Frequently
asked
Questions

Private Student Loans

What do I need to know about student loans to get my student on the right path for taking out student loans?

Here are some tips to help guide your student down the right path:

  • Help your student understand the importance of borrowing responsibly. College is an investment but if loans are needed, they must be repaid – with interest.
  • Complete the Free Application for Federal Student Aid (FAFSA).  Even if you don’t think your family is eligible for financial aid, submit the form. The FAFSA helps determine whether students are eligible not only for grants, scholarships and work-study programs but also for federal loans.
  • Take advantage of federal loans first. Compared to private student loans they usually have lower interest rates, more generous repayment terms and do not require credit history or a co-signer.
  • If there is a funding gap after all other options (i.e., savings, federal loans, a part-time job or work-study and other gifts or available money) have been used, consider a private student loan.

Note:  Supporting children through school is a wonderful gift, but if that gift may put your retirement at risk, talk with a financial professional first to see what options you may have.

What are some differences between federal and private student loans?

Federal student loans are available through the U.S. Department of Education and provide fixed interest rates and several repayment options. They also provide benefits for borrowers who may have problems making payments after graduation, such as income-based repayment—but there are limits on the amount students can borrow.

Private student loans, on the other hand, are education loans offered by credit unions, banks and other lenders. They offer fixed or variable interest rates and are credit-based, meaning students (and their co-signers, if required) have to meet credit and other requirements set by each lender. Private loans are typically used for expenses not covered by federal student loans.

Does borrowing from a credit union vs. a bank make a difference?

It does – but it all comes down to what is most important to you. Here’s a quick comparison of the general features of banks and credit unions to help you decide.

Banks

  • For-profit
  • Owned by shareholders/investors
  • Exist primarily to generate profit for a return to its ownership
  • Offer variable and fixed rate loans
  • Interest rates on student loans and deposit accounts tend to be slightly higher than credit unions
  • Typically have more brick and mortar locations than credit unions
  • Federal Deposit Insurance Corporation (FDIC) insures each deposit account up to $250,000

Credit Unions

  • Not-for-profit
  • Member-owned
  • Exist, in principle, to serve its members
  • Offer variable and fixed rate loans
  • Interest rates on student loans and deposit accounts tend to be slightly lower than banks
  • Typically have fewer brick and mortar locations than banks
  • National Credit Union Administration (NCUA) insures each deposit account up to $250,000

Before choosing a lender, take time to identify your values. Look at rates, terms and conditions, but also other aspects that are important to you. For example:

  • Among your top contenders, is there one that performs better in other areas that you might value in the future?
  • Do any negative aspects change your mind about what matters to you?

Learn more: Should You Work with a Credit Union or Bank?

Who can I talk to if I have questions about my current loan?

Your student loan servicer – the company that handles your student loan payments – can help with questions about making payments, paying off your loan, returning to school and just about any other question related to your student loan.

Am I eligible for a private student loan?

You are eligible for a private student loan if you meet your lender's membership eligibility and credit requirements, are enrolled at least half time and are working towards a degree at an eligible college or university graduate or undergraduate program. Generally, students must be age 18 or older and a U.S. citizen or permanent resident, but some states have different age requirements.

How is the loan amount determined for a private student loan?

Your school determines the amount of money you are eligible to borrow. For cuLearn partner lenders, the minimum loan amount is $1,000. Your eligibility is limited to your school's cost of attendance minus other financial aid you will receive for the loan period (generally a semester or school year).

What is the total amount I can borrow?

You are eligible to borrow up to your school’s cost of attendance minus any financial aid you receive, up to the lender’s maximum annual loan limit. However, loan limits vary by lender and a lender may limit its lending to an amount less than your eligibility.

What is the credit union student loan application process?

Typically, the student loan application process with a credit union follows these steps:

• Student--and co-signer, if required—completes an online application.

• If you are not already a member, the credit union will ask you to complete a membership application.

