How Can I Prepare for Repayment of My Student Loans?

(2 min 8 sec read) The NFCC often receives readers questions asking us how they should handle their student loans in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers.

Question: I have $80,000 in student loan debt under my dad’s name with a parent plus loan at 5% interest and $16,000 in my name with federal loans at 0% interest. I am extremely anxious about my ability to make monthly payments on my student loans while also gaining financial independence from my parents. My goal is to move out in three years once my career takes off. I just signed up for my masters program. I’ll hopefully get a hospital management position when I’m done. Is refinancing a good option or are there other  options I should consider? 

Outstanding debt, whichever the type, can be daunting. However, taking action and setting a plan in place not only can alleviate your anxiety but can effectively reduce your financial burden and help you become financially independent in the future. So, you have to start by evaluating your financial situation now and being flexible to accommodate your future financial goals.

Your ability to repay these loans quickly will depend on your current payment agreements and your financial solvency to make new payments. If your loans are under any COVID-19-related plan, your payments and interest are likely suspended in both loans. However, this relief will end in May 2022. So, it’s essential to be ready. One of the quickest ways to pay off your Parent PLUS loan is to refinance it with a private lender for a lower interest rate. The main downside of refinancing is that you’ll lose all the federal loan payment benefits, which include payment options if your income drastically changes. On the upside, you can pay your loan quicker and save money in the long run.

Refinancing with a private lender

Based on your comments it appears that your parents have taken a federal Parent Plus loan to help fund your college education.  According to the U.S. Department of Education, the Parent Plus loan belongs to parents– no matter who is actually making the payments.  However, considering how that loan will be repaid shows that you are a responsible person.  However, because the Parent Plus Loan is not in your name, you can’t simply take it over or use a federal student loan consolidation.

You may be able to  refinance your Parent PLUS loan with a private lender in two ways, under your dad’s name or yours, transferring the loan to you. The most important aspect of refinancing a loan is to qualify for a loan with a substantially lower interest rate. The terms and conditions of private student loans vary by lender so it’s always wise to compare loan offers from multiple lenders.  If your dad’s or your credit is not ready, you may not get the interest you need to lower your payments and save money, so determine if you are both ready to take this step. If you are not, you can work to get your credit ready or consider other options.

Can you make extra  payments?

Making extra payments is another way to pay off your loans quickly. Has your dad started making payments already? Even if the Parent PLUS loan was deferred before COVID, interest would continue to accrue, so early payments are always recommended. However, sending in extra payments is not always an option if you don’t have enough income. So, it’s important to review your budget and determine in which ways you can prioritize your student loan payments over other expenses. Some people opt for frugal living for a couple of years; others may get second-jobs or side hustles to earn the extra cash they need. In your situation, you may be able to get a job while you are in grad school and maximize your savings in your living expenses while you stay at home after graduating.

Other alternatives

When it comes down to paying debts, there is usually more than one way to do so. And the best strategy is unique to each person because it depends on how much you owe and how much income you have to make your payments. It helps to be prepared and put a plan in motion to take care of your debt early. You are on the right track, but if you want to get a personalized repayment plan, you can talk to an NFCC Certified Financial counselor by visiting or calling 800-388-2227. You and a certified financial counselor will review your overall financial situation and help you create a personalized plan to help pay your loans while you get ready to become financially independent.

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Ask an Expert: Does Credit Counseling Affect My Federal Student Loan Consolidation?

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: I just recently petitioned Fedloan Servicing to get my student loans consolidated, can I still get credit counseling or get a debt management plan? Would enrolling in a nonprofit debt management plan create issues with the application process for student loan consolidation?

The answer is yes, you can get credit counseling or enroll in a debt management plan even if you are working with your loan servicer to consolidate your federal student loans. In fact, if you are struggling to pay your bills, it is the perfect time to enlist extra help to find ways to manage all your debts, not only your student loans.

Each Debt Type Requires a Unique Repayment Strategy.

Each type of debt has a unique repayment strategy. So, the way to deal with your consumer debts and student loans is to do so separately. One of the main benefits of working with a nonprofit financial counseling agency is that you can get holistic counseling to help you find the best ways to deal with all your debt and put your finances in order. Before recommending a debt repayment strategy, your financial counselor will review your finances, help you create a budget, and set achievable goals. There are many strategies to repay debts, from self-repayment plans to Debt Management Plans. However, not all strategies are right for everyone. Finding the one that’s right for you is crucial.

