can also help you get a lower interest rate.

2.) Debt-to-Income (DTI) Ratio: Generally, you'll need a DTI below 50% to be able to refinance student loans. The lower your DTI, the better your chances of qualifying and getting a low-interest rate. Lenders determine the debt-to-income ratio, or DTI, by dividing your total monthly debt payments by your gross monthly income. 

If you don't meet the criteria above, you may want to consider adding a creditworthy to help you qualify.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-is-the-required-credit-score-to-refinance-student-loans" target="_blank" rel="noopener">What credit score do I need to refinance my student loans?</a>

Who is eligible for student loan refinancing?

There are certain private lenders with more stringent criteria, but in general, you can refinance any type of student loan, regardless of whether it's federal or private.

Want to refinance a Parent PLUS loan? Check out <a style="color: #3366ff;" href="https://refer.sofi.com/c/2776865/843614/11190?adcampaigngroup=refi&amp;adnetwork=BD&amp;sharedID=affiliate-000-000" target="_blank" rel="noopener">SoFi</a> and <a style="color: #3366ff;" href="https://studentloans.com/student-loan-refinance.html?mc=0000009i" target="_blank" rel="noopener">Brazos</a> (Texas residents only).

The best time to refinance your student loans depends on several factors, including:

1.) Credit Score: If your credit score has improved significantly since you took out your original loan, it may be a good time to refinance as a higher credit score can result in a lower interest rate.

2.) Financial Situation: If you have a stable income and a good credit score, you may want to consider refinancing if you are looking to save money on your monthly loan payments or overall interest costs.

3.) Loan Terms: If your monthly payments are too high or too low, refinancing is a great way to adjust the loan terms to align your monthly payments with your financial goals. A longer loan term will lead to lower monthly payments, but higher total cost. On the other hand, a shorter loan term will lead to higher monthly payments, but lower total cost.

4.) Variable Interest Rate: If you have a student loan with a high variable rate, you may want to consider refinancing to lock in a fixed rate. Unlike fixed interest rates (which are stable over time), variable interest rates fluctuate over time, making it difficult to predict monthly payments and budget accordingly.

5.) Interest Rate Changes: If interest rates have dropped since you took out your original loan, it may be a good time to refinance as you may be able to get a lower interest rate on your new loan.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/when-should-i-refinance-my-student-loans" target="_blank" rel="noopener">When should I refinance my student loans?</a>

When is the best time to refinance student loans?

Refinancing student loans may not be the best option if:

1.) You have federal student loans and expect a decrease in income: If there's a chance your income could decrease, consider against refinancing federal student loans. If you do refinance, you'll miss out on federal student loan relief options, as well as government programs like income-driven repayment.

2.) You are seeking loan forgiveness: Refinancing federal loans makes them ineligible for federal loan forgiveness programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.

3.) You have recently filed for bankruptcy: Refinancing student loans after bankruptcy can be challenging as most lenders require a waiting period of 4 to 10 years after the bankruptcy.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/what-to-consider-before-refinancing-your-student-debt" target="_blank" rel="noopener">What to consider before refinancing your student debt.</a>

When should I not refinance student loans?

The time it takes to refinance a student loan depends on several factors, including the lender you choose, the type of loan you have, and the information you need to provide. On average, the process of refinancing a student loan can take anywhere from a few days to a few weeks.

Here's a general outline of what to expect:

1.) Research and compare lenders: Shop around for the best interest rates and terms. This can take a few minutes or a few weeks, depending on how how you go about your search. Sparrow can help <a style="color: #3366ff;" href="http://www.sparrowfi.com/login/borrower">expedite the process</a> to ensure you're getting the right loan before you apply.

2.) Apply for refinancing: This typically involves completing an online application and providing documentation such as proof of income, employment, and education. The timing on this step is entirely in your control.

3.) Review and approval: The lender will review your application and determine if you are eligible for refinancing. This process can take several days to a week or more.

4.) Loan disbursement: If you are approved, the new loan funds will be disbursed to your previous lender to pay off your old loan. This can take a few days to a week.

It's important to note that some lenders may have faster turnaround times than others, and the process may take longer if you need to provide additional information or documentation.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/guide-on-how-to-refinance-student-loans" target="_blank" rel="noopener">Guide on how to refinance student loans.</a>

How long does it take to refinance a student loan?

Pre-qualifying through Sparrow does not impact your credit score.

Sparrow conducts a soft credit check when you apply for pre-qualified rates. The soft <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/whats-a-soft-credit-inquiry-whats-a-hard-credit-inquiry" target="_blank" rel="nofollow noopener noreferrer">credit check</a> allows us to instantly show you the rates you qualify for at each of our lenders, and it does not impact your credit score.

Submitting an application with a lender can result in a hard inquiry on your credit report, which does impact your credit score. A hard inquiry temporarily lowers your credit score by a few points. However, this decrease is short-lived.

Getting approved for refinancing while closing the previous loans could temporarily affect your credit history, which is a factor that impacts your credit score. This impact is usually minor and temporary. Over time, refinancing your student loan could actually improve your credit score if it allows you to make consistent and timely payments in full.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/does-refinancing-student-loans-hurt-your-credit" target="_blank" rel="noopener">Does refinancing student loans hurt your credit?</a>

Does refinancing student loans hurt my credit score?

Yes, you can refinance your student loans more than once. In fact, some borrowers choose to refinance their loans multiple times over the years to take advantage of lower interest rates or better terms.

However, it's important to keep in mind that each time you refinance your student loans, you will likely be subject to a hard inquiry on your credit report and a new loan application process. This could impact your credit score, although the impact is usually temporary and minor.

Before deciding to refinance your student loans, it's a good idea to consider your financial goals, the terms and interest rates being offered by different lenders, and the potential impact on your credit score.

More: <a style="color: #3366ff;" href="https://www.sparrowfi.com/blog/how-often-you-should-refinance-your-student-loans" target="_blank" rel="noopener">How often should you refinance your student loans?</a>

Can I refinance my student loans more than once?

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