Summary: Student loans in 2021
What is a student loan?
A student loan is a loan that can help students pay for college-related costs, like tuition, textbooks and housing. Prospective borrowers can usually choose a fixed or variable interest rate, and many student loans allow borrowers to stall payments for a six-month grace period after graduation.
While student loans can provide financial relief, they are not the same thing as financial aid, grants or scholarships. Unlike those forms of aid, federal and private student loans need to be paid back — with interest.
Learn more about the top student loan definitions you need to know.
How does student loan interest work?
When you apply for a student loan, you'll be offered an interest rate. This interest rate is an extra percentage of your loan amount that you'll have to pay each month. With federal loans, this rate is the same for all borrowers. With private loans, this rate is determined by your credit score, income and more. The most affordable student loans go to students with high credit scores. To calculate how much interest you'll pay over the life of your student loan, try using a student loan calculator.
Federal vs. private student loans
Private student loans differ from federal student loans because they’re originated by private institutions such as banks, credit unions and online lenders rather than the federal government. Here are some of the pros and cons of each type of loan.
Federal student loans
Federal student loans come from the U.S. Department of Education. They have fixed interest rates, a variety of repayment plans and potential loan forgiveness options.
Pros:
- Federal student loans come with more flexible repayment options, including customized payment plans based on your income and potential loan forgiveness.
- You don't need to have a solid credit history to qualify for most federal student loans, since most federal loans don't do a hard credit check.
- Federal student loans come with extensive borrower protections, including deferment and hardship options.
Cons:
- Federal student loans generally have lower loan limits than private student loans and come with an origination fee, which reduces the funds you receive. And if you default on federal student loans, the government can more easily garnish your wages and tax refunds.
- If you have good credit, a private student loan will often have lower interest rates than a federal student loan.
Private student loans
Private student loans are offered by a variety of online lenders, banks and credit unions. Private student loan interest rates are determined by your credit score, and they can be either fixed or variable.
Pros:
- Private student loans may have zero fees and high loan limits, so they can fill in the gaps if you've borrowed the maximum student loan amount from the federal government.
- Interest rates on private student loans are based off of your credit score. If you have a good to excellent credit score, you may be able to receive lower interest rates than with a federal loan.
Cons:
- Private student loans may offer some hardship plans and a variety of repayment options, but there's no set standard for forbearance and deferment as there is for federal loans.
- Borrowers with poor credit may face double-digit interest rates.
What are current student loan interest rates?
Current interest rates on student loans vary based on the where the loan originates, the type of interest rate and the creditworthiness of the borrower.
What are interest rates for federal student loans?
| Direct Subsidized and Unsubsidized Loans (Undergraduate Borrowers) |
2.75%
|
| Direct Unsubsidized Loans (Graduate and Professional Borrowers) |
4.3%
|
| Direct PLUS Loans (Graduate and Professional Borrowers) |
5.3%
|
How student loans could change under a Biden presidency
President Biden's proposed student loan policies could spell big changes for student loans moving forward. His proposed policies include:
- Revising current income-driven repayment plans to no more than 5 percent of the borrower's discretionary income.
- Doubling the value of Pell Grants.
- Providing four years of free tuition at public universities for borrowers with household incomes below $125,000.
- Forgiving $10,000 of student loan debt for each year borrowers participate in national or community service, up to five years.
He has also expressed support for pandemic relief legislation that would immediately wipe out $10,000 in student loan debt for federal borrowers.
These proposals are just that: proposals. However, if any of these are passed, student loan borrowers could see benefits as soon as this year.
How does the coronavirus affect student loans?
When the Fed cut rates to near-zero in response to the economic effects of the coronavirus pandemic, student loan rates also plummeted. "The plunge in Treasury yields and the interest rate cuts by the Federal Reserve helped bring federal student loan rates lower at their annual July adjustment. Even private student loans pegged to the prime rate are lower," says Greg McBride, Chief Financial Analyst at Bankrate. However, he warns that some of this benefit has been likely offset by lenders' tighter qualification guidelines.
