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Top Student Loan Programs for 2016

In 2016, Student Loan Programs are available to everybody, regardless of age, race, sexual preference, religion, gender, etc.

In fact, student loans are also available for virtually every type of higher education program on the market, including college and university degrees of all types (Associates, Bachelors, Masters, Ph.Ds, MBAs, JDs, etc.) but they’re also available for credentials, certificates, certifications, licenses and a variety of other non-degree programs.

The thing about taking out a student loan is that it’s a risky business, in that it’s only worth taking out a loan if you’re sure that it’s a good investment.

Don’t Be Foolish!

You need to make sure that your student loan is going to pay for a degree, credential or certificate that will help you earn more money, and specifically, enough money for you to pay off the debt in a reasonable time frame.

To make sure that your student loan doesn’t ruin your life, you’ll have to be diligent about researching the pros and cons of each program, figure out what your expected salary will be after graduation, and determine whether or not it makes good, logical sense to get that loan.

If you base your decision on emotion and wishful thinking, rather than cold, hard logic, then you could be in for a lifetime of financial distress. Be careful!

Why Are We Covering Student Loan Programs?

Forget Student Loan Debt was originally created to help people get out from under crushing student loan debt, but we also want to help people avoid burying themselves with too much of it in the first place.

Our goal is to ensure that you are fully informed before you sign those loan docs, that you don’t sign up for a loan with a company who isn’t reputable and won’t provide a good service, and that you’ll be able to pay that loan back in a reasonable time frame without facing extreme financial distress along the way.

To determine whether or not that student loan you’re considering taking out will be worth it, here’s the simplest formula we’ve found:

If you’re planning to borrow more money than your expected annual salary the year after you graduate, then you’re probably making a big mistake.

Oh, and if you’re borrowing excessive amounts of money (tens of thousands of dollars), to get a degree in anything other than a hard science field, engineering, or some kind of finance-related degree program, then you might want to think twice before singing the dotted line.

Don’t make the same mistake that so many other Americans already have – don’t bury yourself in an extreme amount of student loan debt!

What Are The Best Student Loans?

Yes, it’s 2016, but the situation hasn’t changed much since the introduction of the Federal Family Education Loan (FFEL) Program in 1965, when the United States Government first began guaranteeing student loans provided by banks and non-profit lenders.

The best student loans on the market are still those loan programs offered by the Federal Government, for a variety of reasons, including:

  • Lower borrowing costs than Private Loans, due to having lower interest rates
  • Longer repayment periods than Private Loans, meaning lower monthly payments
  • Lower origination costs than Private Loans, meaning they’re less expensive up-front
  • Significantly better financial assistance benefits, meaning they’re easier to get out of

Major Benefits of Federal Student Loan Programs

The four benefits outlined above are all extremely important when considering available student loan programs.

To get into them with a little bit more detail, here’s some additional information about each major benefit:

Lower Interest Rates

Because Federally-funded student loans typically come with a lower interest rate than what can be secured on the private market, these loans are almost always more affordable in the long-run.

This is especially true of large loan amounts, and loans that will be repaid over an extended period of time (the longer the loan, the more important interest becomes, because compounding interest adds up quickly).

One of the most important decisions you can make when determining which student loan program to go with is to determine what your interest rate will be.

It may not seem like much, but even a 1 or 2% difference in interest rates can add up to tens of thousands of dollars over the course of a loan’s lifetime, so don’t sign up for a loan with a high interest rate, or a variable interest rate.

Lower Monthly Payments

This isn’t always the case, but it’s typically true that Federally-backed student loans offer longer loan terms than privately-funded loans, meaning that you’ll have a longer time to pay them back.

This is a double-edged sword, because the longer you have to pay back your loan, the lower your monthly payment will be, but the more time your loan will have to accrue additional costs due to interest accumulation.

In general, you’ll want to pay your student loan off as quickly as possible, whether it’s Federally-funded, or privately-funded, because that will cut down on the lifetime cost of your loan.

My advice is to choose a loan program and monthly payment that you know you’ll be able to comfortably make each month, with enough money left over to cover the rest of the costs in your budget.

Lower Origination Costs

One of the biggest benefits to Federally-funded student loan programs is that they have very low, or even no origination fees.

Origination fees are another cost of borrowing money, and with private loans, these can be quite expensive.

Think of an origination fee as the amount of money you’ll need to put down up-front to secure your loan, and basically guarantee that whoever lends you the money won’t get completely screwed should you end up defaulting on the loan.

Privately-funded loans will definitely come with higher origination fees, and those fees will typically be set based on your credit.