When dealing with federal student loans, your best option is to explore the repayment programs offered by your servicer. It’s usually the best way to help you preserve some of the benefits that come from having student federal loans. A financial counselor can help you figure out which program could benefit you the most. But if you are already working toward a consolidation, they can take that into account during your counseling session.

Don’t hesitate to reach out to one of our NFCC Certified Financial Counselor. They won’t interfere with your consolidation, instead they can help you understand the process and manage your overall debt and financial situation. You’ll see that with the right guidance you will be debt-free before you know it. Good luck!


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What the President’s Executive Actions Mean for Your Finances: Student Loans, Unemployment and Housing

Millions of Americans have been watching the developments in Washington D.C. closely in recent weeks. With the pandemic and its economic effects lingering, many looked to Congress to pass additional relief, potentially including more stimulus checks to Americans. However, with talks in Congress stalling, President Trump signed executive orders and memoranda on several key issues. Notably, these did not include direct checks. This does not mean that Congress will not further deliberate, and it is still possible that Congress will pass a bill providing additional relief. But for now, here is what you need to know about a few key topics—evictions, unemployment benefits, and student loans—after the President’s recent actions.

Evictions (No Federal Moratorium for Now)

President Trump signed an executive order related to assistance for renters and homeowners, but this order is limited. The CARES Act had previously created a moratorium on evictions for federally subsidized housing and properties with federally-backed mortgages. However, those protections expired on July 25. The new executive order does not renew this moratorium or create a new moratorium. Instead, it directs the Secretary of Health and Human Services and the Director of CDC to consider whether additional eviction protections are necessary. It also directs other federal agencies to take steps toward helping tenants during this time.

What should you do? The good news here is that this may lead to some additional protections for renters in the near future. But as of now, there is no widespread protection or moratorium from the federal government. If you are at risk of eviction, you should follow our tips in this post, specifically about knowing the current law in your state (some states have their own moratoriums or other restrictions) and contacting legal aid or other groups for help.

Student Loans

In the early stages of the COVID-19 pandemic, the Trump administration announced a plan for federal student loan relief that involved suspending payments and temporarily reducing interest rates to zero percent. The CARES Act later extended this program, and set an expiration date of September 30, 2020. In an executive memorandum signed last week, President Trump extended these protections through December 31, 2020.

What should you do? First, you must remember that this only applies to federal student loans. If you have private student loans, you need to continue making payments or working within whatever arrangement you have made with your lender. In the case of federal loans, you likely will not need to contact your servicers in order to have your payments paused through the end of the year—this is supposed to happen automatically. Still, keep an eye on your statements and other communications to be sure.

If you are in the fortunate position of having money left over each month to put toward your student loans (and you don’t have other debt with higher interest rates), then continuing to aggressively pay the loans may be a great move. After all, the loans will be much cheaper in the long run if you prevent as much interest from accumulating. The order specifically allows for you to continue making payments if you would like.

On the other hand, if you are not in a position to be repaying your loans currently, think of this order as a measure that can buy you some more time. Start setting aside money for when your monthly payments begin again next January. Reevaluate your budget and make additional cuts if you can, to help free up more funds for your savings and future loan payments.

Unemployment Benefits

The $600 in additional unemployment benefits, called for by the CARES Act, has expired. In response, President Trump signed a memorandum calling for a “lost wages assistance program” that would work similarly to the previous program but provide $400 in extra weekly benefits instead. Importantly, this new program has a new eligibility requirement: in order to receive the extra $400, you must be receiving at least $100 in state unemployment. This means if you receive less than $100 in state unemployment benefits, you will not be eligible. One economist estimates that this will exclude about six percent of unemployed people.

The other details of this program are still coming together. The President’s action calls for states to provide 25 percent of the funding, something states may not be able to do for very long. The program has multiple scenarios under which it could end, with one potential ending date of December 6, 2020.

Out of all the executive actions, this may be the one to watch most closely. It arguably presents the greatest logistical challenges, especially given that states have struggled to handle abrupt changes in unemployment benefits and have constrained budgets.

What should you do? First, do not rely on receiving these extra benefits in the immediate future. There is no guarantee that the new program will be implemented in your state right away. Follow the news to learn about the developments of this issue, and stay in touch with your state unemployment office for the latest information and any action required on your part.

