Student loan experts and borrowers usually agree that federal loans are the best student loan option available. However, while there are many advantages to federal loans, they are not without their warts.

For this review, we will assume that a student has determined that borrowing money is essential. Before selecting any student loan, the first step is to determine if any student loan is necessary.

Federal Student Loan Basics

To get federal student loans, borrowers need to fill out the FAFSA. Unlike private loans with a strict credit evaluation, qualifying for a federal loan is much easier. Additionally, there is no cap on income for federal loan borrowing. Financial need is only a factor in determining federal interest assistance.

Once approved for a loan, the funds are sent directly to the school’s financial aid office. If the borrower is getting the money to pay for housing, books, or food, the school’s financial aid office will normally issue a refund. The exact process varies from school to school.

Federal student loan borrowing limits depend upon the student’s education level. A college senior can borrower more than a freshman, and graduate students can usually borrow as much as they need. Additionally, independent students will have higher borrowing limits than dependants. Full details on student loan borrowing limits are available here.

Federal Student Loan Interest Rates

Congress sets the rates on federal student loans. Current interest rates are on the Department of Education’s Student Loan Page. Generally speaking, federal student loan rates are slightly higher than the best rates offered by those in the private sector. Graduate student loan interest rates will also be higher than undergraduate loan rates.

All federal student loan interest rates are fixed-rate loans. This means that the interest rate will not go up or down during the life of the loan.

However, each year interest rates on new loans are recalculated based upon market conditions. The loans borrowed in your first year of college may have a different interest rate than the loans borrowed in your third year.

Federal Student Loan Fees

One of the big downsides to federal student loans is the origination or disbursement fees. For all direct subsidized and unsubsidized loans, the fee is just over 1%. This means that if you borrow $5,000, your initial balance will be approximately $5,050. The fee for PLUS loans is much higher, currently starting at over 4%.

We hate to see fees associated with student loans. Any private lender would lose major points in a review due to fees of this nature. However, we still think borrowers should willingly accept these fees due the unique advantages that go with federal student loans.

Overview of the Federal Student Loan Advantages

There are two main advantages to having federal student loans instead of private loans.

The first advantage is that borrowers can select repayment plans based upon their income rather than how much they owe. Most borrowers can get their payments lowered to 10% of their monthly discretionary income. This perk is not offered by any private lender. If you finish school and cannot find work or lose your job at some point, you will not have to worry about defaulting on your student loans.

The income-driven repayment plans are a valuable protection for all borrowers. This is especially true considering the fact that each year about a million college students will drop out, many more will graduate, and be unable to find a job. Nobody heads off to college expecting to fail, but success is far from a certainty. The robust federal protections set themselves apart from all other student loans.

The second advantage is the student loan forgiveness programs. Borrowers on income-driven repayment plans can have their loans forgiven after 20 to 25 years of payments. While this is a long time to be paying an extra portion of your income to the government, it is a valuable resource to people who find themselves overwhelmed by student debt.  Additionally, borrowers who work in public service can have their loans forgiven after ten years. This allows graduates the opportunity to pursue jobs in the public interest without having to worry that they will not be able to pay off their student loans.

The benefits of fed loans go beyond the huge advantages of income-driven repayment and forgiveness. Federal loans have the most borrower-friendly terms. These terms include protections for borrowers who become disabled. The federal government has also offered excellent relief to borrowers during the Coronavirus pandemic. Private student loan lenders usually are not as borrower-friendly.

Federal Student Loan Disadvantages

Even though we do think the federal student loans are by far the best option, there are a couple significant downsides that all borrowers should understand before they sign up.

Problem number one is our elected representatives. Repayment plans, forgiveness programs, and borrower options are all at the mercy of Congress and the President. In just the past couple of years, we have seen a new repayment plan created and seen forgiveness programs called into question. If you borrow federal loans, you are at the mercy of the federal government and any changes they wish to make to the program. However, there are protections in place to ensure that programs like Public Service Loan Forgiveness will not be eliminated.

Problem number two is the companies hired to service these loans. Government contracts normally go to the lowest bidder, and the quality of service that borrowers get often leaves much to be desired. Getting answers to simple questions or having payments properly processed can be a real challenge. In addition to the headaches that these servicers can cause, their incompetence can often result in late fees and other charges.

The combination of a moving target and poor loan servicing can make things difficult for borrowers. The recent issues with the public service loan forgiveness program illustrate the point.

Federal Student Loan Review Final Thoughts

Even though there are genuine concerns with Federal student loans, they are unquestionably the best option for student loan borrowing, especially at the undergraduate level. The borrower protections are so strong that they outweigh the many problems.