• Credit union reviews the application(s), and may ask you for more information.

• School validates amount of money being requested.

• Credit union decides whether to approve your loan application.

• If approved, your credit union sends you an approval disclosure. You must accept the terms of your loan within 30 days.

• Credit Union will send a final disclosure letter describing the loan amount. You have at least three business days to cancel the loan, if you choose to do so.

• Credit union sends funds to your school. You may confirm receipt and the handling of any refund with your school.

How will I receive the funds?

Your lender sends funds to your school. You may confirm receipt and the handling of any refund with your school. In most cases, your school will split your funding for the academic year so that half is disbursed at the start of your fall semester and half is disbursed at the start of your spring semester. This saves you money, as interest on your loan does not start accruing until the date funds are disbursed.

Can I apply if I don't have a Social Security number?

A student borrower, as well as a cosigner, must typically have a Social Security number or, for a permanent resident alien, an alien registration number. The requirements for borrowers and cosigners vary by credit union and some even offer special programs for international students.

Will I need a cosigner?

Your lender may require a cosigner before making a loan to you. Most student borrowers need a cosigner, simply because they don't have enough credit history or make enough money to qualify for a loan by themselves. 

Who should I ask to be a cosigner?

You can choose any qualified individual to be your cosigner, and it doesn't need to be a relative. Typically, a cosigner must be age 18 or older and a U.S. citizen or permanent resident. Among available cosigners, it is typically best to choose the person with the highest credit score and at least two years of credit history.

What does it mean to be a cosigner?

When you cosign for a loan, you are making a legal commitment to pay back the loan if the borrower does not pay. You and the borrower share equal responsibility to repay the loan. This means that lenders are able to collect payments directly from you and may take steps to collect from you before trying to collect from the student. Cosigners are also responsible for paying late fees and collections costs if payments are late or the loan defaults. Lenders may also report negative credit information about the cosigner to consumer reporting agencies if the loan is not paid according to its terms.

Who is responsible for paying the loan?

The borrower and their cosigner are equally responsible to repay the loan. If you already have a student loan and are having trouble making payments, call your lender’s loan servicer to talk about other options.

How does my cosigner apply?

The application process and required information vary by lender. Typically, the cosigner is invited by the borrower to fill out an online application.

Does my cosigner need a Social Security number?

Typically, yes. A cosigner, as well as the student borrower, must have a Social Security number or, for a permanent resident alien, an alien registration number. However, some credit unions may offer special programs for international students.

Is the cosigner required to be a credit union member?

Cosigner requirements vary by lender. A credit union may require both the applicant and cosigner to be a member of the credit union.


Financial Aid

What resources can I use to find financial aid?

  • Federal aid: Learn about the types of federal student assistance available on the Federal Student Aid website.
  • Your school/college: Ask your financial aid office about the types of aid they offer, whether you need to fill out any forms besides the FAFSA, and any associated deadlines.
  • Your state: Use the State Financial Aid Programs tool on the National Association of Student Financial Aid Administrators’ website to check to see what is available in your state.  
  • Private organizations: Research scholarship opportunities using tools like Fastweb's free scholarship search, StudentScholarshipSearch’s free database featuring hundreds of scholarships, and Scholarships.com’s customizable search function to find scholarships based on your profile. You can also use the U.S. Department of Labor’s scholarship search tool.

 

Where does financial aid come from?

In general, there are four sources of financial aid:

  • Federal government: The federal government offers aid in several forms, including:
    • Scholarships and grants: Financial aid that doesn’t have to be paid back.
    • Work-study: A work program where you earn money to help pay for school.
    • Loans: Must be repaid with interest.
  • Your state government: Contact your state grant agency for information.
  • Your school: Many colleges offer scholarships from their own funds.
  • Nonprofit or private organizations: Many organizations offer scholarships or grants.

How do I know what financial aid I qualify for?

Generally, schools provide aid according to a student’s “merit” or “need.”