These changes may impact your situation. And, there may be more helpful changes and programs on the horizon. For now, continue focusing on what you can control, like maintaining a budget and trying to stick to it each month. We are here to help, contact a credit counselor for a free review of your situation.

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FAQ: Student Loans and COVID

The COVID stimulus package (CARES Act) has several new actions to offer relief for student loan borrowers. For most federal student loan borrowers, principal and interest payments on federally-held student loans have been suspended through September 30, 2020. During this time, interest will not accrue.  Here’s what you need to know.

Do I need to formally apply to get the remission?

There is no action required from your end. Your federal student loan will automatically be suspended for all interest and monthly payments due between March 13 and September 30, 2020. You will receive a written notification to the effect from your federal loan servicer around mid-April. Please ensure that your contact information is current with your servicer.

What happens if I continue to make my payments towards student loan during the suspension period?

If your financial situation allows you to continue making payments, any payment you make during the suspension period (March 13 – 30 September, 2020) will be applied to the principal. This will help repay the loan faster since the interest rates for the remission period are set to zero for all federal student loans.

Is interest and payments suspended on all student loans or does the remission rule only apply for certain selective type of student loans?

The suspension of payments applies to most of the student loans that are held by the federal government. It is estimated that about 92% of the total student loans are owned by the U.S. Department of Education. The benefits authorized by the CARES Act do not apply to

Federal student loans under the Federal Family Education Loan (FFEL) Program provided by commercial lenders
Perkins Loans held by the institution or school
Private (non-federal) student loans owned by banks, credit unions, or other private entities.

However, creditors of many non-eligible student loans under the CARES ACT are offering extended forbearance options. You’ll need to contact your loan servicer for details. If you are not sure who is your loan servicer, you may find out by using the tools provided at Federal Student Aid website. If you have a private loan you may check your credit report for the loan servicer details.

I have heard of student debt relief scams, what should I be wary about?

If you ever get a call asking for a fee to help you get remission on your student loan, be aware that this is a scam. The federal government does not ask for any fee for forbearance under the COVID stimulus package.

If my loan does not apply under the stimulus package relief what should I do?

For loans held by commercial banks, schools, or private creditors, please contact them directly and explore if they have any interest and(or) payment suspension options available.

Despite the support allowed under the stimulus package, given my current income the student loan debt will remain unmanageable moving forward beyond the stimulus package suspension period. What should I do?

If you have a federally owned student loan, the Income Driven Repayment (IDR) plans can help reduce your monthly payment amount. One of the following income-driven plans may be right for you:

Revised Pay As You Earn Repayment Plan (REPAYE)
Pay As You Earn Repayment Plan (PAYE)
Income-Based Repayment Plan (IBR)
Income-Contingent Repayment Plan (ICR Plan)

If you are facing hardship and are unable to meet your student loan repayment commitments, you should contact your loan servicer and ask if you are eligible for a 90-day forbearance for borrowers facing financial difficulties due to the pandemic. This will not affect your credit score. For Perkin loan borrowers, the schools can provide forbearance for up to 90 days. In addition, some of the private borrowers are waiving late fees and reduced payment options which are worth exploring.

Will I be eligible for Public Service Loan Forgiveness?

The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. The qualifying employers are Government organizations at any level (U.S. federal, state, local, or tribal) and Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. You also have the option for loan consolidation of all your federal owned loans under PSLF. Check your eligibility here.

I am in default on my federal student loan, am I eligible for remission under the stimulus package?  

CARES Act has suspended all interest on student loans including those in default through September 30, 2020. Also, the collection of defaulted student loan payments has been ceased.  These provisions kick in automatically for federal loans. For private defaulted loans contact your loan servicer for options. You may also consider loan rehabilitation or loan consolidation for your federally held student loan. Learn more about these options here.

When do I need to contact a nonprofit financial counselor?

If you are having issues paying your student loan, the NFCC and its agencies can help you. You may speak to a nonprofit NFCC® Certified Student Loan Counselor about your options. You get a one-on-one, comprehensive review of your finances and a repayment plan that works best for your situation, especially while COVID-19 brings in additional uncertainties and the traditional approaches do not work.  Contact a student loan counselor now.

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#AskanExpert: Student Loan Round-up

Here is a round up of two of the #AskanExpert questions we received on the topic of student loan repayment.

