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By Gabriella Cruz-Martínez
Updated: August 6, 2020 4:17 PM ET | Originally published: June 9, 2020
Getty Images

Student loan debt in the U.S. has ballooned in recent years to total more than $1.5 trillion, becoming the second highest consumer debt category after mortgages. While this number may sound alarming, it’s driven in part by an increase in the number of Americans enrolling in college programs, and many have few alternatives to pay their way through college. But there are ways to borrow responsibly and manage student loan debt effectively, and knowing your options is one of the first steps.

There are two main student loan categories: federal student loans issued by the U.S. Department of Education, and private student loans. The key differences between federal and private student loans include interest rates, loan modification options, and forgiveness programs. Federal loans are widely available with few qualifications, while private loans will require passing a credit check.

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In 2020, 92% of student loan debt comes from federal loans, while private loans constitute about 8 % of the outstanding student loan debt. Federal student loans are the most popular option, as they offer unique benefits like low fixed rates, deferment, forbearance, and income-driven repayment plans.

Federal loans, however, have an annual borrowing limit, and once you’ve reached that cap — $5,500 to $12,500 per year, depending on your dependency status and year in school — you’ll have to weigh your other options, including state-sponsored loans, parent loans, or private loans. While private loans don’t feature the same benefits as federal loans, they can help you cover your school’s full cost of attendance if you’ve exhausted all other options.

Important Things to Know About the Best Student Loans of 2020

  • Federal student loans feature fixed rates, while private student loans can have either fixed or variable rates.
  • Fixed rates remain the same for the term of the loan so they offer more stability, but you may end up paying more over the life of the loan. Variable rates, on the other hand, remain fixed for a certain period and then fluctuate for the remainder of the loan term.
  • While federal student loans have fixed fees, private student loan fees vary by lender. When taking out a private student loan, keep an eye out for origination and application fees as well as penalties for paying your loan off early.
  • Many private student loan lenders let you get “prequalified” online before you fill out a loan application. This can help you figure out how much you might be able to borrow and what your interest rate could be.
  • Exhaust all other options before getting a private student loan. If you need to take out a private student loan, compare fees and interest rates from multiple lenders before making a decision. The lower your interest rate the less you’ll pay for borrowing.
  • Federal loans are available to students without a credit check. Private student loans require a credit check, and in most cases you’ll need a cosigner with decent credit to get approved.
  • If you can’t qualify for the lowest variable or fixed interest rates for private student loans, spend time assessing your credit score before you apply. You can boost your credit score by paying bills on time and paying down debt to decrease your credit utilization ratio.

Federal Aid and Federal Student Loans

When it comes to financing your studies, experts recommend you consider federal loans first, as they have several advantages over private loans. Federal student loans and parent loans are funded by the government, have terms and conditions set by law, and include benefits such as income-driven repayment and student loan forgiveness.

In contrast, private student loans or “nonfederal loans” are issued by banks, credit unions, state agencies or schools and carry their own set of terms and conditions. Private loans are usually more expensive than federal loans and offer limited repayment options and hardship assistance programs. Most notably, private lenders do not provide student loan forgiveness.

If you need to borrow money, you can start by evaluating federal loan options. These may include:

  • Direct Subsidized Loan: Available to undergraduate students with financial need. After completing your FAFSA, your school determines the amount you can borrow — which may not exceed your financial need. Additionally, the U.S. Department of Education pays interest on Direct Subsidized Loans while you’re in school, for the first six months after you leave school (known as your grace period), and during deferment (postponed payments).
  • Direct Unsubsidized Loan: Unlike subsidized loans, this option is available to undergraduate and graduate students, and you don’t have to demonstrate financial need to be eligible. Your school determines the amount you can borrow based on the cost of attendance per academic year and other factors such as scholarships or financial aid you may receive. Unlike subsidized loans, interest accrues on these loans as soon as you take them out, as well as during grace periods, deferment, or forbearance.
  • Direct PLUS Loans for Parents & Graduates: The U.S. Department of Education issues this type of loan for eligible graduate students, professionals, and parents. To qualify for a Direct PLUS loan, you cannot have an “adverse credit history,” which means you can’t have debts that are more than 90 days past due, or other negative financial records from the past five years, such as a bankruptcy. If you’re a parent, you will be entirely responsible for repaying these loans. Currently, there aren’t any options available to sign over parent loans to students.