Basically, if you have poor credit, you’ll have a higher origination fee, because the lender will view you as a riskier borrower than someone with great credit.

The Government doesn’t quite see things this way, but is more even-handed when determining origination fees (and sometimes they leave them out entirely).

Government-backed student loans typically have extremely low origination fees, even for people with poor credit, so if you have had some financial issues in the past, then you’ll definitely want to take advantage of this benefit.

Better Financial Assistance Benefits

The biggest, and best benefit to borrowing your student loan from the Government is that you’ll be eligible for all sorts of Federal Student Loan Relief Programs, from the Obama Student Loan Forgiveness Program, to the Public Service Loan Forgiveness Program.

In fact, the Government offers Federal Student Loan Forgiveness Programs for so many different reasons, it’s almost ridiculous, with programs for Nurses, Teachers, Government Employees, Non-Profit Employees and Peace Corps or Americorps members being just the tip of the iceberg.

In addition to all the available forgiveness programs on offer, there are also specific programs for Consolidation, Deferment, Forbearance and there’s even a new discussion about offering Refinancing Programs.

Plus, Federal Student Loans allow you to choose from one of 7 excellent Student Loan Repayment Plans, including Income-Based Repayment Plans that set your monthly payment rates based on the amount of money you’re earning.

With so many benefits to Federally-funded student loans, it’s virtually a no-brainer that they are your best option for funding higher education expenses.

Which Kind of Student Loan Should I Get?

When you’re shopping for an affordable student loan, keep in mind that there’s absolutely no reason to get a privately funded loan as long as the government-backed programs will provide you with enough money to cover your higher education costs.

It pains me to say it, because I’m a Libertarian and as such, am not a huge fan of government subsidies, but borrowing your college tuition money from the United States Government is the best way you can go about financing your college costs.

And the reason for that is simple – Federal student loans are subsidized by the taxpayers, meaning that my tax money (and everyone else’s) is spent to help keep your borrowing costs artificially lower than they should be.

Federal Student Loan Programs

I can’t make it any clearer – Federal student loan programs are by far your best option when it comes to getting help financing the costs of a college or university degree.

Federal student loans also come in a variety of flavors, with more than half a dozen different programs available to choose from.

Here’s a quick breakdown of the different Federal student loan programs on offer as of 2014.

For additional information about each of these programs, be sure to click through the links below to visit the pages we’ve created to explain each program in greater detail.

The William D. Ford Federal Direct Loan (Direct Loan) Program

Most of the Federally-funded student loans available are offered through the William D. Ford Federal Direct Loan Program, which is also referred to as the Direct Loans program.

This became especially true after the Government discontinued lending under the Federal Family Education Loan (FFEL) Program on July 1st, 2010.

Here are the different types of student loans offered under the Direct Loan program:

Direct Subsidized Loans

Federal Direct Subsidized Loans are offered to undergraduate students who can prove that they need financial assistance to cover the costs of higher education.

These loans can be used to pay for tuition and fees at colleges, universities, and even career schools (like vocational training programs).

Direct Subsidized Loans are the best type of loan you can take out, because the Federal Government pays the interest on your loan, meaning that you’re getting to borrow this money for free!

One of the best benefits to subsidized student loans is that if have trouble making monthly payments, you can request a student loan deferment, which pauses repayments for some time, and the Government continues to pay the interest on your loan during the deferment period!

Direct Unsubsidized Loans

Federal Direct Unsubsidized Loans are offered to undergraduate, graduate and even professional students, but these loans are available to everyone (even to people who can’t prove that they need financial assistance).

When you take out a Direct Unsubsidized Loan, you’re only able to take out as much money as your school determines you will need to pay for their tuition and fees.

Direct Unsubsidized Loans are still far superior to private student loans, because they come with lower interest rates, excellent repayment schedules and incredible forgiveness benefits, but borrowers do have to pay the interest on an unsubsidized loan.

One downside to unsubsidized student loans is that should you need to file for a deferment or student loan forbearance, interest will continue to accumulate on the loan while your repayments are put on hold.

Direct PLUS Loans

Federal Direct PLUS Loans are an excellent program for graduate students and professional students, or parents of dependent undergraduate students, but these loans are not available directly to undergraduate students themselves.

PLUS Loans can only be taken out to cover higher education expenses not already covered by other financial aid programs, so they’re typically not offered for massive amounts, but that’s a good thing because it limits your ability to bury yourself in debt.

One drawback to the Federal PLUS Loans program is that you have to be able to prove that you’ve got a good credit history (or at least that you don’t have poor credit) in order to qualify for the program.

