Et cetera : 7 Tips for Planning for Student Loans

By Jim Schipper
Iowa Student Loan Liquidity Corporation Board Member

Many families turn to federal and private student loans, like those offered by ISL Education Lending, to cover remaining college costs after savings, earnings and other financial aid. But the options for college financing can be confusing. Here are seven tips for finding the right loans for your family.

1. Understand the difference between federal and private loans. Federal student loans are provided by the federal government and are offered based on the results of the Free Application for Federal Student Aid filed by college students. Private student loans, on the other hand, are offered by private lenders.

Federal student loans have an annual limit based on year of college and may have interest subsidized, or paid, by the government while the student is in school. Generally, private student loan amounts are limited to the amount required to cover the remaining cost of attendance as certified by the school. While they may qualify on their own for federal student loans, traditional-age college students often need creditworthy cosigners for a private loan.

The U.S. Department of Education also offers federal loans for parents-the federal PLUS Loan. Many private lenders offer an alternative with family and parent loans for those who want to borrow in their own names to assist a student.

Interest accrues daily on all education loans from the date they are disbursed to the school.

2. Think about the total cost of repayment before applying for or accepting a student loan. The time to understand the total debt of principal, fees and potential interest is before accepting a federal loan or applying for a private one. Generally, to help ensure that student loans can be successfully repaid, ISL Education Lending advises that total college debt for all years of college be no more than a realistic starting salary for the student's desired career.

3. Choose federal student loans first. ISL Education Lending recommends that students accept subsidized and unsubsidized federal Direct Loan Program student loans before considering private student loan options. Federal student loans typically have better rates, repayment assistance and protections than other loans, including other types of federal loans.

4. Research private student loan options. When federal student loans are not enough to cover the full cost of attendance, students may turn to private loan options, such as those offered by ISL Education Lending. Because the offerings by multiple lenders have different features, and some specific details may be difficult to find, it can be difficult to compare them to each other. In general, students and families should consider:

• Interest rates. Keep in mind that few applicants qualify for a lender's best advertised rate.
• Length of repayment. Stretching loan payments out over more years may result in lower monthly payments, but it may also cost more in the end due to daily interest accrual.
• Fees, such as origination fees, prepayment penalties or late payment fees.
• Repayment options and assistance. Compare the options for making payments during college to keep overall repayment lower, opportunities to delay payments in times of financial hardship, and loan forgiveness or cosigner release options, among other features.

5. Compare loans for parents carefully. Financial aid notifications often include federal parent PLUS loans. If parents or other adults are considering taking on debt to help a student with college costs, the features of the federal parent PLUS loan should be compared to those of private loans for parents. Because these loans generally cannot be transferred to the student later, borrowers should be aware of their repayment obligations as well as the features listed above for private student loan comparisons.

The same care should be used when calculating the total cost of repayment for parent loans as when considering student loans.

For example, for the 2024-2025 academic year, the interest rate for federal PLUS Loans is 9.08%, which is higher than the rates on federal loans for students. While the U.S. Department of Education does not provide an APR for the Federal Direct Loan PLUS Program, the interest rate combined with the upfront fee of 4.228% on a $10,000 loan translates to a 10.10% APR.

The ISL Education Lending College Family Loan offers fixed interest rates of 3.95% APR to 8.01% APR with no upfront or origination fees. The highest rate for a College Family Loan that enters repayment immediately is 7.85% APR. On a $10,000 loan with a 10-year term, this difference in APR means that a borrower who makes monthly payments on time will save approximately more than $1,500 over the life of a 7.85% APR College Family Loan compared to a federal PLUS Loan.

6. Complete application, disclosure and certification forms promptly. The student should follow instructions from the college to accept any federal student loans.

If a private loan is necessary, the Social Security number of both the applicant and the student will be needed. . The lender will also require names and contact information of references to contact in the future if the borrower is unreachable. Traditional college-age students may also need to have the names and contact information of one or two cosigners, who will complete an application after the student submits the initial application.

Be prepared for the lender to request a credit report for the applicant and cosigners. You may also be asked to provide paystubs or tax returns for underwriting purposes, and the college will likely need to certify the loan amount.

After a private loan is approved, the applicant will need to accept the loan and review final disclosure documents and a self-certification form. Completing all these steps promptly will ensure the loan funds are sent to the college in a timely manner.

7. Know when to refuse or cancel a loan offer. If a student is offered more in federal student loans than is truly needed, or federal parent loans that are unwanted, some or all of the funds may be declined. The student should follow instructions in the offer notification or financial aid portal to decline a full or partial offer; the college financial aid office can also assist.

A private loan offer can be refused after approval if the interest rate offered isn't suitable. If circumstances change after a loan has been accepted but before the funds have been sent to the college, the loan amount may often be canceled or reduced without consequences.

Learn more about the private education loans ISL Education Lending offers at www.IowaStudentLoan.org.