Before you take on any student loan, experts suggest you take a careful look at your financial award letter and compare it to the college’s tuition and overall cost of attendance. There may be opportunities including state, institutional, or community grants, as well as work-study scholarships available for students that could help you offset a portion of your education expenses.

Speaking to a financial advisor could also help you determine the true cost of your college education by factoring in estimated costs for room, board, as well as other extracurricular living expenses and identifying opportunities to minimize your total cost of attendance.

“The true cost of student debt is much broader than what people have been really factoring in,” says Seth Frotman, executive director of the Student Borrower Protection Center. “Across all demographics and age groups, we’ve seen how student debt can truly impact the rest of your life when you add up mortgages, credit cards, or taking out a loan to buy a car. That’s why you really need to think about your long term financial goals and exhaust all of your federal loan options before you consider a private loan.”

Before determining what’s the right option for you, first consider all of the protections and repayment benefits that a federal loan has to offer, such as disability discharges or student loan forgiveness, Frotman says. Think about the trade off if you opt for a private student loan and the standards you will be held to.

The Best Private Student Loans of 2020

If you’re reading this, you’ve probably made it into your dream school. You’ve taken a look at your award letter, counted your savings, applied to scholarships, and evaluated all of your federal student loan options. But as education costs and living expenses add up, you’ve probably realized these programs alone might not be enough to finance the full cost of your education.

When federal loans fall short, private student loans can help you bridge the financial gap so you can afford higher education. At Money®, we know that comparing loans can be daunting. That’s why we did some of the legwork for you.

We spoke to industry experts and evaluated the terms and benefits offered by some of the most popular private lenders. While this list doesn’t account for all the lenders and options out there, it can be a good starting point for your own research.

College Ave Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate 3.99% – 12.99% Fixed with AutoPay discount
1.24% – 11.98% Variable with AutoPay discount
5, 8, 10, and 15 No application or origination fees. No prepayment penalties. Does charge late fees. Principal and interest payment, interest-only payment, flat $25 monthly payment, and in-school deferment.
Graduate 4.39% – 11.98% Fixed
1.24% – 10.97% Variable
5, 8, 10, and 15 No application or origination fees. No prepayment penalties. Does charge late fees. Principal and interest payment, interest-only payment, flat $25 monthly payment, and in-school deferment.

All Available Loan Types: Undergraduate, graduate, MBA, medical school, dental school, law school, career, parent, student loan refinance

CollegeAve offers a full range of private loans for student borrowers as well as parents. The company has solid customer reviews online and offers additional repayment options beyond interest-only and forbearance. CollegeAve allows borrowers to make interest and principal payments, as well as flat $25 monthly payments while in school. It must be noted that CollegeAve requires international students to apply with a qualified cosigner, and while U.S. students are able to apply on their own, the company states 95% of borrowers do so with a cosigner to improve their odds of approval. The big catch is that U.S. students must make over half of scheduled payments on time before they can apply for cosigner release.

One feature that sets CollegeAve apart, however, is that unlike most lenders it doesn’t require students to be enrolled half-time in a degree-granting institution to qualify for a loan. As long as you’re enrolled in a qualifying institution you can apply for as little as $1,000 or up to your school’s full cost of attendance.

Summary of Benefits:

  • Offers approval decisions in as little as three minutes
  • Has more repayment options than other student loan lenders
  • Offers free prequalification without a hard credit pull

LendKey Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate
&
Graduate
4.99% to 7.75% Fixed with AutoPay
2.99% to 7.77% Variable with AutoPay
5, 7, 10, 15, and 20 No application or origination fees. No prepayment penalties. Does charge late fees. Fixed or interest-only repayments while in school. Up to six months of forbearance.

All Available Loan Types: Undergraduate loans, graduate loans, student loan refinance, home improvement loans

LendKey is not a direct loan provider, but a loan marketplace that partners with 13,000 community banks and credit unions. If you prefer doing business with regional lenders and co-ops, LendKey could be an option for you.