Keep in mind, too, that these interest rate cuts will not affect everyone. If you already hold a loan with the federal government, you won't see your interest rate change. The same is true for fixed-rate private loans. You can take advantage of interest rate fluctuations only if you take out a new loan, have an existing variable-rate loan or refinance your current loans.
Just keep in mind that if you refinance your federal loans with a private lender, you will lose federal benefits. That's particularly important now, since payments and interest rates on federal student loans are suspended through Sept. 30, 2021.
Should you defer your federal student loans during coronavirus forbearance?
Federal student loans are placed in automatic forbearance through Sept. 30, 2021. Whether you should take advantage of this deferment depends on your financial situation and priorities. Deferring your loans is a good idea if you have other high-interest debt you could pay off instead or if you're able to funnel the payments you would be making into an emergency fund or high-yield saving account.
However, you may want to keep paying your federal student loans during this deferment period if you don't have other financial obligations. Because interest is not being charged on federal loans during this time, your entire payment will go toward the loan's principal, potentially helping you pay off the loan faster. Alternatively, you could store your payments in a savings account until the forbearance period ends, then make a lump-sum payment with the amount accrued before interest charges resume.
Types of student loans
There are student loans available for nearly every stage of your higher education journey. Here are some examples of the different types of student loans:
- International student loans: While federal student loans can be a great way to help finance an education, they are typically only available to U.S. citizens and eligible students. So if you're an international student attending college in the U.S., a private student loan may be the best option for you.
- Law school student loans: Law school comes with its own set of expenses; law school loans can help finance tuition, fees, housing and books.
- Medical school student loans: Medical school loans can assist you in continuing a long and rewarding education.
- MBA student loans: If you're in the process of getting your master's degree in business administration but are worried about the payments after graduation, an MBA loan could help.
- Graduate school loans: Depending on the lender, you may have the option to take out a loan for many types of advanced degrees. If you're considering graduate school outside of law, medicine or business, there is likely a student loan that can assist you with the finances.
How to apply for a student loan
Student loans are available through banks, online lenders, credit unions and the federal government. Depending on the type of loan you take out, the application process can be done through the FAFSA, on the lender websites or in person. When applying, here are the steps that you should consider taking:
- Fill out the FAFSA. Even if you don't think that you'll qualify for funding, it's always a good idea to fill out the FAFSA for each school year. The form opens up on Oct. 1, and once you fill it out you will be notified about your eligibility for federal student loans and other aid.
- Research different lenders. Comparing student loans is the best way to find out what's most affordable for you. If you've applied for federal loans but are in need of private loans as well, compare rates, fees and repayment plans from a few student loan lenders. You might also look up reviews from customers who have worked with the lender.
- Consider the application qualifications. After you've narrowed down your search to a few lenders, consider the application requirements — particularly credit and income requirements. If you're unsure if you're eligible for a loan, see if the lender offers prequalification. Shopping around with multiple lenders will allow you to see which rates you qualify for. In some cases, you may need a co-signer with good credit in order to qualify.
- Continue the application process. After comparing offers from a few lenders, be prepared to provide personal information like your income, Social Security number and citizenship information. After you submit your application, it could take a few weeks to find out if you're approved for the student loan.
Details: Student loan interest rates in 2021
- Ascent: Best student loan without a co-signer
- Citizens Bank: Best student loan for multiyear approval
- College Ave: Best student loan for quick application process
- CommonBond: Best student loan for personalized mentoring
- Earnest: Best student loan for flexible repayment terms
- Discover: Best student loan for perks and rewards
- Sallie Mae: Best student loan for part-time students
- SoFi: Best student loan for no fees
Best student loan without a co-signer: Ascent
Overview: Ascent offers undergraduate and graduate private student loans in all 50 states. Borrowers without a co-signer have their own loan option, which is a rarity in the private student loan space. The lender also offers a longer-than-average period of forbearance, which is a hardship program that allows you to temporarily stop making payments. Check your personalized rates from Ascent today.
