The Ultimate Guide to Student Loans

Student loans are confusing. There is so much competing, incorrect, and opaque language out there about student loans and what they are, so we’ve decided to make this guide to help. It may not answer all your questions, but it should answer most of them! This guide is organized by degree type, so you’ll see information for Undergraduate, Graduate, Graduate (MBA), and Graduate (Law, Medical School). We’ll also include tips for what to do with your student loans after you’ve graduated.

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

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

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

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

  • Direct Subsidized Loan (aka Stafford Loans): For eligible undergraduates who demonstrate financial need. Usually the cheapest option available for undergraduate students. The interest you owe doesn’t begin accruing until 6 months after graduation, which is also how long you have before you need to start paying back the loan (known as the grace period). 

  • Direct Unsubsidized Loan (aka Stafford Loans): For eligible undergraduates and graduate students but eligibility is not based on financial need. You also have a 6 month grace period but interest begins accruing immediately after these loans are disbursed.

  • Direct PLUS Loan: For grad students, professional students, and parents of dependent undergrads. Eligibility is not based on financial need, but a credit check is required. Interest rates may be higher on these loans, but you are able to borrow the entire cost of attendance. 

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

Here’s a side-by-side comparison: 
DIFFERENT LOANS WHAT THEY MEAN  Stafford Loans: Direct loans to students from the government Unsubsidized Stafford Subsidized Stafford Loans Loans  • 6 month grace period from making payments after graduation • Begin accruing interest immediately  • No requirement to demonstrate financial need  • Undergraduate AND graduate students are eligible  • 6 month grace period from making payments after graduation • Government pays interest until 6 months after graduation  • Must demonstrate financial need  • Graduate students are not eligible  Parent PLUS Loans:  • Taken out by a legal guardian for their undergraduate  • Interest is higher than Stafford loans  • May borrow the entire amount that the student needs for their educational expenses  • No requirement to demonstrate financial need  Private Loans:  • 3rd party loan, not connected to the government  • Interest can be lower than PLUS and grad student loans  • Income and credit qualifications are often stricter  • Do not include financial hardship guarantees or forgiveness opportunities

Here some basic pros and cons between the two:
  Federal Loans Private Loans  • Easier to get • Provides some "insurance" like Income Driven Repayment Programs and Public Service Loan Forgiveness in case you have a low paying job later  • Potentially higher interest rate • You may never qualify for federal loan protections and end up paying significantly more money over the life of your loan   • Potentially lower interest rate which often results in lower monthly interest rates and lower total money paid over the life of the loan • Especially advantageous for those in higher paying jobs that will likely not benefit from federal protections  • Fewer protections than federal loan, no loan forgiveness • Not everyone can qualify — it depends on your credit score and financial situation

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

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

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

  • Fixed-Rate: As the example above shows, a fixed rate will stay the same throughout the entire life of your loan. 

  • Variable Rate: A variable-rate is when an interest rate fluctuates through the repayment process. These interest rates rise and fall with something called LIBOR, which “serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks.”

A quick note: Federal loans only offer fixed rates while private lenders usually offer both. Variable rates for private loans are usually lower than fixed rates, but they can go up and down over time.

A quick note: As you may have heard, student loan interest rates are at historic lows, and there is a payment holiday in effect for federally held student loans. Federal loans will have 0% interest accruing and no payment collections until September 30th, 2021. While this holiday doesn’t apply to private loans, private lenders are offering lower interest rates as well.   
 
Rate Discount: Many lenders offer specific discounts to stated rates. 
  • Auto-pay discounts: typically a 0.25% rate reduction offered if you connect your bank account to your loan servicer
  • Relationship discounts: Some banks will offer up to a 0.5% rate discount if you open a bank account in addition to taking out a loan
  • Member discounts: Juno negotiates exclusive rate discounts (currently 1% for our undergraduate deal)

Fees: Applying for loans can come with fees. Here are a few common ones you may run into.  
  • Origination Fee: A fee charged by a lender when you first take out a loan. The federal government is charging a 4.228% origination fee for Parent PLUS loans this year. Juno’s partner for undergraduate families has no origination fee. That might mean the difference between several thousand dollars depending on the amount you borrow.
  • Prepayment Penalty: A fee if you pay back your loan ahead of the predetermined schedule. When you graduate, you become a lower credit risk and may be able to refinance your loans at a lower cost. Make sure your loan has no prepayment penalty, so you can refinance with ease. Very few lenders use this. Avoid it whenever possible.
  • Application Fee: There are pretty rare. Federal loan applications don’t have application fees, and most private lenders don’t either. If you come across a private lender with an application fee, it’s a red flag, so look closely at your loan terms. 

The Basics of Paying for School: 

Your COA (Cost of Attendance) is estimated by universities using these factors: 
  • Tuition + Mandatory fees for course materials
  • Room & Board
  • Health Insurance
  • Personal Expenses

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

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

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

 A few tips when asking for more aid: 
  • Be selective about asking. Make sure you really want to go to that program.
  • It usually helps if you’ve gotten into more than one school and can credibly tell one school that you’d choose it if you had more aid.
  • You’ve already been accepted. They won’t change their minds because you ask for some help politely. So make sure to ask.

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



Undergraduate: 

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

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

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

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

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

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

  • Do I have Private Loans | Yes ☐No ☐
  • Do I have Federal Loans | Yes ☐No ☐
  • Do I know when my Private Loan Grace Period Ends | Yes ☐No ☐
  • Do I know when my Federal Loan Grace Period Ends | Yes ☐No ☐
  • Do I know my Private Loan(s) interest rate(s) | Yes ☐No ☐
  • Do I know my Federal Loan(s) interest rate(s) | Yes ☐No ☐
  • Do I know where my Private Loan(s) are held | Yes ☐No ☐
  • Do I know where my Federal Loan(s) are held | Yes ☐No ☐

Graduate: 

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

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

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

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

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

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

  • Do I know the total amount of loans I took out in undergrad? | Yes ☐No ☐
  • Do I know which loans Federal Loans are in deferment?  | Yes ☐No ☐
  • Do I have Private Loans | Yes ☐No ☐
  • Do I have Federal Loans | Yes ☐No ☐
  • Do I know when my Private Loan Grace Period Ends | Yes ☐No ☐
  • Do I know when my Federal Loan Grace Period Ends | Yes ☐No ☐
  • Do I know my Private Loan(s) interest rate(s) | Yes ☐No ☐
  • Do I know my Federal Loan(s) interest rate(s) | Yes ☐No ☐
  • Do I know where my Private Loan(s) are held | Yes ☐No ☐
  • Do I know where my Federal Loan(s) are held | Yes ☐No ☐

Graduate - MBA

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

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

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

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

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

Graduate - Law, Medical 

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

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

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

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

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

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

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

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

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



Juno Team
Written By
Juno Team

Juno came into existence to help students save money on student loans and other financial products through group buying power by negotiating with lenders. The Juno Team has worked with 50,000 students and families to help them save money.