Unlike other marketplaces, LendKey services loans itself and offers in-house customer service. That might not sound like an important detail if you’re shopping for your first loan, but it does make a difference come time to start repayments. Student loan servicers are not the same as lenders, they deal with everything related to payment collections on behalf of lenders.

In many cases, you don’t know who your loan servicer will be until after you’ve taken out your loan, and dealing with servicers is one of the main complaints of student loan borrowers. LendKey has positive online customer feedback across multiple reviews sites and has less than 23 student loan-related complaints with the Consumer Financial Protection Bureau (CFPB).

Other benefits of doing business with LendKey include a forbearance period of up to six months for some of its loans and a $200 bonus for every friend you refer who does business with LendKey. Note that the company allows co-signers and offers a co-signer release option after 12-36 on-time payments. However, those with credit scores below 660 or incomes lower than $24,000 must apply with a cosigner.

Summary of benefits:

  • Partners with credit unions and community banks
  • Services loans itself and offers in-house customer service
  • Offers a $200 referral bonus for each person you recommend who signs up

SoFi Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate Fixed: 4.23% – 11.76% APR
Variable: 1.90% – 11.66% APR
Rates* include a 0.25% discount on autopay.
Not indicated No application or origination fees.
No prepayment penalties.
4 repayment options.
Deferred: No payments in school, start paying interest and principal 6 months after graduation.
Interest only: Start paying a moderate amount of interest during school.
Partial: Pay $25 fixed monthly while in school
Immediate: Start paying immediately during school.
Graduate Fixed: 4.13% – 11.83% APR*
Variable: 1.80% -11.73% APR*
Rates* include a 0.25% discount on autopay.
Not indicated

All Available Loan Types: Undergraduate, graduate, law and MBA, as well as parent loans are available through SoFi.

SoFi’s private student loans are a good option if you have a strong credit history. As one of the leading fintech lenders in the industry, SoFi takes a comprehensive approach when evaluating your creditworthiness, and requires a minimum credit score of 680 in order to qualify for its loans.

Some factors that this lender takes into account include your professional history, cash flow, and history of financial responsibility. While you don’t have to be a full-time student to be eligible for a SoFi private student loan, you are required to be, at minimum, a half-time enrolled student in a degree-seeking program. Furthermore, schools must be accredited four-year public or private degree-granting institutions to meet SoFi standards.

As of June 2020, the minimum you can borrow is $5,000 for undergraduate loans and graduate loans. While the company notes that you don’t need a cosigner in order to apply, they warn that their rates could be higher without one. SoFi does not offer cosigner release, unless you opt to refinance your student loans in order to remove them.

One great benefit of doing business with SoFi is that it offers unemployment protection for those who lose their job through no fault of their own and have their loan (or loans) in good standing. If approved, your loans will be put in forbearance. This benefit is offered in three month increments for up to a maximum of 12 months over the life of the loan. Interest will accrue during each three-month forbearance period, however, but you do have the option of making interest-only payments during that time.

Summary of benefits:

  • $400 discount on SAT/ ACT prep courses for family members of SoFi clients
  • If you’re experiencing financial hardship, SoFi’s Unemployment Protection Plan allows you to temporarily suspend payments until you get back on your feet. Lifetime limit of 12 months.
  • Get personalized career advice through SoFi’s exclusive Career Services

Sallie Mae Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate 4.25% – 12.35% Fixed
1.25% – 11.15% Variable
5-15 No application or disbursement fees. Late fees and returned check fees apply. Interest, fixed, or deferred repayment while in school.
Graduate 4.75% − 12.11% Fixed
2.25% − 11.76% Variable
15 years No application or disbursement fees. Late fees and returned check fees apply. Interest, fixed, or deferred repayment while in school.

All Available Loan Types: Undergraduate, graduate, career training, parent, K-12, MBA, medical school, medical residency, dental school, dental residency, health professions graduate, law school, bar study, parent

Private student loan giant Sallie Mae has some of the least favorable customer reviews in the industry. However, it does offer many more loan options than other private lenders on this list as well as some unique perks.