Perks: If you don’t have a co-signer, you may be able to qualify for a loan based on your school, graduation date, major and cost of attendance. You can also apply for forbearance between one and three months, for a maximum 24 months over the life of the loan. Borrowers are eligible to apply for Ascent scholarships and can even earn various types of rewards. These include a 1 percent cash back reward at graduation, based on the original principal balance, and up to $525 for each referred friend who signs up for and receives a student loan.
What to watch out for: Among lenders on this list, Ascent advertises some of the highest rate caps — which can significantly add to your overall cost of borrowing. Additionally, independent borrowers will need to meet eligibility requirements: To apply without a co-signer, you must be a full-time junior, senior or graduate student with a GPA of at least 2.9.
| Ascent |
| Fixed: 3.35%–14.5% (with autopay)
Variable: 2.11%–12.94% (with autopay) |
| $2,001–$200,000 |
| 5 to 20 years |
| None |
Best student loan for multiyear approval: Citizens Bank
Overview: Citizens Bank offers private student loans to undergraduate students, graduate students and parents. Borrowers can get approved for multiple years of student loans.
Perks: Citizens Bank will run a hard credit inquiry when you apply and will let you know if you qualify for the multiyear loan program. Once approved, you can request funds in subsequent years without supplying additional income documentation, so the process is faster, and Citizens will run only soft credit checks. In addition to the 0.25 percent autopay discount, you can take an additional 0.25 percent APR discount on a private student loan if you have an eligible Citizens Bank account. Borrowers can use loan funds to pay for school costs and child care, which is a rarity among lenders.
What to watch out for: Citizens Bank student loans aren't available in all 50 states, and people attending two-year colleges or career training programs aren't eligible. The company also has no firm deferment or forbearance policies; hardship options are treated on a case-by-case basis.
| Citizens Bank |
| Fixed: 4.24%–11.61% (with autopay)
Variable: 1.68%–11.33% (with autopay) |
| $1,000 to $350,000, depending on program |
| 5 to 15 years |
| None |
Best student loan for quick application process: College Ave
Overview: College Ave is an online lender that offers private student loans to undergraduate students, graduate students, parents and students attending community college and career programs. The lender specializes in a simple application process with an instant decision.
Perks: Altogether, College Ave says that the application process takes three minutes. Borrowers can check their potential loan terms and whether they prequalify for a loan without impacting their credit. Aside from its loans geared toward four-year degrees, College Ave also offers private loans for students attending community colleges and career programs. Eligible borrowers earn $150 upon graduation, awarded as a statement credit to the loan balance.
What to watch out for: For most of its graduate school loans, College Ave imposes a loan cap of $150,000. While that may be enough for some borrowers, students attending expensive institutions may need to borrow more.
| College Ave |
| Fixed: 3.34%–12.99% (with autopay)
Variable: 1.04%–11.98% (with autopay) |
| $1,000 to 100% total cost of attendance (maximum $150,000 for some degrees) |
| 5 to 20 years |
| Late fee |
Best student loan for personalized mentoring: CommonBond
Overview: CommonBond is an online lender that offers undergraduate and graduate private student loans. Borrowers can access individualized money advice and generous hardship programs.
Perks: CommonBond loans come with a free “money mentor,” a person who helps you navigate personal finances before, during and after college. CommonBond also offers forbearance to students who encounter economic hardship after graduation.
What to watch out for: You’ll need a co-signer to apply for an undergraduate student loan, but you can request to have them released after making 24 on-time payments.
| CommonBond |
| Fixed: 3.74%–10.74% (with autopay)
Variable: 3.8%–9.36% (with autopay) |
| $2,000 to 100% total cost of attendance ($500,000 lifetime maximum) |
| 5 to 15 years |
| Late fee: 5% or $10; Returned check fee: $5; Origination fee: 2% for some degrees |
Best student loan for flexible repayment terms: Earnest
Overview: Earnest is an online lender that funds private student loans to undergraduate and graduate students and offers unique repayment options.
