The Best Undergraduate Student Loans of December 2022

If you’ve already used your savings, scholarships, and grants to pay for college and still find that you’re unable to pay for school, a student loan could be a good option.

When considering your options, federal student loans should always take precedence over private ones. Federal loans have the lowest interest rates and come with a level of protection that private lenders don’t offer.

Take the Biden administration’s move to cancel federal student loan debt. If the plan survives court challenges and is implemented, the Department of Education will forgive $10,000 in student loans for borrowers making less than $125,000 per year, and as much as $20,000 for Pell Grant recipients. Federal loans will qualify for forgiveness, but private loans won’t.

Here are some of the best options for undergraduates looking to take out student loans. 

Federal Direct subsidized loan

On Federal Direct Subsidized Loan’s website

Details

Regular Annual Percentage Rate (APR)

Undergraduates: 4.99%

Pros & Cons

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Government pays interest while in school

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Low interest rate

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No credit check required

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No cosigner needed

Low maximum loan amount

Eligibility based on financial need

Highlights

• 10-year standard repayment term
• Rates change annually
• Loan maximum of $3,500 for first-years, $4,500 for second-years, and $5,500 per year for each school year after that

Federal Direct unsubsidized loan

SoFi undergraduate student loans

Ascent undergraduate student loans

College Ave undergraduate student loans

Earnest undergraduate student loans

MPower Financing undergraduate student loans

Other undergraduate student loans we considered

• Citizens Bank private student loans. Citizens Bank offers good rates, but there are fewer repayment options through this lender, as Citizens doesn’t give the option to pay while you’re still in school. 
• Discover private student loans. While the lender has no fees, you can find more competitive APRs elsewhere. 
• Sallie Mae private student loans. You might want to go with Sallie Mae if you want to avoid origination and prepayment fees, as the lender doesn’t charge any. However, the lender charges hefty late fees. 
• Credible private student loans. Credible doesn’t directly make student loans. Rather, it is a marketplace that makes loans through the lenders listed above and more. Credible works with Ascent, Citizens Bank, College Ave, and Sallie Mae, for example. 

Which lender is the most trustworthy?

We’ve only selected student loan lenders with no public controversies in the last three years. We’ve also compared each institution’s Better Business Bureau score.

The BBB, a non-profit organization focused on consumer protection and trust, evaluates companies by judging a business’s responses to consumer complaints, honesty in advertising, and clarity about business practices. Here is each company’s score:

Of our top picks, only Choice MPower are not currently rated an A- or higher by the BBB. The BBB doesn’t have sufficient information to rate MPower Financing. That said, this doesn’t necessarily reflect MPower’s trustworthiness, and you should ask others about their experiences with the businesses before deciding against borrowing from the companies. 

Methodology

Personal Finance Insider’s goal is to help smart people make the best possible decisions with their money. To do that, we combed through many student loans, comparing interest rates, terms, and fine print so you don’t have to. We looked for several factors in determining the best student loans, including: 

• Interest rates: The lower the interest rate the better, and we prioritized lenders with the lowest interest rates for undergraduate students.
• Nationwide availability: We searched for student loans available in all or most US states. 
• Flexibility of repayment plans: There are four main options for repayment offered by most lenders: defer payments until after school; interest-only payments in school; small, fixed payments in school; and full monthly in-school payments. We looked for lenders with the most ways to pay.
• No or few fees: We prioritized lenders that didn’t charge fees, like origination fees or prepayment penalties.

See our full ratings methodology for student loans >>

Frequently asked questions

How do I decide whether or not to take out a student loan?

There’s no one-size-fits-all answer to this question. Your choice depends on your unique financial situation. You may consider alternatives such as a less expensive school, scholarships, or a side job to earn more money. Whatever your decision, make sure you fully understand the terms of your loan before making a commitment.

Is refinancing my student loans a good choice?

Often, borrowers refinance to take advantage of lower interest rates or smaller monthly payments. You usually won’t pay any fees to refinance your loans, but that depends on the specific lender. Be careful before you refinance federal student loans, as you will lose key federal protections as a result.

Do I need a cosigner to get a student loan?

For most younger students, it’s unlikely you’ll be approved without a cosigner. It is possible, but mainly for students who have an established credit history and an income.

Once you have some credit established, however, you may be able to remove your cosigner by refinancing. Some lenders also allow borrowers to remove cosigners after several years of consecutive payments. 

What’s the difference between federal and private student loans? 

Federal student loans have a number of protections that private student loans don’t. The widespread forbearance and 0% interest rates during the coronavirus pandemic are some examples.

Similarly, income-based repayment plans are only available for federal student loans, and help to lower payments to a percentage of a person’s income. That’s a protection not available to private student loan borrowers that could make a big difference. 

It’s a good idea to use all of your available federal loan options first to take advantage of these protections.

Will interest accrue during a loan’s grace period? 

Yes, interest will accrue during the six-month grace period after you graduate, similarly to how it does while you are in school. Private lenders may have suspended this practice during the pandemic, but they are under no obligation to do so. 

Which is better, a variable-rate or fixed-rate student loan?

Fixed interest rates stay the same for the life of the loan. Variable interest rates are exactly what they sound like — they have interest rates that change based on interest rate indexes, like the LIBOR or prime rate, plus a margin. When that index rate increases, the amount of interest you owe increases, along with your monthly payment. 

On variable-rate loans, interest rates and payments change over time. So, it’s important to remember that what goes up must come down, and vice versa. There’s a chance that interest rates will increase before a long loan (like a student loan) is paid off, and your interest rate and payment may not always be as low as it is now. 

The best choice for you depends on your financial situation and which way you believe the market is headed. 

Can private student loans be forgiven?

Unfortunately, private student loans would not be eligible for any sweeping federal forgiveness programs that could the government may potentially enact. However, if you have federal student loans, you may be eligible for forgiveness if you are under a certain income threshold.