Its loans are available for parent borrowers as well as graduate, undergraduate, part-time, and vocational students attending non-degree granting schools. It also allows cosigners and has a cosigner release option, which not all lenders provide. Sallie Mae doesn’t state its minimum credit score to qualify, but applicants or cosigners with good to excellent credit are the most likely to get approved.

Some of the benefits of doing business with Sallie Mae include free access to your quarterly FICO score update, a 0.25 percentage point interest rate discount for enrolling in autopay, four months of free Chegg Study, a tutoring service, with their undergraduate loans, and the option to enroll in the Graduated Repayment Period for its Smart Option Student Loan, which allows you to to make interest-only payments for a year after graduation while you’re transitioning from school to your new career.

Summary of benefits:

  • Fixed rates starting at 4.25% for undergraduate students
  • Four months of Chegg for undergraduate loans
  • Free access to your FICO score, updated quarterly
  • No origination fees

Wells Fargo Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate
Wells Fargo Collegiate Loan
Borrow limits:
$1,000-$120,000
Variable rates range from 2.68% APR (with discount) to 9.46% APR (without discount).
Fixed rates range from 4.53% APR (with discount) to 10.72% APR (without discount).
Not indicated No application, origination, and late fees.
Additionally, you will not be penalized for paying off your loan early.
Flexible repayment options, 6 month grace period after you graduate or leave school.
Students are not required to make payments while enrolled in school.
Graduate
Wells Fargo Graduate loan is for students pursuing an MBA, law, or other qualified graduate program, license or certificate.
Borrow limits:
$120,000 max other fields
$180,000 max for business and law
Variable rates range from 3.21% APR (with discount) to 9.44% APR (without discount).
Fixed rates range from 5.64% APR (with discount) to 11.76% APR (without discount).
15 years No application, origination, and late fees.
Additionally, you will not be penalized for paying off your loan early.
MedCAP Alternative Loan for Health Professionals have a grace period of 36 months, designed so they can complete their residency program.

All Available Loan Types: Wells Fargo Collegiate (undergraduate), Wells Fargo Career Training and Community College loan, Wells Fargo Graduate, Wells Fargo Bar Exam loan, Wells Fargo MedCAP loan (finance through residency), Wells Fargo MedCAP-Extra loan (financing after school), Wells Fargo Student loan for Parents

As one of the nation’s largest financial firms, Wells Fargo offers a comprehensive variety of student loan options for borrowers looking to finance any stage of their higher education.

One of the main benefits of financing your education through Wells Fargo is its interest rate reductions. If you, or your cosigner is a Wells Fargo client, you may be eligible for discounts that could lower your interest by an entire point. To qualify for these added reductions, you must have a Portfolio, a previous private student loan, or a qualifying checking account with Wells Fargo at the time of your application.

While Wells Fargo is one of the few lenders that provides student loan opportunities for undergraduates, keep in mind that if you don’t have sufficient credit history, you may be required to apply with a cosigner to be eligible.

Summary of benefits:

  • Wells Fargo offers the highest amount of loyalty discounts out of all the lenders we vetted
  • One of the few lenders to provide student loan opportunities available to non-graduates
  • Student loan options specifically geared toward medical students, law, and business graduates

Credible Review

All Available Loan Types: Undergraduate, Graduate, Parent student loans. As this is a marketplace, specific programs, APR rates, terms and conditions may vary depending on the lender you choose.

If your goal is comparing several student loan providers to find the best deal, we recommend checking out Credible. This student loan platform lets you fill out a form using your personal details, to come up with the best student loan offers you may be eligible for.

You can finance almost any degree with this platform, and you’ll get real interest rates and not just an estimate when you apply. You can get prequalified online without a hard inquiry on your credit report, making it easy to have an idea of your new loan details before you move forward with a full loan application.

As of June 2020, Credible loans all come with no origination fees or prepayment penalties, and Credible doesn’t charge any sort of service fee for borrowers who use their service. Depending on your lender and your lender’s requisites, you can apply for your loans with or without a cosigner.

To qualify for a student loan, most Credible lender-partners ask for a minimum credit score of 680 to apply. Additionally, interest rates may range, on average, between 3.53% fixed and 1.24% variable for those with excellent credit standing.

