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About 54% of students earning a bachelor’s degree took out student loans and graduated with an average of $29,100 in private and federal student loan debt, according to a 2022 College Board report.
It’s best to only take out the minimum student loans you need so you can comfortably afford the payments when you leave school. Find out how to determine which loans are best and why it’s important to minimize your borrowing to cover both school and secondary expenses.
- Which loans are right for you?
- Why students shouldn’t borrow more than they need
- 7 ways to pay for general living costs of college
Which loans are right for you?
Student debt can be made up of either federal and private loans, or both. A mix of student loans carries different interest rates, terms, and repayment options. Since federal student loans offer several protections and benefits not seen with private loans from banks or other financial institutions, it’s generally best to max out federal loans first.
Federal student loans
These loans are dispersed by the federal government through the U.S. Department of Education’s Direct Loan Program. Federal loans provide fixed interest rates, and you must repay them once you leave school or attend less than half-time.
There are four types of Direct loans available:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
When you apply, you must meet the requirements set out in each type of loan.
Federal loans also include a loan option (parent PLUS) for parents of dependent students. Before accepting federal student loans, take a look at the pros and cons.
- Federal loans offer a fixed interest rate, meaning your rate won’t change.
- Federal loans do not generally require a credit check, so you may still qualify even if you have little or no credit history.
- When you qualify for subsidized student loans, the federal government pays the interest on your loan while you’re still in school.
- There are several repayment options to choose from once you graduate, one being income-driven repayment plans based on your annual earnings.
- Not all students qualify for federal subsidized student loans.
- Like any other type of loan, student loans must also be repaid. The debt relief program is currently paused, but the student loan payment pause has been extended until September 1, 2023.
- The federal government caps how much federal money you can borrow. That’s why it’s important to research other types of financial aid as well.
Private student loans
Because there is a limit on how much federal student loan money you can borrow, (which may not cover the total cost of attendance), many students also take out private student loans.
Private loans are provided by banks, some credit unions, and online lenders. If you need to borrow from a private lender, you should consider several important pros and cons.
- Some private lenders let you borrow up to 100% of the cost of attendance, meaning no cap.
- Private student loans may offer a lower interest rate than loans with fixed rates. This is especially true when interest rates fall.
- Private student loan lenders generally don’t require you to maintain full-time enrollment to be eligible for loans.
- You may qualify for incentives, like loan deferment, if you lose your job, or a lower interest rate if you set up autopay for your loans.
- Private lenders are not required to offer plans that are based on your income, so if your earnings dip, you will likely still be required to make your agreed-upon payments.
- Private lenders typically perform a credit check, so if your credit isn’t up to par, you may need a creditworthy cosigner on your loan.
- If interest rates increase, you may end up paying more interest on your loan.
If you need to take out private student loans, visit Credible to compare private student loan rates from various lenders in minutes.
The companies in the table below are Credible’s approved partner lenders. Whether you’re the borrower or cosigner, Credible makes it easy to compare rates from multiple private student loan providers without affecting your credit score.
|Fixed Rates From (APR)
|Variable Rates From (APR)
|4.50%9 - 15.49%9
|6.37%9 - 16.70%9
Lowest APRs reflect autopay, loyalty, and interest-only repayment discounts where available. Prequalified rates are not an offer of credit. | 10Ascent Disclosures | 1Citizens Bank Disclosures | 2,3College Ave Disclosures | 11Custom Choice Disclosures | 7EDvestinU Disclosures | 8INvestEd Disclosures | 9Sallie Mae Disclosures
Why you shouldn’t borrow more than you need
Student loans are meant to help pay for your education expenses. But many students also often rely on the money to fund other wants and needs while in school. It’s also easy to think of repaying your student loans in future tense — in other words, after you land that high-paying job.
But instead, you may find yourself starting your career in a low-paying job, and making student loan payments you can barely afford. That’s why it’s imperative to only take what student loans you need to fund your education.
7 ways to pay for general living costs of college
Student loans cover your education costs, such as:
- Room and board
- Common student fees
- Your computer
That means you’re financially responsible for noneducational activities, like attending a concert off-campus, the occasional restaurant meal, and other everyday living expenses. So, you may have to turn to other options to pay for these secondary costs. Here are a few to consider.
1. Income share agreements
If you’ve maxed out your student loan options, you might consider an income share agreement (ISA). With an ISA, you receive funding for school if you agree to pay back a percentage of your post-graduate income.
The amount you repay each month depends on what you earn after you graduate. If you have a high-paying job, you may actually repay more with an income share agreement than you would with a private loan.
In contrast, if you borrowed a $10,000 student loan with an interest rate of 10.00% and repaid it over a 10-year term, your monthly payment would be $132, and you would pay $15,858 total.
2. Work-study programs
Federal Work-Study programs are administered by your college or university, but these programs aren’t available in all schools, so check with your financial aid office to see if your school participates. If your school offers work-study, you might find a qualifying position via its job database.
3. Part-time jobs
Although you may be buried in schoolwork, you might supplement your loans with a part-time job. Your campus career office may have resources to help you with your job hunt. Also, check out job and networking websites like:
You might also consider a student research position or a position as a lab or teaching assistant. Likewise, some companies offer tuition and living expense reimbursement for part-time employees. When applying for a part-time job, ask your new employer if this is an option.
4. Apply for a paid internship
Internships can be a good way to gain work experience and build your resume. While some internships are unpaid, many are paid. A paid internship might offer you a chance to earn a little extra money for secondary expenses — and build skills that you can use in a future career.
5. Grants and scholarships
Merit-based scholarships do not generally have to be repaid. Likewise, most grants, such as the Federal Pell Grant, also don’t need to be repaid. However, there are eligibility requirements you must meet.
Keep in mind that scholarships and some grants have deadlines and may require you to write an essay and complete an application. So, it’s important to apply early to find the best selections and comfortably complete the requirements. You can find a list of scholarships and grants on the College Scholarships website. You can also check with your school’s admissions department.
6. Apply for a tax credit
If you qualify, you or your parents may be eligible to claim the American Opportunity Tax Credit (AOTC) for up to $2,500. However, you must be:
- Enrolled in a degree program at least part-time
- Still in your first four years of college
- Not a past AOTC recipient for more than four tax years
- Clear of any felony drug conviction
7. Dip into your savings
Although using your savings — especially without a plan to pay it back — is not the first option you should choose, it may help pay for secondary expenses. If you have a stable job and the income to pay back what you borrow out of your savings, it might be a more viable option.
Keep Reading: How to Use Student Loans for College Living Expenses
Jimmy Karnezis has contributed to the reporting of this article.