Question 1. I have been paying on my graduate school student loans since 2004. My FSA account says I have 11 loans with one servicer. They are all Direct Subsidized and Direct unsubsidized loans. When they are already under one servicer (I only make one payment per month), is it beneficial to consolidate these loans? Would I be paying less interest if they were consolidated? Right now, I feel like I’m getting nowhere with my payments. Thanks for any advice.

Dear Reader,

There are several pros and cons associated with Direct Loan Consolidation, but ultimately the outcomes depend on your specific situation, repayment capabilities, and financial goals for the future. When you consolidate your loans under Direct Loan Consolidation, you can choose among several repayment plans that may lower your monthly payments by extending the repayment period and having you pay more interest over time. You’ll also be able to access benefits such as forbearance and to get out of default if you were to lose your job.

On the other hand, consolidating your loans won’t necessarily reduce your interest rate. The rate is calculated by taking the weighted average of the interest rates on the consolidated loans, rounded up to the nearest 1/8 of 1%. And you will lose whatever benefits your individual loans have right now. The good news is that you don’t have to include all your eligible loans in the consolidation. However, you only get one chance to consolidate your federal loans. If one of your main goals is to repay your loans faster, consider talking to an NFCC Certified Student Loan Counselor to help you review your options and develop a realistic repayment strategy. Good luck!


Question 2: If one owes $80,000 in student loans would paying off a portion of the loan positively impact your credit score, or would the whole loan need to be paid off? If yes, a smaller portion of the loan being paid off would help, how much of a payment would be needed to affect the score?

Dear Reader,

Paying off some of your student loans may not have the effect you expect on your credit score. Your score is influenced by your payment history (if you pay on time or not), your credit utilization ratio (how much you owe compared to your available credit), how long you’ve had credit, the types of credit you have, and how often you ask for new credit.

Installment loans, like student or car loans, help you boost your score over time by establishing a positive payment history, if you make your payments as agreed. These loans also impact your score by helping diversify the types of credit that appear on your credit report. However, the balance on your installment loans is not used to calculate your credit utilization ratio, which is one of the main factors influencing your score. The utilization ratio is calculated using the balances on your credit cards divided by your available credit. So, owing less on your student loans, most likely won’t have any impact on your score. Furthermore, paying them off could have a temporary negative effect on your score.

If your main goal is to increase your credit score, take a different approach–review your credit and find ways to improve it. Generally, paying on time, keeping credit card balances low, and getting new credit sporadically will help you increase your score over time. For a personalized strategy to boost your score, consider talking to an NFCC Certified Financial Counselor from a nonprofit near you. Your counselor can review your credit report and help you find the best way to reach your goals. Good luck!



Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.


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#AskanExpert: Does my Income-Based Repayment Affect My Husband Buying a Home?

Q. Hi! I have some questions about my student loan. I have the regular federal student loans and I already graduated. We are married filing jointly. I’m going to make my first standard payment of my student loan, but I am interested in applying for an income-based repayment(IBR) program and they already sent me the form to apply and placed me in a forbearance. My husband doesn’t have any student loans. We really need a home and my husband wants to apply for a mortgage in order to buy one.

But my question is, that since he needs to sign the IBR form, is his credit going to be hurt? Is his credit report is going to show the balance of my student loan? How is my income-based repayment going to affect his eligibility of the mortgage? Can I exit the IBR plan at any time?

Dear Reader,

Congratulations on the exciting prospect of buying a house with your husband. The first step toward homeownership is getting your finances in order to determine what kind of housing you can afford together. And I commend you for taking an additional step to explore your student loan repayment strategy in order to ensure you will be able to make your mortgage payments in the future.

If your husband is applying for the mortgage by himself, only his debts and credit report will be reviewed on the mortgage application. Your loans and any credit that you have taken out on your own will not affect your husband unless he is a cosigner. With that in mind, you can rest assured that his credit won’t be affected when you sign for an Income Based Repayment Plan and none of your student loan information will appear on his credit file. The only reason he is required to sign your IBR is because you are a married and filing your taxes together. This type of income-driven repayment plan uses the combined gross household income, that is your income plus your husband’s before taxes, to calculate your new student loan payment.

