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Federal vs. Private Student Loans

private federal loan

Federal Student Loans vs. Private Loans: Which Loan is Right for You?

Now that you've decided to get a student loan you need to be able to compare student loans and student loan rates to see which one is right for you. There are many pros and cons to choosing federal student loans like Perkins Student Loans or Stafford Loans, but the same goes for Private Student Loans.

The type of loan you choose all depends on your eligibility requirements, your credit history and the amount you need for school. To help you decide whether a federal student loan or a private loan is right for you we've created a student loans comparison of the two below:


Eligbility
Federal Student Loan
Private Student Loan
  • Must complete the FAFSA financial aid form
  • Be a U.S. citizen or an eligible non-citizen with a valid social security number
  • Be working toward a degree or certificate in an eligible program
  • Have a high school diploma, GED or pass an approved ability-to-benefit (ABT) test
  • Register with the Selective Service if you're a male between 18 and 25
  • Maintain good grades
  • Must be 18 years or older
  • Attending at least half-time in a degree, graduate, or certificate program to be eligible for a Private Student Loan
  • Satisfactory credit history and sufficient income required for approval (Many first-time students may need a qualified co-signer such as a parent or another in order to qualify for the loan)
Pros
Federal Student Loan
Private Student Loan
  • Sent directly to your school, although the school may require your parents to endorse the check (It will be disbursed and applied to your tuition and other direct school costs)
  • Offers a low interest rate
  • The government pays your interest as long as you are in school half-time (6 units for undergraduates and 4 units for graduates)
  • The government will pay your interest during times when you've been authorized to defer the loan
  • You are allowed to defer any payments until after you graduate
  • With hundreds, maybe thousands, of these private loans available in the U.S., you can take your time when you compare student loan rates against each other
  • These loans are more flexible than other loans and tend to have higher limits
  • May be used to pay for a variety of college expenses, from tuition to campus living expenses, school supplies, travel, and more
  • Good credit will help you considerably when applying for a private student loan
  • If your credit isn't great, or if you haven't yet built it, you can get a cosigner loan (When someone cosigns a loan for you, in essence they extend their good credit to you)
Cons
Federal Student Loan
Private Student Loan
  • Some are awarded on the basis of need, some are not
  • You can only borrow certain amounts based on your grade level in school and on the type of student you are
  • The interest is paid by the government for some loans, but not for others
  • Loan fees (origination and insurance fees) are automatically deducted from each disbursement
  • Lots of paperwork (your parents must submit one of two different loan applications)
  • If you don't have good credit, and there is no one with good credit to cosign for you, you may not get a private loan
  • Some lenders have set rates such as the current LIBOR rate (London Interbank Offered Rate- the interest rate international banks charge each other to borrow U.S. dollars) or the Prime rate (interest rate that lenders give to their best customers)
  • For both of these rates, you can expect to pay at least a couple of more percentage points above the going rate for a private student loan
Repayment
Federal Student Loan
Private Student Loan
  • Standard 10-year repayment term
  • A federal loan consolidation can be used to consolidate your federal loans together to extend your repayment term
  • Standard 15-year repayment term
  • Private student loan consolidation means that you cannot consolidate private loans with federal loans, but you can sign up for combined billing

Both federal student loans and private loans offer different benefits, but it is always better to get a federal government loan over a private business loan. Federal student loans always offer lower interest rates, and they have the added bonus of paying off your interest while you are in school.

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