  • Merit-based aid is for students who:
    • Excel in a particular area, such as music, athletics or academics.
    • Pursue a career which the school desires to support, such as teaching or law enforcement.
  • Need-based aid is for students demonstrating financial need. To determine financial need schools generally:

For a quick look at criteria for federal student aid, check out this Basic Eligibility Criteria infographic.

My child is going to school - who should be looking at financial aid options?

Both of you – together.  For example, parents can help:

  • Explain difficult-to-understand terms on financial forms.
  • Help choose the type of loan that’s best for the student and how much to borrow.
  • Fill out the Free Application for Federal Student Aid (FAFSA). (Your tax information will be needed to complete the form.) Based on the information you and your child provide, a college will determine your child’s financial aid package.
  • Research scholarship opportunities. You can also use the U.S. Department of Labor’s  scholarship search tool.

I filled out the FAFSA.  Now what do I do?

  • Review your Student Aid Report (SAR). You will receive a SAR after you submit your FAFSA. Your SAR usually includes your Expected Family Contribution (EFC).
    • The EFC is a number (not a dollar amount) used to determine your eligibility for federal student aid.
    • The school(s) you list on your FAFSA will get your SAR data electronically.
  • Contact the school(s) you might attend. Make sure the financial aid office at each school has all the information needed to determine your eligibility for financial aid.
    • If you’re eligible, each school’s financial aid office will send you an aid offer showing the amount and types of aid (from all sources) the school will offer you.
    • Compare the aid offers to see which school is the most affordable once financial aid is taken into account.

Which parent fills out the FAFSA if my parents are divorced or separated?

If your parents are divorced or separated and don't live together, include your custodial parent’s income on the FAFSA. For financial aid purposes, your custodial parent is the one you lived with the most in the last 12 months, or the parent who provided you with the most financial support.

How do I apply for financial aid?

You need to submit a Free Application for Federal Student Aid (FAFSA) to apply for federal student loans. Your FAFSA may also be used to determine your eligibility for other types of financial aid.

You may submit your application online at fafsa.ed.gov. You can also get a paper application from your high school counselor or college financial aid advisor. 

How soon am I able to apply for financial aid?

You can start applying for Financial Aid as soon as October 1st of the year before you need the financial aid. For example, if you need financial aid for the 2017-2018 school year, you can start applying as soon as October 1, 2016. For application deadlines, consult the Department of Education’s FAFSA website: https://fafsa.ed.gov/deadlines.htm.

Do I have to apply for financial aid every year?

Yes. 

What's the difference between need based financial aid and merit based financial aid?

Need-based financial aid only takes into account the ability of the student and the student’s family to pay for college. This type of financial aid can be awarded through federal or private loans and grants.

Merit-based financial aid is awarded based on the student’s achievements and academic performance. Merit-based financial aid is usually awarded by scholarship through a school or another private source.

What other types of financial aid are available?

Learn more about grants, scholarships and other financial aid at studentaid.ed.gov. Also ask people you know about available funding, like your school's financial aid office or counselor, library, your or your parents' employer, and your religious and community organizations.

What is the difference between federal subsidized and unsubsidized loans?

Federal subsidized loans help out undergraduate students with demonstrated financial need. While the student is enrolled at least half-time, for the first six months after leaving school, and any period of deferment (a postponement of loan payments) the U.S. Department of Education pays the interest on the loan. Federal unsubsidized loans are awarded without a requirement to demonstrate financial need and the student is responsible for repaying interest accumulating from the time of disbursement.

How does work-study work?

Work-study is a type of financial aid that provides part-time jobs (usually on campus) for students with financial need. Work study allows you to earn money while in school so you can reduce the total amount of money you borrow.

How do I know if I'm eligible for work-study?

First, you’ll need to apply for work-study. When completing your FAFSA, you must indicate your preference for Work Study. If you're eligible, you will be notified in your school’s financial aid award letter.