Generally, you can change your IBR to any other income-driven plan at any time as long as you qualify. And to better address your question of whether you should stay on the standard plan or move forward with your IBR, it really depends on your overall financial situation and your combined income. I suggest that before you make a commitment to sign for an IBR, you talk to an NFCC certified credit counselor to explore additional income-driven repayment options such as Pay as You Earn (PAYE) or the Revised Pay As You Earn (REPAY). Under your IBR, your payment will be roughly 15% of your discretionary income while under REPAY it will be capped at 10%. The math can get tricky, so I recommended you use online calculators or talk to an expert to have a more realistic estimate of what your payments could be under each plan.

As far as your husband applying for a mortgage on his own, he needs to get ready because lenders look beyond credit histories and credit scores. They will ask for your last tax returns and assess your husband’s risk based on all this information. And since he is applying on his own, only his income will be considered during the lending decision. If you were applying together, the income would increase, but then your credit and debts would be factored in as part of the decision, which could negatively impact his loan eligibility. If you feel that you and your husband need additional assistance, there are plenty of resources and programs to help first time home buyers achieve the big dream of homeownership. Explore the resources in your community and the NFCC and get ready for one of the biggest investments in your life. Good luck!


Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.


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How to Start a Business While Paying Off Student Loans

For many entrepreneurs, starting a business means more purpose, flexibility, freedom and control at work. But when student loans take up a big portion of your budget, that dream may be harder to achieve.

The median monthly student loan bill among those in repayment is $222, according to data retrieved by Student Loan Hero. That doesn’t leave much room for financial risk-taking for those fresh out of college. In fact, the share of entrepreneurs between 20 and 34 years old decreased from 34% in 1996 to 24% in 2016, according to the Ewing Marion Kauffman Foundation’s most recent Startup Activity report.

With ingenuity and forethought, though, there’s no reason why young entrepreneurs should hold off trying to start a business while paying off student loans.

Start with an idea that is low-risk

If you’re currently working full time, consider starting a business on the side so you can keep any benefits you currently receive, like health care and access to an employer match on retirement savings. That will also help you evaluate the viability of your business idea without going all in.

Make sure you secure any insurance, permits, licenses or certifications you might need for the business. Just because it’s a side hustle, doesn’t mean you can avoid red tape aimed at keeping clients, and yourself, safe. As a self-employed individual, you’ll also likely have to pay quarterly estimated taxes on side income, if federal and state income taxes aren’t automatically withheld from it.

Alternatively, you can ask your primary employer if you’re still working full- or part-time for a separate company to take more tax out of your paycheck to avoid paying additional estimated tax.

Adjust your student loan payment

Reducing your bills, like those for student loans, can provide more freedom to fund and launch your business. Some options to consider are:

Consolidation and refinancing: If you have good credit — typically defined as a credit score of 670 or higher — or access to a creditworthy cosigner, you may be able to refinance student  loans to a lower interest rate. This process is also referred to as private student loan consolidation.

It’s an especially worthwhile option for high-interest private student loans. When you refinance federal loans, you’ll lose the ability to sign up for forgiveness programs and alternative payment plans. But private loans come with fewer payment-reduction options, so you have less to lose — and more to gain in interest savings, as their rates are often higher than federal loans’ rates.

When you refinance, you may have the choice to stretch your repayment term over a longer period, which could lower your monthly payments. But when you make payments for a longer time, you’ll pay more in interest, which can cut into the overall savings refinancing provides.

Forbearance and deferment: It’s possible to postpone your student loan payments altogether through deferment or forbearance (depending on your circumstances) while you start your business. You can apply for deferment if you’re unemployed or are experiencing economic hardship. If you have federal subsidized or Perkins loans, interest will not accrue during the deferment period.

You can request forbearance for a wider variety of financial reasons for up to 12 months at a time, and extend it if you need it. But unlike deferment, interest will accrue on all types of federal loans during forbearance. That means you may owe more once the forbearance period has ended. Contact your student loan servicer to discuss which option is best for you, and how much it would cost over time.

Income-driven repayment plans: If you have federal loans, consider signing up for an income-driven repayment plan. Your payments will be 10-20% of your discretionary income, depending on the plan, which can lower your bill significantly if you’re working less for an employer while starting a business.

Your payments may not cover all the interest that accrues, which could mean a growing balance. Income-driven plans do provide forgiveness after 20 or 25 years, however, any forgiven amount may be taxed as income. The government’s repayment estimator tool can provide line of sight into how much you’ll pay overall — and potentially get forgiven — if you switch to one of these plans.

