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Ever taken out or refinanced your student loans? You probably know the interest rate of your loan, and may have seen the letters APR on your statement. (APR stands for Annual Percentage Rate.) Understanding the difference between the interest rate and the APR is important. While they both measure the cost of borrowing money, they are not the same. Knowing the difference could save you thousands of dollars on your student loans.

What is the difference between the student loan interest rate and the APR?

The interest rate on a student loan is the cost to borrow money. It is shown as a percentage. Your interest rate does not reflect any fees or other charges you may pay for the loan. The APR goes a step further. It takes the interest rate on a student loan and adds in any upfront costs, such as an origination fee. The APR is also a percentage, but it measures the total cost of borrowing money on an annual basis.

By law, private student loan issuers must show customers the APR. The law requires this to facilitate a clear understanding of the actual interest rates and fees applicable to their agreements. In the U.S., the calculation and disclosure of APR is governed by the Truth in Lending Act.

Tip: While U-fi From Nelnet and many private student loan lenders do not charge an origination fee, some lenders do. Be sure to carefully read the loan terms before applying for and accepting a loan.

Why is it important to know the APR if I know the student loan interest rate?

As mentioned above, the APR gives a more complete picture of the cost of borrowing. For student loans and student loan refinancing, if the lender doesn’t charge an origination fee and you immediately begin making full principal and interest payments, the interest rate and the APR will likely be the same. However, if the lender charges an origination fee or you defer making principal and/or interest payments while you are in school, your APR will not likely be the same as your interest rate. By looking at both the interest rate and the APR, you will be able to get a clearer picture of your expected monthly payment and the total cost of the loan.

Does the interest rate and APR tell the complete story?

Interest rates and the APRs are useful tools to help understand the cost of borrowing and to compare different loans. But, they don’t always tell the complete story. For instance, federal Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans come with an origination fee, but the fee is deducted from the loan disbursements, so the origination fee is not included in the APR. Thus, if you took out a $10,000 federal Direct PLUS Loan with its 4.272% origination fee, you would only receive $9,572.80, but you would have to pay back the entire $10,000, plus any accrued interest on the loan.

Also, the stated APR may or may not include any borrower benefits associated with the loan, such as an interest rate reduction for auto debit payments or cash back rewards for good grades. Some federal student loans also come with loan forgiveness programs, so be sure to take all these into account when comparing loan offers.

Tip: The interest rate and the APR for a variable rate student loan reflects the interest rate and costs at the time you take out the loan. If interest rates change, the APR changes as well.

Knowing the difference between APR and interest rate helps you make an informed decision when taking out student loans.

You’ve probably heard the term cosigner. But, do you know what it means, how it can help you, or what qualities make a good one? If you find your federal funds aren’t enough to cover the cost of college, consider applying for private student loans. Applying with a cosigner can help you qualify for a private student loan. It can be difficult for student borrowers to meet the criteria and income requirements by themselves. Learn if a cosigner is right for you.

What is a cosigner?

A cosigner is a person who signs for a loan with a borrower. If the borrower misses payments or defaults on the loan, the cosigner takes responsibility for payments and the remaining balance. Since both the borrower and cosigner have equal obligations, missed payments and default affect both their credit.

How does having a cosigner help me?

Including a cosigner on a loan decreases the risk for the lender. That’s because the lender has another person obligated to repay the loan if the borrower defaults. Cosigners allow the lender to take on less risk. Less risk increases the borrower’s chances of getting approved for the loan. It may also lead to better loan terms. These include lower interest rate or shorter repayment length. Both could save considerable money over the life of the loan.

Even if you qualify for a loan without a cosigner, the loan terms are generally not as favorable. However, wanting a cosigner to improve your loan terms and needing one for approval are two different circumstances. You may need a cosigner if you have no income or too little income, have no established credit or poor credit, your debt-to-income ratio is too high, or if you are either unemployed or recently changed jobs and don’t have an employment history. If any of these scenarios apply to you, you should consider applying with a cosigner to qualify for the loan. Applying with a cosigner gives you time to fix any of the above issues. It can also mean you can take out future loans on your own.

Who should I ask to cosign?

The most difficult part of choosing a cosigner is finding someone who is willing to sign on a loan with you and also has strong credit. Typically borrowers will turn to spouses, parents, or close friends to cosign. No matter who you choose, be sure your cosigner is financially stable. Other traits to look for in a credit-worthy cosigner include having a good job with a solid employment history and/or owning a home or other assets.