Perks: Borrowers who choose a deferred payment plan get a nine-month grace period on payments after graduation, which is three months longer than most lenders. Borrowers are also allowed to skip one payment every 12 months.
What to watch out for: The “skip payment” feature comes with some restrictions; for example, the payment counts toward normal lifetime forbearance limits. Also, Earnest doesn’t offer private student loans in Nevada.
| Earnest |
| Fixed: Starting at 3.49% (with autopay)
Variable: Starting at 1.05% (with autopay) |
| $1,000 to 100% total cost of attendance |
| Not specified |
| Returned payment fee: $8; Florida stamp tax: 0.35% |
Best student loan for perks and rewards: Discover
Overview: Discover offers private student loans to undergraduate students, graduate students and parents, and loans can cover up to 100 percent of school-certified undergraduate and graduate school costs. Discover doesn't charge any application, origination or late fees.
Perks: In addition to offering competitive rates and no fees, Discover rewards students for earning good grades. Students who earn at least a 3.0 GPA in college or graduate school could qualify for a one-time cash reward of 1 percent on each new loan they take out. High school students who graduate with at least a 3.0 GPA could also qualify for an additional reward on their first college loan.
What to watch out for: Discover doesn't offer a prequalification option, so make sure you meet the eligibility requirements before applying. Also, unlike many other lenders, Discover doesn't offer the option for a co-signer release, meaning the co-signer must remain responsible for the life of the loan.
| Discover |
| See rates above |
| $1,000 to 100% total cost of attendance. Aggregate limits may apply. |
| 15 or 20 years |
| None |
Best student loan for part-time students: Sallie Mae
Overview: Sallie Mae offers private student loans to undergraduate students, graduate students, parents and students enrolled in career-training programs. This is one of the only private student loan lenders that doesn’t require borrowers to attend school full- or half time, which makes it a standout option if you’re studying abroad, taking just one or two classes at a time or taking a professional certification course.
Perks: Borrowers get four months of free access to Chegg Study, which provides study and homework support for any subject.
What to watch out for: While borrowers can apply for 12 months of forbearance over the life of the loan, in three-month increments, you'll have to pay $50 per loan, with a maximum of $150 per account, to get forbearance.
| Sallie Mae |
| Fixed: 4.25%–12.59% (with autopay)
Variable: 1.13%–11.64% (with autopay) |
| $1,000 to 100% total cost of attendance |
| 5 to 20 years |
| Late fee: 5% or $25; Returned check fee: Up to $20 |
Best student loan for no fees: SoFi
Overview: SoFi is an online lender that offers private student loans for undergraduate students, graduate students and parents. Among its perks, SoFi says that it doesn’t charge any fees, which cuts down on the overall cost of borrowing.
Perks: In addition to the routine 0.25 percent autopay discount, SoFi customers with an eligible account may qualify for a member rate discount of 0.125 percent. Borrowers get access to free career coaching, and if you lose your job through no fault of your own, you’re eligible to postpone loan payments in three-month increments (up to 12 months total) and receive job placement assistance.
What to watch out for: SoFi doesn’t offer a co-signer release, and the minimum loan size is higher than that of most lenders.
| SoFi |
| Fixed: 4.13%–11.52% (with autopay)
Variable: 1.74%–11.89% (with autopay) |
| $5,000 to 100% total cost of attendance |
| 5 to 15 years |
| None |
Frequently asked questions about student loans
When do you pay back student loans?
Most student loans will give you a grace period after graduating before you start repayment. However, starting your repayment while in school can help reduce the overall cost of your loan. Most private lenders offer these types of repayment plans:
- Make full principal and interest payments while in school.
- Make interest-only payments while in school.
- Make flat $25 monthly payments while in school.
- Defer all payments while enrolled in school. Most lenders will also give you a post-graduation grace period of six to nine months before you start making payments.
How do you qualify for a student loan?