Where can I find a work-study job?

Work-study jobs are administered by schools participating in the program. Check with your school's financial aid office to find out if your school participates. Schools typically post available work-study jobs through online job banks or postings by the financial aid or employment office.

How can I predict how much financial aid my child will receive?

The Department of Education offers the FAFSA4caster calculator tool to help you estimate your eligibility for federal student aid.

How does my income affect how much financial aid my child gets?

Many families don’t realize it but there is no income cut-off to qualify for federal student aid, including low-interest student loans. Many factors besides income, such as family size and year in school, are taken into account.

Some of the most common sources of income considered by the FAFSA are:

  • Income from work, except work-study income.
  • Proceeds from asset sales, dividends, and capital gains.
  • Retirement fund withdrawals.
  • Untaxed income, such as elective retirement fund contributions and money spent by non-parents on the student's behalf.

How soon after applying for financial aid should I know how much aid I will receive?

The school(s) included on your FAFSA will send you a financial aid award letter detailing the costs of attending the school as well as any grants, scholarships, work-study or loans you’re eligible to receive. The timing of the aid offer varies from school to school. For a typical fall semester, you could receive your award letter as early as springtime or as late as immediately before you start classes. The timing depends on when you apply and when a school awards the aid. Each college can tell you when you can expect to receive your award letter.

How do I report other money or assistance I have received to my school?

Do not report any money or other assistance you have received on your FAFSA unless you have included it in your adjusted gross income (AGI) figure. If you did, report your money or other assistance in the “How much taxable grant or scholarship aid did you receive?” question.

When will my funds be disbursed?

Generally, your grant or loan will cover a full academic year and your school will disburse your money in at least two payments called disbursements. In most cases, your school must pay you at least once per term (semester, trimester, or quarter). Schools that don’t use traditional terms such as semesters or quarters usually must pay you at least twice per academic year—for instance, at the beginning and midpoint of your academic year. 


Debt Repayment

What are my repayment options?

When you start to pay your federal student loans, you can choose from several repayment plans and you can change plans at any time – for free.

What are the best ways to pay off my debt?

  • Every borrower situation is unique. Consult your financial advisor or other financial professional to discuss the best options for you. As part of that conversation you may want to consider the following tactics:

  • Make more than the minimum payment whenever you can. 
    • Make more frequent payments (such as with each bi-weekly paycheck, if you receive one). For loans with interest that accrues daily, you will pay less in total interest and shorten the length of your loan.

  • Check into refinancing to see if you can get a lower interest rate. When you do, weigh the pros and cons (such as the loss of any entitlements or other borrower benefits).
  • Go green and save green. Some lenders offer discounts for enrolling in automatic payments.
  • Consider taking a job with the government, a nonprofit organization or certain schools will qualify you for the Public Service Loan Forgiveness Program.
  • Ask whether your current employer or an employer prospect offers compensation packages that help you pay off your student loans.

How are parents affected by student loan debt?

Many parents take out Parent PLUS loans or private loans to assist in covering their child’s education. Parents may also serve as co-signers on their child’s loans. In these cases, parents are responsible for paying back the full amount of the loans. This may put the parents’ retirement – or the entire family’s financial security – at risk. Parents may help their student find grants and scholarships to reduce the amount of loans required for their student’s education.

What are the benefits to refinancing my student loans?

Generally, refinancing simplifies your monthly payments by replacing several loans from multiple lenders into a single loan with a single payment. Refinancing typically also lowers your interest rate, your monthly payment, and the total amount of interest you will pay on your loans. However, because you are taking out a new loan with a new lender, be sure to consider whether you may be giving up benefits or other entitlements connected with your existing loans.

What does refinancing my college loans mean?