Asking someone to cosign on a loan with you is a big commitment, so make sure you are prepared. Tell your potential cosigner the reason you are asking them to cosign, your intentions to pay the loan back, and communicate to them that you can afford the payments. You can also ask your lender if there is a cosigner release option. Some loans will allow you to request that your cosigner be removed from the loan after a period of time if you meet certain requirements. Being prepared to answer any questions your potential cosigner has will show that you are serious about taking on the financial responsibilities of a loan.

Cosigning is a big commitment for both the borrower and the cosigner and should not be taken lightly. Make sure both you and your cosigner understand all terms and are clear on the responsibilities of the loan prior to signing.

Financial aid is awarded in many forms, and as a student, it is important to know all of your options before deciding which awards to accept. You’ll want to compare the aid and calculate the remaining costs of all the schools you are considering. Eligible students may receive an award letter or a financial aid package.

The Financial Aid Process

Submitting your Free Application for Federal Student Aid (FAFSA) is an important first step to ensure your financial aid eligibility is considered. Your program must first accept you for admission, you must complete your FAFSA, and submit any other information your school requires. To be in the best position, complete all steps on or before each school’s published deadlines. When schools receive your FAFSA information, they calculate your family’s Estimated Financial Contribution (EFC). Your family’s actual financial contribution and the composition of your award letter may differ among schools. Your EFC is deducted from the total Cost of Attendance (COA) to determine your financial need. If you are eligible for financial aid, your award letter will contain all of the aid programs you are eligible to receive, the steps you need to take, and the deadlines for responding to the award letter.

Note: Although you will see your EFC on the Student Aid Report you received after filing the FAFSA, it is probably not the amount you and your family will actually pay for college. For more information, review the article I Submitted My FAFSA – Is the Expected Family Contribution What I Have to Pay for College? When you review your award letter, read all information, understand each program, and know your obligations to ensure you receive the funds. You will need to select the awards you would like to accept and respond to your award letter by the date indicated.

Types of Financial Aid

There are several different types of financial aid including grants, scholarships, federal work-study, and loans. The terms of each type of aid vary, so it is important to understand the differences.

Grants are typically based on financial need and do not need to be repaid. They may include funds from federal, state, and institutional sources. Programs apply grants to your college bill.

Scholarships are based on academics or other performance criteria, financial need, or a combination of both and do not have to be repaid. Scholarships usually come from institutional or private sources who apply funds to your college bill.

Federal work-study may be listed on your award letter, but in order to receive the funds, you must obtain a qualifying job and work to earn this type of financial aid from federal and institutional sources. Your financial aid office will post eligible jobs that are open to qualifying students. Once you secure a job, you’ll receive paychecks throughout the year for your hours worked. Work study does not apply funds to your college bill.

Loans are funds you borrow now and pay back with interest after you finish or leave school. They may come from federal, institutional, or private sources. For most loans, you will be required to take additional steps to secure the funds. If you receive a loan, it is applied to your bill. Many loans also charge fees, which are deducted from your loan amount. Be sure to read all of the loan terms before you borrow.

Determining the Amount You Owe After Financial Aid

Remember, colleges bill you for some costs prior to the start of each semester. The bill typically includes tuition and fees plus room and board charges if you live on campus. You will also have additional expenses such as books, transportation, and personal expenses that will not be included in your bill. Schools factor in all of this criteria when determining your overall cost of education. Your award letter outlines the total for each type of expense.

To determine the amount you will pay at each school, first deduct your grants and scholarships, then loans (minus fees) from your estimated college bill. Your school evenly divides and credits most aid to each semester’s bill.

You will also need to consider the cost of books and supplies at the beginning each semester, and any personal and transportation expenses you may have throughout each semester. If you have financial aid left after your school applies funds to your bill, you can use it to help with these expenses. Obtaining a work-study job can also help with personal expenses. As a general rule, it’s best to have additional funds set aside to help with personal expenses as well.

To continue to receive aid, you will need to make satisfactory academic progress toward your degree. Scholarships may require that you achieve a certain grade point average or meet other performance criteria. Programs also include renewal information with your award letter.

Additional Funds to Help Cover College Costs

In addition to the financial aid listed above, there are alternate sources that can help cover the cost of college.

Private Scholarships

There are a number of private scholarships available, which you can search for with Peterson’s College Scholarship Search. Your guidance counselor can also be a great resource for private scholarship information. Private scholarships can help offset the amount you need to borrow.

Direct PLUS Loans

These are federal loans that some schools may include in an award letter. Direct PLUS Loans are subject to certain eligibility requirements. Typically graduate or professional degree students or parents of a dependent undergraduate student are eligible to receive these loans.

Private Loans

As an alternative, private loans can also assist with covering college expenses. Private student loans, sometimes known as alternative loans, are made by private lenders such as banks, credit unions, and financial institutions. Private student loans are based on credit and are most often used to fill the gap between the cost of attending college and family savings, grants, scholarships, and federal student loans.