Every lender has different eligibility requirements for student loans, but generally you’ll need to:
- Be enrolled in an eligible school. Most four-year colleges qualify, but community colleges and trade schools aren’t always eligible for private student loans. Private lenders can usually show you a list of eligible schools they work with, so check to make sure your school is on it. The lender may also require you to be enrolled full time or at least half time. Some lenders, such as Sallie Mae, allow you to attend school part time.
- Meet age, education and citizenship requirements. Generally, you’ll need to be at least 18 years old to enter a legal agreement. The lender might also require you to be a U.S. citizen and hold a high school diploma.
- Plan to use the loan for qualified education expenses. Your lender will communicate with your school to confirm the cost of attendance and calculate your borrowing needs. The lender will send the funds directly to your school and may send you any money left over. Depending on the lender, you can typically use the funds for tuition and fees, meals and housing (including utilities), transportation, books and supplies, dependent care, personal expenses, computers and electronics for school and even travel costs.
- Meet credit and income criteria. While most federal student loans don't require a credit check, private lenders usually check your credit history, income and debt-to-income ratio. If you don’t meet requirements, the lender may ask that you add a co-signer to the loan. To get the best rates, try to find a co-signer who doesn’t have derogatory marks on their credit reports, such as defaulted loans, foreclosures and bankruptcies.
- Maintain good grades. If you’re already in school, private lenders may check that you’re earning good grades and on track to finish your degree. To do this, lenders will ask the school to verify your “satisfactory academic progress” (SAP) during school certification. The definition for SAP varies for each school, but it generally evaluates your grades, the number of credit hours you're taking and progress in your degree program.
Are student loans tax deductible?
Yes; once you start repaying your student loans, you can deduct the interest each year. At the beginning of the tax season, look for Form 1098-E in the mail or in your online loan account. The form will tell you how much interest you’ve paid on your student loans during the tax year.
Eligible borrowers can deduct up to $2,500 of the interest paid in the past year on a qualified student loan. A deduction lowers the amount of your income that’s taxable. So if you earn $30,000 a year and you can deduct the full amount, only $27,500 of your income will be taxed.
For tax year 2020, the deduction is available to filers who earn up to $85,000 (or $170,000 if you file a joint return), but it's gradually phased out if your modified adjusted gross income is between $70,000 and $85,000 (between $140,000 and $170,000 for joint filers).
Can you get a student loan with bad credit?
Yes, you can get both private and federal student loans with bad credit. Many federal student loans don't even check your credit, which makes them a great option for borrowers with little to no credit history. If you are applying for private loans, some lenders are willing to work with borrowers with less-than-stellar credit, although interest rates may be higher and loan amounts may be smaller.
Ascent, for example, says that it can base its lending decision on alternative factors. These may include your school, graduation date, major and cost of attendance. Check for credit score requirements at each lender. Some offer prequalification, which allows you to see if you qualify and the potential rates you’ll receive without hurting your credit.
Are private loans better than federal?
It's usually best to start your search for financial aid by looking for federal student loans, since they come with more flexible repayment options and borrower protections. For instance, federal student loans allow you to enroll in income-driven repayment plans down the line, a program that bases your monthly payment on your actual income.
However, private student loans can help fill the gaps if you still need to borrow money after applying for grants, scholarships and federal financial aid. Annual percentage rates (APRs) on private loans also usually start lower than federal loan interest rates, though if you have a variable-rate loan, your APR (and monthly costs) can increase over the life of the loan.
When is refinancing student loans a good option?
There may be instances where you want to refinance your student loans. When you refinance your student loans, you take out a new loan from a private lender for the amount you still owe on your current student loans. You then use the new loan funds to pay off your existing loans. From there, you'll make regular payments on your new loan, hopefully with a better interest rate, until the loan is paid off.
Refinancing can only be done through private lenders, so carefully think through the implications before giving up your federal protections.
Refinancing may be a good option if you'd like to consolidate multiple loans into a single loan or if interest rates have fallen significantly since you first took out your fixed-rate loan. Refinancing interest rates currently range anywhere from 2 percent to 9 percent and can be fixed or variable.