For this reason, we suggest that students opt for federal loans, borrow the absolute minimum necessary, and expect a few headaches along the way.

Next Steps

• Complete the FAFSA – The only way to get federal student loans is to submit a FAFSA application.
• Don’t forget school requirements – Many schools have an additional financial aid form that must be completed. The exact requirements depend upon the school attended.
• Don’t borrow too much – Figuring how much a student can afford to repay isn’t an exact science. However, there is a simple approach that students can use to make sure they can afford their debt.

The post Federal Student Loans Review – The Pros and the Cons of Federal Loans appeared first on The Student Loan Sherpa.

Juno doesn’t fund student loans. Instead, they pool borrowers together in order to negotiate a group discount on student loans and student loan refinancing.

As a company new to the student loan space, it is a bit too early to review Juno’s borrower feedback or provide any data on borrower success rates.

However, due to the innovative structure of the Juno process, we can review the different ways that Juno might help borrowers as well as pitfalls that borrowers should avoid.

How Does Juno Work?

Juno combines borrowers together to negotiate lower interest rates.

Typically, most student loan lending is done on an individualized basis. Lenders market to borrowers, borrowers apply, and lenders offer terms to that specific borrower.

With Juno, things work a bit differently. Juno first collects applicant information to put together a collection of potential borrowers. Juno uses this large block of borrowers to negotiate a group discount with lenders.

In this process, everybody gets something out of the deal. Borrowers potentially get lower interest rates. Lenders get access to a large block of customers without having to do any advertising and Juno gets a commission on the deal.

The nice part about the process for borrowers is that they can check rates with Juno without being committed to using the lender selected by Juno.

The Advantage to the Group Strategy

A group strategy for student loan borrowing and student loan refinancing works like most other bulk discounts. If a company can make an extremely large sale, it can offer a better deal. This is why 24 rolls of toilet paper cost less per roll than the pack of four.

We have seen this group strategy work in the student loan space for some professional organizations. If a lender wants to market directly to members of a professional association or large company, they might approach the leadership with a special discount or deal for members.

Those of us who are not members of select organizations with access to group discounts have previously been forced to find the best deal on an individual basis. Juno allows borrowers who previously had no connection to come together as a group to get the best deal.

The Potential Flaw in the Juno Process

Depending upon where Juno is in their negotiations, potential borrowers may have to wait weeks or even months while lenders are engaged in the bidding process.

We reached out to Juno to discuss this potential lag issue. They explained that student loan deals were now live and that they expected these deals to remain in place through Spring 2021, but they could not guarantee that there wouldn’t be any changes. They also said that borrowers would get plenty of time to utilize their deals before tuition due dates.

On the one hand, the negotiation aspect of Juno is the whole reason for its existence. Taking the time to get the best possible deal for borrowers is an essential part of the process. On the other hand, many borrowers have come to expect an instant, or relatively quick, response from lenders when they apply.

Depending upon where Juno is in the bidding process, some applicants may have to wait a while before getting an answer. Many other applicants should still get a fast response.

Reviewing Juno vs. Federal Student Loans

One area where Juno has been a bit inconsistent in their messaging is on the subject of federal student loans.

On the page of their website for undergraduate student loans, Juno provides the following warning:

“Consider Federal Student Loans before Private Student Loans 

Please be aware the Federal Stafford loans are typically your first best option for undergraduate student loans. Only consider our negotiated deal if you need to borrow more than Federal lending limits. If you aren’t sure whether you hit those limits, ask your financial aid advisor.”

This warning is sound advice that should be followed by all borrowers. We like seeing Juno provide this valuable information, even though it might mean less business for them.

Unfortunately, in several locations of their website, they point out that federal student loans have origination fees that borrowers may want to avoid and that federal loans may have higher interest rates than private loans.

They even provide a form letter for declining federal loans in order to get a private loan. We would rather see Juno focusing on supplementing federal loans rather than replacing federal loans.

Deciding Between Federal and Private Loans: It is the opinion of this reviewer that almost all student loan borrowers should use all federal loans available before even considering a private loan. Due to student loan borrowing limits, undergraduate borrowers may need a private loan to help pay for school, but graduate students shouldn’t require any private loans.

Over the years, we have seen many private lenders make the argument that a private loan is a better option due to the potential for lower interest rates and the lack of origination fees. For the vast majority of borrowers, the federal protections, such as repayment plans based upon income and loan forgiveness programs, make federal loans the better choice.