Refinancing involves applying for and obtaining a new loan from a private lender. The private lender takes care of your old loan(s) and provides you with a new loan--including a new interest rate and loan repayment term.  Refinancing student loans at a lower interest rate may translate into a lower monthly payment. Depending on the rates and remaining terms of the loans that are refinanced, it may also mean less interest paid over the life of the new loan. However, because you have a new loan with new terms, refinancing may result in the loss of benefits connected with your old loan.  

When is the best time to refinance student loans?

As with most financial decisions, each borrower’s situation is unique. Consult with a financial advisor to determine if and when refinancing will help you to achieve your financial goals.

Are there benefits on my existing student loans that I might lose if I refinance?

Federal student loans typically have:

1. Fixed interest rates, meaning that the interest rate on a federal student loan will never go up or down. Refinancing may result in a variable interest rate loan, which can result in higher payments should interest rates rise.
2. Repayment options, such as income-based repayment, which may help some borrowers by limiting monthly payments according to how much money you make.

3. Discharge, meaning that the government may not require you to repay your loan in the case of death or permanent disability.
4. Loan forgiveness, such as the forgiveness of any remaining principal loan balance after a certain period (typically ten years) of qualifying public service.
5. Military service benefits, such as interest rate and repayment benefits for borrowers who obtained their loans before being called to active duty.

If you are a borrower with a secure job, emergency savings, strong credit and are unlikely to need any of the options available to distressed borrowers of federal student loans, a refinance of your federal student loans into a private student loan may be attractive to you. You should consider the costs and benefits of refinancing carefully before you refinance.

How long will it take to process the refinance loan and get my old loans paid off?

Processing times vary by the lender offering refinancing. Among other things, the timing may be affected by how many existing loans you have, how many lenders provide your existing loans, and the responsiveness of those lenders to requests for payoff information. Many lenders may complete the process in  4-8 weeks. If you refinance, be sure to make all required payments on your existing loans until the refinancing process is completed.

Can my spouse and I combine our student loans into one loan by refinancing?

Talk with your lender to discuss what loans may be combined in refinancing. Generally, lenders require borrowers to apply for refinancing individually.  

Will I save money by refinancing my student loans?

There is a significant potential to save money when refinancing, especially if the interest rate on your refinanced loan is less than what you are currently paying on the loans you intend to combine. The terms of the loans will have an impact on whether and how much you save as well.

What is the difference between fixed interest rate and variable rate?

When refinancing student loans, you may choose the type of interest rate that is best for you. Select a fixed interest rate if you prefer a guarantee that your rate, and therefore your payment, will not change during the life of the loan as long as you make all of your payments on time. Or, you may choose a variable rate that could be lower to start out but may fluctuate, depending on factors that are beyond your control, such as economic market conditions.

Is interest paid on my refinanced loan income tax-deductible?

If your original loans had tax-deductible interest, then the interest on the loan that refinances these loans will generally be tax deductible. There are limits on who qualifies for the tax deduction, and you are advised to consult with your tax advisor.

What is the application process?

Typically, the process includes these steps:

• Borrower (and cosigner if there is one) completes an online application. You and your cosigner, if applicable, will be required to sign loan documents for the loan. Part of the application includes identifying your existing loans that you would like refinanced through the refinance loan.
• If you are not already a member of the credit union, you will be asked to complete a separate membership application.
• Credit union reviews the application(s), and may ask you for more information.
• If approved, you'll receive an approval disclosure from the credit union. You must accept the amount and rate of your loan to move ahead. You will have 30 days to do so.
• Borrower receives a final disclosure with the loan amount(s) to be sent to pay off your underlying loans. If for some reason you need to cancel, you will have at least three business days to do so.
The credit union you select will keep you updated throughout the process.

Is there a fee to apply for a refinance loan?

Typically, no application or origination fees are required for a refinance loan. This varies by lender and program.

Am I required to be a credit union member?

Yes. Typically, the borrower must be a member to be considered for a loan with a credit union. If you are not already a member, you'll be asked to apply for membership during the loan application process.

Can I apply if I don't have a Social Security number?