Work with a mentor

You don’t have to start a business all on your own. In fact, seeking the help of a mentor early can give you ideas for how to develop a business plan and get funding while keeping your own finances in shape.

Use the U.S. Small Business Administration’s local assistance tool to find a small business development center or other free support in your area. You can also request a mentor through SCORE, a national nonprofit that pairs entrepreneurs with volunteer business experts.

Finally, tap into your college’s alumni network to see if other entrepreneurs are interested in sharing their expertise. Ask the alumni services department if anyone comes to mind as a potential mentor for you, including professors and industry experts at the school. Or, search LinkedIn for entrepreneurs from your alma mater who may be willing to guide you.

Explore funding sources

Startup funding might feel like the biggest barrier to entrepreneurship when you have student loans. Banks and community organizations, for instance, offer loans backed by the U.S. Small Business Administration. But without a history of profitability as an established business, it can be hard to qualify. You may also not have a long personal credit history as a relatively recent graduate, which can be another barrier to getting traditional small business financing.

Self-funding a business is an option, but with limited resources as a result of student loans, you may be tempted to rely on credit cards. This can be a viable method for some businesses, but your first priority should be to make all your student loan payments on time. Missed payments will negatively impact your credit score, affecting your ability to get business financing and even a mortgage or personal credit card in the future. If you use credit cards to start a business, make a plan to pay off the charges in a reasonable amount of time to avoid ballooning interest.

Consider these other methods of financing, too, which may be more accessible — even with existing debt to pay off.

Crowdfunding: Loans from friends and family give you the ability to set the terms, including how long you’ll have to pay them back and whether the loans will accrue interest. Have a candid conversation about your ability to repay others investing in your business, and keep the lines of communication open if you find it’s harder than expected to keep to the terms you agreed to.

Crowdfunding, however, gives you the opportunity to raise money from a larger pool of investors than just friends and family — without having to repay the funds. Platforms including Kickstarter, Indiegogo and GoFundMe let you list a product or business others can contribute to, and you can offer rewards to investors in exchange for contributing. Check each site’s pricing page for details on how much they charge. You might see platform fees to list a campaign, transaction fees when a backer contributes to the campaign and transfer fees when funds move to your personal bank account.

Lending circles: Lending circles provide interest-free loans to low-income individuals and small businesses while helping borrowers improve their credit at the same time.

In a lending circle, a group of community members pays into a central pot, and members take turns receiving a loan. Monthly payments into the fund are reported to the credit bureaus, helping participants build a credit profile. You’ll need to apply and take a financial education course in order to participate. But you can use the loan you receive to help with startup costs, and to build credit so you can apply for traditional funding in the future. Search for a lending circle through local community organizations using the nonprofit Mission Asset Fund’s lookup tool.

Online lenders: You can search for funding from online-only lenders like OnDeck Capital or Kabbage to pay for a range of business expenses, including equipment and marketing. Online lenders generally offer faster application processes than traditional small business loans, and they may be easier to qualify for.

The trade-off, however, lies in online loans’ interest rates. Without good personal credit, you could see interest rates much higher than typical rates for credit cards, for example. Taking on debt for your new venture on top of student loans can be risky, so compare online lenders carefully and borrow only as much as you know you’ll be able to repay.

Paying off student loans can make financing a business difficult to start. But seeking advice from a mentor and making thoughtful decisions about how to launch it will move you closer to your vision of entrepreneurship.

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What Are the Credit Requirements for a Private Student Loan?

College is expensive – no secret there. How expensive? That all depends on the school’s tuition rate, the price of room and board, and the cost of texts and other essentials. If you’re considering a 4-year private intuition can expect to pay around $50,900. Thinking of a public intuition?  If it’s in your state, you can expect to pay around $25,290. If it’s out of state, the cost jumps to $40,940 according to LendEDU college cost statistics.

How will you pay for it?  If you’re like nearly 70% of today’s students, you’ll need to rely on student loans to some extent if not fully. That may mean filling out the Free Application for Student Aid (FAFSA) and applying for federal student loans. In some cases, it may mean turning to private lenders for a private student loan. In fact, you may even find that you need to do both.