The Juno Mistake Borrowers Should Avoid

Juno is an excellent tool for borrowers who are out to find the lowest possible interest rate.

However, this review of Juno finds that Juno shouldn’t be the only tool utilized.

Even if Juno can secure a large discount, it doesn’t necessarily mean that the negotiated deal will be the best option.

Each student loan company uses its own unique formula for determining the rates offered. Some lenders might place a higher emphasis on credit score, while other lenders might place a larger emphasis on debt-to-income ratios.

These formulas are tightly guarded secrets. Thus, here is no way of knowing which lender will offer the best rate to any particular borrower. It is for this reason that we encourage all borrowers to shop around before selecting a lender.

For some borrowers, the Juno discount may not be enough to overcome the higher rate offered by that particular lender. As a result, shopping around is still a necessary step in finding the best possible deal.

Juno Review: Final Thoughts

Borrowers looking to refinance their student loans should seriously consider Juno as one of the many companies they investigate. As part of a strategy to shop around to find the best rate, Juno is definitely worth a look and could potentially save borrowers a bundle.

For undergraduate and graduate students looking for new loans, federal options are going to be the better choice for the overwhelming majority of students for the reasons previously explained. Graduate students shouldn’t need to get any private loans, and undergraduate students should only consider private lenders to the extent they have maxed out their federal options.

Ultimately, Juno is worth a close look for student loan refinancing and only useful for the portion of students who are still in school who can’t get additional federal loans.

To check rates with Juno, Click Here.

The post Juno Student Loans and Student Loan Refinancing Review appeared first on The Student Loan Sherpa.

Given the amount of press that Sallie Mae receives, and the many controversies involving Sallie Mae, it is important for any potential borrower to get all the facts, good and bad, before making the decision on a Sallie Mae loan.

Sallie Mae Private Student Loan Basics

Sallie Mae offers both variable-rate and fixed-rate student loans. The interest rates on the low end are excellent, but the interest rates on the high-end are awful.

Like most private loan lenders, you are able to borrow up to 100% of your school’s estimated cost of attendance. This number includes estimates for books, transportation, housing, etc.

Sallie Mae’s repayment terms are fairly standard, and there is no prepayment penalty, which means there is no harm in paying off your loans as soon as you can.

One area where Sallie Mae differs from other lenders is repayment length. Most lenders allow borrowers to pick a 5, 10, or 15-year repayment plan. Sallie Mae loans have 10 to 15 years of repayment, but the exact length is determined during the loan application process.

Smart Option Benefits

The interest rates offered by Sallie Mae are fairly competitive, and a 12-month co-signer release is one of the shortest on the market. The zero-percent loan origination fee is also something that every borrower should expect.

We also like to see that there are multiple payment plans for students still in school. Making payments during this time is a great idea because it is important for the borrower to have an understanding of how much debt they are in and it prevents the interest from compounding on your loan. Borrowers have the option of making no payment, paying $25 per month, or paying the interest that accumulates each month.

One area where Sallie Mae should get some credit is their approval rate. Getting a loan with Sallie Mae is usually easier than with other lenders. Borrowers just need to make sure the loan interest rate is reasonable.

Sallie Mae Private Loan Issues

For starters, Sallie Mae’s private loans suffer from the same disadvantages that apply to all private lenders.

Even though the government loans may have a higher interest rate, Federal government loans are still a better alternative for most students, largely because the Federal loans have the most forgiving repayment plans. Therefore, students should first maximize FAFSA funds prior to selecting any private loan.

Borrowers should also be very careful about getting co-signers involved with their student loans. Sallie Mae claims that 88% of their borrowers have co-signers.

Sallie Mae recently took some heat from the government and in the press for the practice of auto-defaults. In cases where the co-signer dies or declares bankruptcy, Sallie Mae has the ability to automatically place the loan in default status. Sallie Mae does claim to have a cosigner release policy, but we have found these policies to not be of much use in real life. This is because lenders like Sallie Mae require the borrower to be independently creditworthy in addition to other requirements at the time of the cosigner release application. Because Sallie Mae has no incentive to actually release the cosigner from the loan, many are denied. We suggest that borrowers and cosigners never plan on a release. If they do want a release, this guide should help get it done with relative ease.

A final persistent issue with Sallie Mae has always been their customer service. We used the “chat with an expert” link on their page to ask a couple of questions and found the “expert” to not be very helpful. Instead of being provided with the repayment length answers requested, the expert kept sending requests to complete an application.

A good rule of thumb for borrowers to keep in mind is that customer service is normally at its best when a company is trying to win your business. Once you are stuck with a lender, things can go downhill. Sallie Mae seems to struggle even at the initial phase of the process when things should be easy.