Summary of benefits:

  • Compare multiple loan offers with a single loan application
  • Get prequalified online without a hard inquiry
  • No origination fee, service fees, or prepayment penalties
  • Finance any type of degree

Ascent Student Loans Review

Loan Type Rates (APR) Terms (Years) Fees Repayment Options
Undergraduate Not indicated 5-20 years None Flexible, see below
Graduate Variable
3.93% – 12.43% APR
Fixed
4.92% -13.42% APR
Variable: 10 or 15 years
Fixed: 10 years
Flexible repayment terms:
Deferred (starts payments up to 9 months after leaving school), $25 minimum or in-school interest-only repayment
Extended in-school period: 36 months max
Postponement payments: MBA grace period, 9 months after graduation
1% cashback + discount for automatic debit payments No application, origination, or disbursement fee.

No prepayment penalty.
Start payments after graduation.

No prepayment penalty.
Start payments after graduation.

All Available Loan Types: Ascent offers undergraduate student loans as well as graduate loans. Undergraduate loans include the Cosigned Credit-Based Loan, Non-Cosigned Credit-Based Loan or Non-Cosigned Future Income-Based Loan (for juniors and seniors). Graduate loans include: MBA, law, dental, medical, general & PhD. Ascent does not offer parent loans at the time being.
If you haven’t built up much credit history and want to borrow without a cosigner, Ascent is one of the few private lenders that determines your ability to qualify by taking into account your projected future earnings. That means that instead of relying on your credit history, this private lender will look at your school, major, and grade point average (GPA) to evaluate what loan options are available for you.

Ascent’s non-cosigned future-income private loan is available for undergraduate juniors or seniors who do not have a cosigner. The loan is designed for aspiring graduates that are about to enter the workforce, and evaluates your creditworthiness by factoring in your program, school, and projected income based on your field of study. In order to qualify, you must have a minimum 2.9 GPA. Ascent also allows you to prequalify online at no charge or expense to your credit score.

Additionally, Ascent makes it possible to earn a 1% cash back reward once you graduate from college, and you can earn $525 for each friend you refer that applies for their own Ascent student loan. For their loans with a cosigner, for example, you have to be enrolled in school at least half-time to qualify. If you have a loan without a cosigner as a junior, senior, or graduate student, you can only repay your loans after you graduate, with terms lasting between 10 and 15 years.

While Ascent provides some reward options as noted above, we must note that their interest rates were higher compared to most private lenders.

If you need a cosigner, Accent allows customers to apply for cosigner release after 24 consecutive on-time payments.

Summary of benefits:

  • No origination fees
  • Earn up to 1% back in rewards when you graduate
  • Receive $525 in cash rewards when you refer a friend
  • Higher interest rates that most private lenders

How to Find the Best Student Loans

There’s no shortcut to finding the right private student lender for you. No company is perfect and each one offers different terms, rates, and benefits. Weigh your options carefully, understand how your interest rate and term affect your payments, and have a plan in place for when you have to start repaying your loan.

When evaluating potential lenders, also take a close look at the following:

Rates

Your interest rate determines the total cost of borrowing, what you’ll pay for taking out the loan on top of the full loan amount. A lower interest rate means a lower overall cost for borrowing. Interest rates for private student loans are based on different factors, mostly your credit score and income or those of your cosigner. Having a low credit score can keep you from getting the lowest possible rates or even from getting approved at all.

Shop around and compare rates and terms from several companies before making a decision. It can also help to improve your credit before applying for a loan or applying with a cosigner who has excellent credit. Keep in mind, though, that not all student loan lenders allow co-signers and some that do allow them don’t offer a cosigner release option, which means your cosigner will be the main person responsible for the loan until it’s paid off.

Loan Fees

Financing college is expensive enough as it is, so we don’t believe you should pay additional fees in order to borrow money for school. Consider lenders that waive origination or application fees and charge low or no late fees.

Repayment Options

We live in uncertain financial times, so it’s important to look for lenders that offer some flexibility in terms of how and when you have to repay what you borrow. Opt for a lender that gives you different repayment options while you’re still in school, offers a grace period, and lets you pay off your loan early without charging a prepayment penalty.