Another drawback for PLUS Loans is that they come with interest, and a fee for taking out the loan (deducted from each loan disbursement), which under current law in 2014 runs 4.288%, and which will be rising to 4.292% on October 1st, 2015.

Direct Consolidation Loans

Federal Direct Consolidation Loans are an aggregated loan that combines eligible federal student loans into a single new loan, with a single loan servicer (and the convenience of a single monthly payment).

The biggest benefit to Direct Consolidation Loans is that they dramatically reduce the complexity of your student loan debt, allowing you to combine multiple Federally funded student loans into a single loan, with a single monthly payment.

In addition to the convenience factor of having a single monthly payment, a Direct Consolidation Loan can reduce your monthly payments by extending your loan term (by up to 30 years), which is great is you’re having trouble meeting monthly payments.

But there are no free lunches, and Direct Consolidation Loans definitely have a downside too – first, they eliminate eligibility for certain types of Federal student loan relief, and second, they increase your total borrowing costs.

Subsidized Stafford Loans

Federal Subsidized Stafford Loans are available only to students who can prove that they need financial assistance (via the FAFSA).

Benefits to Subsidized Stafford Loans include low interest rates (just 4.66% for the 2015-2016 academic school year), the Government paying your interest while you’re still in school, and a very low origination fee (about 1%).

The downside to the Subsidized Stafford Loan Program is that you can only borrow a certain amount of money each year, and the limits are pretty low ($3,500 for Freshman, $4,500 for Sophomores, $5,500 for Juniors, Seniors and beyond).

Also, there’s a cumulative limit of just $23,000 total, meaning that if your higher education expenses are over this limit (and they almost certainly will be at a reputable four year school), you will have to look elsewhere for additional funds.

Unsubsidized Stafford Loans

Federal Unsubsidized Stafford Loans aren’t necessarily worse than Subsidized Stafford Loans, because there are pros and cons to each program.

First, the Unsubsidized Stafford Loan Program still limits the amount of money that you can borrow each year (and in total), but the amounts that you can borrow are higher than what’s available via Subsidized Stafford Loans.

For Dependent Students, Freshmen can borrow $5,500, Sophomores can borrow $6,500, while Juniors, Seniors and beyond can borrow $7,500. Dependent Students also have a cumulative limit set at $31,000.

For Independent Students, Freshmen can borrow $9,500, Sophomores can borrow $10,500, and Juniors, Seniors and beyond can borrow $12,500. Independent Students have a cumulative limit set at $57,500.

Second, when you get an Unsubsidized Stafford Loan, you don’t have to make any payments while you’re enrolled in school, and your origination fee remains quite low (about 1%), plus your interest rate is set at the same low level of 4.66% (for the 2014-2015 academic year).

However, the major downside to Unsubsidized Stafford Loans is that interest begins accruing on your loan as soon as funds are disbursed, and that interest gets capitalized monthly (added to your loan balance), so you can end up with a much bigger debt than you were expecting to face if you choose not to make interest payments while in school.

The Federal Perkins Loan Program

Federal Perkins Loans are not part of the Direct Loan Program, and are only issued for higher education expenses, but they are also an excellent way to finance college costs, and they can be used by both undergraduate and graduate student alike.

The only real drawback to Perkins Loans is that they’re only available to students who can prove that they have what the Government refers to as “exceptional financial need”, meaning that these loans are essentially earmarked for poor people.

Under this program, the loan you receive is actually offered by the school you attend, so your lender is your college or university, rather than some third party middleman between you and the government, and you pay the school back directly.

Perkins Loans are offered with a low interest rate, set at just 5%, but the major downside to Perkins Loans is that not all schools participate in the program because it’s entirely voluntary for them.

Private Student Loan Programs

Private student loans come in all shapes and sizes, with fixed, or variable interest rates, low, or high, origination fees, short and long loan term periods, and a variety of other factors that can dramatically influence the cost of borrowing.

The benefits to Private Student Loan Programs are that they’re typically easier to get (less paperwork, less wait time, no FAFSA, etc.), and they have higher maximum loan amounts (some lenders have no maximum limits at all).

The downsides to borrowing from a private lender are that you don’t have nearly as much flexibility, support, or beneficial perks as you’d receive with a federally-funded loan.

When you borrow privately, you can forget about loan forgiveness, loan cancellation, some forms of deferment and forbearance, and access to the excellent, flexible Federal student loan repayment plans.

If you need to take out a student loan, there’s absolutely no reason to get a privately funded one when excellent government-backed programs are available.


Tim's experience battling crushing student loan debt led him to create the website Forget Student Loan Debt, where he offers advice on dealing with excessive student loans and advocates a cautious approach to funding education costs via borrowed money.