Sallie Mae Student Loan: Final Review

If you are going to take out a private loan, make sure you get all the facts.  

Before agreeing to any terms and conditions, take the time to read them. It may all seem like useless legal jargon, but it makes a big difference and the terms vary from company to company.

Sallie Mae makes loans that are easy to get and they loan money to lots of people. They have helped many students pay for college, but they’ve also angered plenty along the way. Reading the fine print can help avoid unwanted surprises and ensure a positive experience.

Rather than checking your rate directly with Sallie Mae, we suggest checking rates using the Credible Platform. This allows borrowers to shop around by checking their rates with Sallie Mae and six other lenders.

The post Sallie Mae Smart Option Private Student Loan Review appeared first on The Student Loan Sherpa.

Citizens Bank has created an appealing student loan option for many undergraduate borrowers. The interest rates are low and Citizens has a unique program that makes it an excellent option for many borrowers just starting school.

That being said, Citizens Bank Student loans do come with some concerns, and we find the advertising materials to be a bit misleading in a couple places.

Citizens Bank Student Loan Basics

Citizens Student Loans
Loan Types Offered:	Fixed and Variable
Best Variable Rate:	1.16%
Best Fixed Rate:	4.18%
Repayment Length Options:	5, 10, and 15 Years
Offers Loans Directly to Parents	Yes

As the table above shows, the interest rates with Citizens One start out fairly low. Unfortunately, these low rates are only available to borrowers with excellent credit or a cosigner.

Another major limitation is that the best rates are only available for borrowers who choose the 5-year repayment length and start repayment during school. Opting to begin repayment after graduation or picking a longer repayment length will result in higher interest rates.

Like most private lenders, Citizens places an emphasis on having a cosigner due to the fact that most students have little or no credit history.

Finally, Citizens does not charge a fee for applications or loan origination.

Citizens Bank Advantages

Advertised interest rates with Citizens are among the best in the market. Having the best-advertised rates doesn’t necessarily mean that Citizens will be the lender that actually offers the best rate, but it does mean that Citizens is worthy of borrower consideration.

Citizens Bank also advertises that they are the only lender with a multi-year approval program. The theory behind a multi-year approval is excellent. Borrowers can secure funding not just for the coming school year, but for future school years as well. The idea is to help students avoid the nightmare scenario of being one semester short of graduation and no longer able to secure funding for school. According to Citizens, last year 64% of their borrowers took advantage of the multi-year approval.

Unfortunately, there are some concerns with the multi-year approval.

Disadvantages of the Citizens Bank Student Loan

Locking down funding for future years sounds like an excellent idea, but the fine print with Citizens makes it clear that the future funds are not exactly “locked” down.

For starters, there is still a soft credit pull before each year. Citizens is correct that it is better than a traditional hard credit inquiry for credit scores, but if this was truly a multi-year approval, additional credit checks shouldn’t be required. Citizens makes it clear that the soft credit check is necessary to “verify continued eligibility.” This means that future negative credit reporting could jeopardize the funds that were previously approved.

The fine print on the multi-year approval states that: “After we make the initial loan to you, we may refuse to allow you to take out additional loans under the multi-year approval feature.”

Ultimately, our view of the multi-year approval is that it sounds nice in theory, it might help out some borrowers, but it isn’t the game-changer it first appears to be.

We also don’t like that Citizens suggests that their loans are a better alternative than federal government loans such as a Graduate PLUS loan. The problem with all private loans, including the Citizens One loan, is that these loans lack federal protections such as income-driven repayment plans and student loan forgiveness. Our view on private student loans is that they should supplement federal borrowing… not replace it.

No student is guaranteed to graduate and no student is guaranteed a job at graduation. Because of future income uncertainty, students should seek out federal protections when possible.

Citizens Bank Final Review

The Citizens Bank Student Loan is one of the better private student loan options available. No private lender will be able to compete with the federal government loan terms, but for borrowers who have maxed out their federal loans, Citizens is a solid option.

We applaud Citizens for the innovation of the multi-year approval, but wish borrowers had more assurances regarding future funding availability.

Borrowers looking for a private student would be wise to check their rates with Citizens.

However, checking with one lender is never enough to find the best possible rates. Borrowers may want to consider a tool like Credible, where they can check rates with Citizens at the same time as other larger lenders such as Sallie Mae, College Ave, and Discover.

The post Citizens Bank Student Loan Review: Low Rates but Some Concerns appeared first on The Student Loan Sherpa.