Both federal loans and private loans can help cover tuition, especially in such a costly market. Despite being counterparts, qualifying for a private loan differs considerably compared to a federal loan. Whereas federal options require the FAFSA and the intent to go to school, private student loans require applicants to bring more to the table.

If you find you’re in a pinch to cover tuition, then it pays to know what a private student loan application requires in terms of credit, eligibility, and more.

Must Have at Least a Good Credit Score

Private lenders use a credit score to help determine eligibility, and it influences rates and terms for private student loans. Contrarily, the U.S. Department of Education doesn’t typically base eligibility for federal student loans on credit history — Parent PLUS loans are an exception.

If you have a good score and track record managing debt, then you will typically have better access to private student loan products. A better credit score can increase the likelihood of receiving better rates and terms. Broadly speaking, most lenders require borrowers to have scores in the high 600s, but many prefer higher credit scores in the 700s or 800s. A low score can influence a dropped application, and it can also lead to higher rates and limited terms on an accepted application.

If you’re considering a private loan, it’s important to check your credit score. Things like late payments, defaulted accounts, a high debt-to-income ratio, or revolving debt totals that exceed 30% of your available credit can all bring your score down. To keep your score healthy, make it a point to pay bills on time and keep your debt in check as a general rule of thumb.

Need to Meet Income Requirements

Another important factor that lenders consider is the borrower’s income. This can be particularly frustrating to new students who may not have the time or skill set to earn a substantial income. After all, access to higher paying jobs is often a leading reason to go to college in the first place, but your future income may not help you take out a loan today depending on the lender.

That’s not to say that you’re out of luck until you graduate. If you’re making an income, even from a part-time job, it may still be able to help on an application. Many lenders look at your income as it relates to your debt. A low debt-to-income ratio can help you secure lower rates. A higher ratio will make it more difficult to be approved and if you are, your rates will likely be higher. At any rate, this can be an especially prohibitive criterion, so you may want to consider applying with a cosigner if this were the case.

Enrollment in a Qualified Education Program
As the name suggests, student loans are explicitly for students. Typically, lenders require that borrowers are enrolled at least half-time in an eligible 4-year or 2-year program or a trade school. In some instances, a lender may not approve loans for community college or non-4-year programs, so it’s best to contact a lender directly to determine if your academic plans meet their eligibility requirements.

It’s also important to note that you must intend to use the funds for academic expenses. To ensure this, some lenders will disburse the funds directly to the school.

Other General Requirements
In addition to the requirements above, private student loan lenders frequently limit eligibility to applicant’s who are 18 years or older and have a high school diploma or GED. Lenders also typically have citizenship rules that require a borrower be a U.S. citizen, though there are some lenders specialize in student loans for non-citizens.

A Cosigner May Be Required

Though not an outright requirement, you may need to add a co-signer to your application if you don’t meet the lender’s credit score or income requirements. There are several pros and cons to cosigning a student loan. A qualified co-signer can be the difference between approval and denial; they may also potentially help you secure better rates.

If you do need a co-signer, they must meet the lender’s eligibility requirements, including credit score and income requirements. In short, a co-signer would need to have high income and a great credit score in order to help significantly.

If your co-signer is lacking in either category, then they may not add the needed security to an application compared to applying for student loans without a cosigner. Furthermore, keep in mind that your co-signer’s credit will also be on the hook for your debt, which he or she should be aware of.

When Should You Consider a Private Loan Over a Federal Loan?

If you’re a new student, don’t have good credit, or have low income, then a federal loan may be your best option. For many borrowers, federal student loans have lower guaranteed rates and offer more protections and benefits, like public service loan forgiveness or income-driven repayment plans. They do not require applicants to have great credit or established income as opposed to private loans.

However, if you or a willing co-signer have good/excellent credit, then you may find that a private student loan is worth considering. Lenders may offer creditworthy borrowers lower rates than federal loans. Just keep in mind that you may need to pay private loans back while in school, and you won’t be able to take advantage of federal loan benefits such as forgiveness.

If you need to finance all or part of your education, it’s important to understand the primary differences between federal and private student loans and their respective requirements. Doing so can help you identify the best option for your current needs and save you money in the long run.


Andrew is a Content Associate for LendEDU – a website that helps consumers, college grads, small business owners, and more with their finances. When he’s not working, you can find Andrew hiking or hanging with his cats Colby & Tobi.

The post What Are the Credit Requirements for a Private Student Loan? appeared first on NFCC.

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