According to Frotman, who previously served as assistant director and student loan ombudsman for the Consumer Financial Protection Bureau (CFPB), one the the most common complaints his team reviewed while at the CFPB were from borrowers that were worried about making payments on-time during times of financial distress, such as job loss.

“Life can be unpredictable, so it’s best to consider all of your options when determining what type of loan will fit your economic situation,” said Frotman.

Financial Reputation

Before settling on a lender make sure they are in good financial standing. This can be done by evaluating how they are reported by reputable sources such as the Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB).

The CFPB will give you an idea of how well the company performs specifically when it comes to its relationship with borrowers through reported complaints. Ideally, you want a lender that isn’t suffering any sort of financial distress and is prepared to demonstrate its commitment to you through quality customer service.

Discounts and Benefits

If you’ve already compared terms, rates, and repayment options and still don’t know which lender to go with, rewards and additional perks can be a good tie breaker.

Most lenders offer discounts for enrolling in automatic payments, yet discount percentages vary between lenders. Many offer free access to study or tutoring programs for a limited time, and even further discounts or bonuses for getting good grades or referring friends.

How to Pay Off Your Student Loan Faster

Start Repayment While You’re Still in School

Private student loans begin accruing interest while you’re still in school. To keep interest down and your loan balance from ballooning, begin repayment as early as you can — even while you’re still taking classes. You can easily save thousands of dollars over the life of your loan by keeping up with interest payments while you finish your degree.

Always check in with the financial aid officers at your school, who can help you identify work-study opportunities, scholarships, and grants. “During school there are so many options of aid you should take advantage of. Once you graduate, those will become very limited,” said Bill Wozniak, Senior Vice President at InvestEd.

Wozniak suggests that borrowers should carefully evaluate the terms and conditions of their loan’s repayment agreement, and start paying early if they’re able to as this can also start building positive credit.

Try Paying Off Your Loan in a Shorter Time Frame

The longer it takes you to pay off your loan, the more interest you’ll end up paying over the life of it. To minimize the long-term cost of borrowing, try to pay off your loan in a shorter time frame. Keep in mind, however, that attempting to pay off your loan in less time will mean having to pay more toward your loan every month.

Use a student loan calculator to help you determine what your monthly payments will be if you were to pay off your loan before its term. Start by reducing the term by one year and see if you can afford to make that repayment amount each month. Decrease the term until you’ve hit the maximum you can afford each month while still taking care of your living expenses and other obligations.

Pay More Than the Minimum Toward Your Principal

Following the above step, calculate the maximum you can afford to pay each month toward your loan. Then, call your student loan servicer. If the minimum payment is $50 and the maximum you can afford to pay each month is $70, ask them to apply the difference of $20 to your principal loan amount to decrease that balance over time. If you make interest-only payments, interest will continue to accrue and you won’t see a significant decrease in your loan balance. Aggressively paying off the principal can help you make more headway.

Debt Snowball vs. Debt Avalanche Methods

The debt snowball and the debt avalanche are two popular methods to pay off debt. They both entail listing all of your debts and making minimum payments toward all of them, except one.

Following the snowball method, you pay more toward your smallest debt while making minimum payments toward the rest of your debts. Once you’ve paid off the smallest debt, you move up the list. This method can help you stay motivated to pay off your loans. Once you get rid of the smallest one, paying off the rest of your debts becomes a snowball effect.

The debt avalanche method, on the other hand, tackles the debt with the highest interest rate first. To follow this method, list out all your debts along with their interest rates and pay the minimum amount toward all of them but the one with the highest interest rate. Once you’ve paid that one off, move on to the one with the second highest interest rate and so on. This method can help you save on interest payments and keep your debt from ballooning any further.

Both of these methods are effective and many student borrowers have seen success with them. Choose the one you feel will work best for your situation and stick with it.

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When you need a hand to cover the many costs that come with higher education, a Student Loan is a good option. Click below for more information.
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Summary: Best Student Loans of 2020

  • CollegeAve
  • LendKey
  • SoFi
  • Sallie Mae
  • Wells Fargo
  • Credible

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