Paying for school can feel like an overwhelming process. It’s crucial to meet all of your deadlines to be considered for eligibility. Mapping out your deadlines on a calendar can help keep these details organized. Make sure you consult the available resources and fully understand each step of the process to get the most out of financial aid.

While preparing for college, one of the most important considerations is how to pay for it. All students should complete the Free Application for Federal Student Aid (FAFSA) because it is used to determine students’ potential eligibility for various financial aid programs, as well as various state and institutional-based aid programs. All of this is based on a variety of factors, including your Expected Family Contribution.

Expected Family Contribution

When completing the FAFSA, you’ll need to provide certain information. You need to detail your (and possibly your parents’) income, family size, and number of family members attending college. The FAFSA uses all of the information you provide to determine a figure known as the Expected Family Contribution (EFC). Don’t be alarmed if your calculated EFC is high. Colleges use your EFC college financial aid offices to determine the amount of financial aid you are eligible to receive.

Cost of Attendance

Each college sets a figure known as the Cost of Attendance. Direct costs such as tuition, fees, books, as well as room and board make up the Cost of Attendance. It also includes other indirect costs such as transportation and other personal expenses. Colleges and universities have varying Costs of Attendance, but your EFC remains the same, regardless of where you go.

Determining Eligibility

Financial aid offices use the formula below to establish your financial need. This determines if you qualify for grants and other financial aid programs.

Cost of Attendance – Expected Family Contribution = Financial Need

The lower your EFC, the greater the likelihood that you’ll qualify for need-based financial aid.

Remember that your EFC stays the same no matter what school you attend. The name Expected Family Contribution might sound like you have to directly contribute or pay that amount. But, it’s just a part of the formula that determines your financial aid eligibility. There are other financial aid sources that can be used to fully fund your college education such as unsubsidized Direct LoansPLUS loans, private loans, and other aid programs not based on financial need. It’s best to exhaust all sources of grants and scholarships before borrowing for college. You can use a free search at Peterson’s to find available scholarship opportunities. You can also visit the U.S. Department of Education’s Federal Student Aid website to learn more about the EFC, FAFSA, and other financial aid programs.

When you’ve recently entered the workforce, balancing repaying student loans and a budget can be a challenge. This is especially true if you have a standard entry-level salary. As the cost of higher education continues to rise, it becomes increasingly difficult to manage high monthly loan payments. You also need to worry about everyday expenses like rent, car payments, utilities, and groceries. At times, it feels like you have to make a choice between repaying student loans and living your life.

No matter what some newspaper columnists might lead you to believe, defaulting on your loans is never a good idea. Instead, tap into that survival instinct you developed in the classroom. Get serious about repaying those student loans – the smart way. Here are five ways to manage your loan payments as a young professional.

Stay in contact with your loan servicers.

There are generally two categories of student loans: federal and private. Regardless of the category, student loan servicers handles billing, payments, customer inquiries, and other administrative services for your loan. Servicers help you navigate loan repayment systems, find the right repayment plan, and answer your student loan questions. If you don’t know who services your federal loans, you can find out at nslds.ed.gov. This site lists all of your federal loans, along with the contact information for your servicer. To obtain contact information for your private loan servicer, review your lender’s website or call their toll-free number.

Know which questions to ask.

The questions you should ask depend on your loan type. For federal loans, ask if you’re on the right payment schedule for your financial situation. There are a variety of repayment options available. Your servicer uses information about your job, income, and federal loan amount borrowed to help you find the repayment plan that’s best for you. Options include payments based on your current income, or payments that increase periodically over the life of your loan. Whichever option you choose, remember to keep a long-term view when making decisions about repayment schedules. Consider the interest implications of any option. Private loans are different. You selected repayment terms at the time of application. Information about your private loan rates, terms, and repayment can be obtained from your private loan servicer. They can also offer information and support throughout the life of your loan.

Consider consolidation.

Depending on what type of loan(s) you have, consolidation may help you save money. If you have one or more federal loans, a federal consolidation loan can combine your loans into a new loan with a blended interest rate. It may also extend your repayment period. When you talk with your servicers, you may want to discuss this option. You can find more information about consolidation and federal loan repayment at the Federal Student Aid website.

Private student loan refinancing allows you to replace your existing private and/or federal student loans with a new private student loan under different terms. If you are repaying multiple student loans, want to lower your monthly payment, or if your interest rates are higher than you would like, you may want to consider private loan refinancing. Private student loans require a credit check, and you can often get a lower interest rate with a cosigner. Most lenders provide loans with no application or origination fees. You may also prepay your loan at any time without penalty. You will have the opportunity to see your rates and terms before finalizing your loan.

