Student Loans - Comparing Options
The Washington State Department of Financial Institutions (DFI) believes that with the right tools and support, all students in Washington State can go to college.
We prepared this resource to point you in the right direction and provide you with resources as you consider and compare education loan options.
Plan Ahead: Research Your Career Field
Before you compare your loan options, financial experts recommend doing your homework on the expected career opportunities of a chosen major and limit your graduating student debt to not exceed your expected first year salary.
Michelle Singletary, financial columnist, cautions that "A college education is not an investment in your future if you are taking out loans just for the college experience. It’s not an investment if you’re not coupling your education with training. It’s not an investment if you aren’t researching which fields are creating good-paying jobs now and 30 years from now."
Two reports by the Georgetown Center on Education and the Workforce can help you get started with researching your field:
- Hardtimes: College Majors, Unemployment and Earnings: Not All College Degrees Are Created Equal
- Help Wanted: Projections of Jobs and Education Requirements Through 2018
Budgeting and Financing College
Once you have been accepted by a college or university, you will want to start budgeting for your expenses and explore financing options if necessary.
Some Financing Options
Most students will receive a financial aid award letter from their college. This letter may set forth a number of options for financing their college education including:
- Grants - which do not have to be paid back
- Work study - Earning money while enrolled in school to help cover educational expenses
- Federal Loans
- Private Loans
Financing Options for Washington Residents
For more information on Washington-specific assistance and financing options, visit the Higher Education Coordinating Board www.hecb.wa.gov, phone 888-535-0747 or 360-753-7800.
Free Introduction to Personal Finances Publication for College Students
DFI's Right on the Money is an informative booklet that introduces college students to personal finance and budgeting.
Federally Guaranteed Loans
It is generally a good idea to exhaust federally guaranteed loans, such as Stafford and PLUS, before seeking private student loans.
The federal government sets the maximum interest rates on federally guaranteed loans. It is important to note that some lenders will discount the rate the federal government sets. Look for rate discounts, waiver of loan fees, reduction in loan principal, or other benefits that cannot be taken away.
Applying for Federal Loans
The key to applying for federal student aid is completing the Free Application for Federal Student Aid (FAFSA).
This application may also qualify students for grants, work study, and other forms of student aid.
Complete federal student aid information is available at www.studentaid.ed.gov.
Private Student Loans
Due to the rising costs of college, students may also need to consider additional loans. It is important that you shop around for the best deal.
About Private Loans
Private or alternative loans have terms set by the individual lender, not the government, and the rates are based on a borrower's credit history. These loans are generally more expensive than federal loans and include fees. Fees can significantly increase the cost of the loan.
Private Student Loan Shopping Tips
Look for a loan with a relatively low interest rate and low fees. A creditworthy cosigner will help lower the rate a student is charged.
Be careful when comparing loans with different repayment terms according to the annual percentage rate (APR). A longer loan term reduces the APR despite increasing the total amount of interest paid. Also note that it is not uncommon for lenders to advertise a lower rate for the in-school and grace period, with a higher rate in effect when the loan enters repayment. Online financial calculators are important tools to use to generate meaningful comparisons of different loan programs.
Choosing a Lender
Federal law gives you the right to pick the lender of your choice. Some schools have "preferred lender" lists, but these lenders are merely a recommendation and students and their parents remain free to pick their own lender.
If your school has a preferred lender list, it is important to understand that different schools use different criteria to determine which lenders should be placed on their preferred lists, and these lenders may not always offer the best rates or terms available. Thus, lenders on a particular school's preferred list may or may not be the best choice for you.
Determine how lenders get placed on the list and how important these factors are to your determination of the best loan for you. Competitive rates and a proven track record of working with your school are important considerations. If the lender you choose does not have a proven track record of working with your school, make sure the school is aware of the lender you plan to use as soon as possible to avoid delays in processing.
- Get the best rates. Shop around to make sure you are getting the best deal. Important things to keep in mind include interest rates (whether they are fixed or variable and how they are calculated), any additional fees, and the lender’s deferment or forbearance policies. There are some websites, including www.finaid.org, which compare private lenders. But these sites often have financial ties to lenders who sponsor them or advertise on them. You should still contact lenders individually to learn about their loan terms and make your own decision about whether their loan is right for you.
- Be wary of promises to lower your interest rate. Some lenders may offer an interest rate reduction to students if they make their first 24 or 36 monthly payments on time. However, most lenders also know that this is a difficult requirement for borrowers to meet. Even if you make your first 22 payments on time, if the 23rd payment is late, even by a day, the reduced rate likely will not become effective. Also, be sure the interest rate reduction will transfer if your loan is sold to another lender. Get all the facts before you make a decision based on this promise.
- Read all documents carefully before signing! This is true of any contract or document you sign. Before you sign, make sure the loan agreement matches any advertised rates the lender promised. If it differs, ask the lender about the difference BEFORE you sign.
- Keep copies of all paperwork. This is important because often payments on student loans begin after students graduate from school, and this can be several years away. If you keep all of your loan documents, you will know exactly what the terms of your loan are and you can ensure the lender complies with those terms.
A free, student-centered, online clearinghouse for Washington students seeking college scholarships. This user-friendly site allows students to search and apply for verified scholarship opportunities that are specific to their academic interests, college, university, or other criteria. The HECB is the customer service provider for theWashBoard.org.
Financial Aid and Scholarship Wizard - US Department of Education
Financial aid and scholarship wizard lets you plan, in eight steps, your entire financial aid packages online for all of the schools that you are considering. Results will include deadlines for filing financial aid applications for the colleges you select, as well as information about scholarship searches, estimated family contribution and federal aid. The Wizard also includes a tool to help you interpret and analyze your financial aid award letters.
SallieMae - Scholarship Search
Features over 600,000 scholarships, grants, tuition waivers, internships and fellowships.
Avoid Scholarship Scams
Valuable information from the Federal Trade Commission to help you avoid fraud.
College Board Scholarship Search
Locate scholarship and other information that matches your educational level, talents, and background.
GEAR Up - Middle and High School Students
A terrific resource for Middle School and High School students and your families to jump start your plan for higher education.
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