How to Choose the Best Undergrad Student Loan for You

There are about 17.5 million undergraduate students currently enrolled in colleges and universities in the United States. For many of these individuals, their attendance depends specifically upon their ability to get financial aid. If you’re in this boat too, here’s how to choose the best undergrad student loan for your situation.

What Are Your Federal Student Loan Options?

Many prospective undergraduate students begin their searches for loans with the federal government. There are a few reasons this makes sense for most borrowers.

Let’s start by outlining the three main types of loans available to undergraduate students:

  • Direct Subsidized Loans – An option for undergraduates only, these are some of the best available loans for those who show they need help covering costs for school. As the name suggests, these loans are subsidized—meaning the government is helping young scholars by making their schooling more affordable.
  • Direct Unsubsidized Loans – These function in much the same way as Direct Subsidized loans, but are for all undergraduate students—not only those who show they have financial need. For both types of Direct loans, undergraduates will pay a fixed interest rate of 3.73%, which is generally quite a good rate. They also come with a loan origination fee of a hair over 1%.
  • Parent PLUS Loans – Not everyone will have their university financing requirements fulfilled by the previous two types of undergraduate loans. Those who still require more funding can look at Parent PLUS loans—though, these are generally not considered a great option unless absolutely necessary. The interest rate is higher—around 6.2%, while also carrying a much higher origination fee of over 4.2%. Further, Parent PLUS loans aren’t eligible for all the same repayment benefits of other undergraduate student loans. It’s also easy to accidentally overborrow with Direct PLUS loans, since there are pretty lax credit requirements and you can borrow however much is necessary to pay for school when you’ve already exhausted other federal options.

While there are certainly some positives to choosing federal options for undergraduate student loans, it’s a mistake to assume these will be your best options. There are actually some situations where seeking out private undergraduate student loans might work out better for you.

When Are Private Undergraduate Loans a Better Choice?

While most undergraduates are going to be best off maxing out their ability to borrow through Stafford loans (Direct Subsidized and Unsubsidized), many will find they’re better off going to private lenders versus getting a Parent PLUS loan.

As already mentioned, Parent PLUS loans come with fairly high interest rates, and don’t even carry many of the other benefits of federal loans. Since their terms aren’t super attractive, private lenders can step in to fill the place of Parent PLUS loans.

One benefit you’ll get from many private loans is the fact that many don’t come with origination fees. This is a built-in feature when you work with a company like Juno. Undergraduates looking for an alternative to Parent PLUS loans should seriously consider taking advantage of their services. Instead of lending you money directly, they negotiate with a huge pool of lenders to pick out the very best loan offers for their member base. There are real-life stories of students garnering substantial savings on their loans by taking this route instead of going with Parent PLUS loans from the government.

It’s important to keep an eye on fixed versus variable rates when looking at private student loans for undergraduates. Many private lenders prefer variable rates, whereas all loans from the federal government come with a fixed rate. The difference here is variable rates can go up or down over time based on market conditions, while fixed rates won’t change. Make sure you understand how fixed and variable rates can affect your ability to repay a loan.

Overall, there are many funding options for undergraduate student loans. While finding the best private loans can be a challenge when going alone, utilizing the right resources can help you get great terms.

Article by Born Realist