Do your research.

If you have student loans with high interest rates, refinancing with a private loan can be a great option. They may allow you to save money over the life of your loans with a lower interest rate. But private loan refinancing isn’t right for everyone. For instance, if you have federal loans that carry special repayment benefits or forgiveness programs, it might be best to explore federal loan consolidation. There are unique benefits to both, so be sure to do your research.

Stay current on your monthly student loan payments.

The consequences of defaulting on education loans are very serious. If you’re not able to make your payments, contact your student loan servicer before becoming delinquent. They have trained representatives who can help you find the best solution for your needs. If you lose your job or experience other difficulties, you may be eligible for deferments or forbearances. These mean you may stop making payments for a period of time.

When it comes to repaying student loans, there are many ways to build a healthy financial future. Staying in touch with your servicer and being aware of the options available to you are some of the best ways to make smart financial decisions.

Should I consolidate or refinance my student loans? At U-fi From Nelnet, we get this question daily and it’s one every person with student loan debt should ask themselves. Of course, the answer depends on your specific situation and is not always clear cut. In many cases it makes total sense, while in others it may not, or at least not right now.

Before thinking through the different options available, you should understand the difference between consolidate and refinance.

Consolidating your student loans through the federal government’s Direct Consolidation Loan program means combining several loans into one new loan. The new interest rate is the weighted average of the interest rates from the loans you are consolidating. With refinancing, you are actually paying off your federal and/or private student loans with a new private loan. This new loan has a different interest rate and loan terms.

Now that you understand the basic difference between consolidation and refinancing, here are some things you should carefully consider:

1. Do you want to save money by lowering your overall costs?

Many people know loans with a lower interest rates generally cost less than loans with higher interest rates. But many don’t realize students who borrowed between 2006 and 2013 could substantially lower the interest rate on those loans. They may be eligible if they have good credit and refinance their loans during today’s historically low interest rate environment. Even if you’re comfortably making payments, lowering your interest rates can save on your total loan costs.

2. Are you making multiple monthly payments?

Are you making more than one monthly payment and want to simplify your life? Loan consolidation or refinancing can help. However, if you have federal and private student loans and want only one monthly payment, your only option is refinancing. You cannot consolidate private loans through the Direct Consolidation Loan program.

3. Do you want to switch your interest rate from a variable to a fixed rate (or vice versa)?

When you took out your student loans, each loan had either a fixed or variable interest rate. Understanding what type of interest rates you have is important. It affects whether or not your monthly loan payments will fluctuate over time. If you have fixed rate loans your monthly payments will remain constant. With variable rate loans your monthly payments may change over time.

Do you plan to pay off your loans in a short period of time? A variable rate loan could be a good option. The initial interest rate on a variable rate loan is typically less than on a fixed rate loan. However, the longer the repayment term, the greater the opportunity for variable interest rates to fluctuate. If rates rise, your monthly payment and total costs will rise as well.

4. Do you want to lock in a fixed monthly payment with a low interest rate?

If you prefer predictable payments that won’t change over time, then a fixed rate loan may be your best choice. With the current low interest rate environment, you could lock in a low fixed interest rate by refinancing. Your rate depends on several factors. These factors include your credit, income, education level, repayment term, and whether or not you have a cosigner.

5. Are your monthly payments weighing you down?

Are you having trouble making your monthly student loan payments? Do you just want to free up some extra cash? Refinancing your loans can be a great option. Most private loan lenders offer repayment terms up to 20 years, with some like U-fi From Nelnet offering a 25-year option. By increasing the length of your repayment period, you can lower your monthly payments. However, loans with longer repayment terms typically have higher interest rates than loans with shorter terms. You will likely end up paying more in total interest over the life of the loan.

6. Will you lose any features or benefits if you refinance or consolidate your loans?

Refinancing or consolidation means you are replacing your loans with a new loan. It’s important to understand you might lose benefits tied to your original loans. For example, federal loans offer a variety of deferment, forbearance, and repayment options. These benefits assist borrowers who cannot afford their monthly payments. Federal loans also offer benefits to military service members that may not be available with private loans. Your current loans may also have borrower benefits such as an interest rate discount. Be sure to compare the features and benefits of your new loan with any you might be giving up.

If the time is right to refinance your student loans, take a moment to review several lender websites. Create a short list of top candidates. Call each candidate and ask them any questions you have, including what you will need to apply. Make sure you are speaking to the actual loan servicer. This is who you will interact with over the entire life of your new loan.

Think you’re a good candidate for student loan refinancing? U-fi From Nelnet is ready to help. Get started today!