You typically must have a Social Security number or Alien Registration Number to apply for a refinance loan. If you are applying with a cosigner, they also need a Social Security number, or, for a permanent resident, an Alien Registration Number.

Why is a credit check required for the refinance loan?

Lenders will typically review your credit report whenever you borrow money. In an effort to minimize their risk that loans will be repaid, lenders look at a borrower's credit history and other factors and make lending decisions accordingly.

Am I required to have a cosigner before I refinance?

It depends. You may receive a lower rate with a cosigner, but you are not required to have a cosigner if you qualify. Some borrowers need a cosigner, simply because they don't have enough credit history or make enough money to qualify for a loan by themselves.  If you decide to use a cosigner, be sure you both understand that the lender may offer a cosigner release benefit that frees cosigners from all obligations after a certain number of consecutive months of payments, provided the borrower can qualify based on his or her own creditworthiness.

Who should I ask to be a cosigner?

You can choose any qualified individual to be your cosigner, and it doesn't need to be a relative. The cosigner should be age 18 or older and a U.S. citizen or permanent resident. It's best if you choose someone with at least two years of credit history. Cosigners with good credit can help you qualify for a better interest rate on your loan.

What does it mean to be a cosigner?

When you cosign with a borrower, you are making a legal commitment to pay back the loan if the borrower does not pay. You and the borrower share equal responsibility to make sure the loan is repaid.

If you're the cosigner, and any payments are late, you may also have to pay late fees or collection costs. And, this could have a negative effect on your credit record. The lender is able to collect payments and late fees directly from the cosigner. This means the lender can take steps to collect from you, the cosigner, before trying to collect from the borrower.

Who is responsible for paying the loan?

The borrower and their cosigner are equally responsible to make sure the loan is paid back.

Can a cosigner be released from responsibility to pay the loan?

Some lenders offer ways the cosigner can be released from paying the loan, meaning they are no longer responsible to repay it. For example, after making a certain number of consecutive monthly payments on time, the borrower can request to have the cosigner released. Releases are not automatic. The borrower also typically has to meet certain credit requirements, which will be the same as or similar to those applicable to borrower applying for loans by themselves. Second, if the borrower dies, some lenders allow the cosigner to be released from responsibility for the loan.

How does my cosigner apply?

Borrowers and their cosigners apply online.

Does my cosigner need a Social Security number?

Cosigners typically must have a Social Security number or Alien Registration Number to apply for a refinance loan.

What is a direct consolidation loan?

It is a government loan that consolidates your federal student loans into one loan with an interest rate that is a weighted average of the original loans you combine, rounded up to the nearest one-eighth of one percent. Any private loans you may have are not eligible for a direct consolidation loan.

What is the difference between consolidating and refinancing?

Both consolidating and refinancing may involve combining multiple student loans into one. However, consolidation generally refers to the federal Direct Consolidation Loan program, which combines your existing federal loans into a single loan with a single monthly payment and an interest rate that is a weighted average of the original loan interest rates, rounded up to the nearest one-eighth of one percent. Refinancing with a private lender, on the other hand, allows you to combine all your student loans, not just federal ones. Refinancing may allow for a lower interest rate since the rate is not determined by taking an average of existing interest rates.

Are there deferment or forbearance options available?

Forbearances may be granted. Check with your selected credit union for details. Forbearance options may be granted in certain events such as bankruptcy, natural disaster, death or when needed to process a borrower request for change in repayment plan. Any periods of forbearance will not extend the repayment period.

What is the repayment term?

Consult your refinancing lender to see what effect refinancing will have upon your existing loans’ repayment terms. Repayment terms typically range from 5 to 15 years on a refinance loans from lenders within the cuLearn network. However, there are no pre-payment penalties if you choose to pay off the loan sooner.

Who is responsible for paying the loan?

As the borrower, you are responsible for repaying the loan. If you have a cosigner, both you and your cosigner share responsibility to repay the loan.

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