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Private Student Loans versus Federal Student Loans
On top of all the grants and scholarships you can rake together, you still sometimes might find yourself short for paying for college. That’s the time when you’re going to start looking for a student loan. But which one is more beneficial for your situation – federal loans or private loans?
In almost every case, federal loans will be better than private loans. Because they are long-term loans with low interest rates, federal student loans are designed to meet the needs of a young student. Due to their popularity, federal loans are the largest source of education loans anywhere.
The benefits of a federal student loan include lower interest rates, options to postpone payments, longer repayment terms, and easier credit requirements. The eligibility requirements for some of these loans are need-based, while others are automatic. For the needs-based ones, you will need to fill out a FAFSA application. The four most common federal student loans are Perkins, Stafford, and PLUS.
The federal Perkins loan is a low-interest loan available to students who can demonstrate on the FAFSA application that they have an exceptional financial need. Using it, an undergraduate can borrow as much as $4000.00 per year, whereas a graduate student may borrow as much as $6000.00 per year, with a lifetime maximum of $20,000. Perkins loans always carry a fixed interest rate of 5% for the duration of the repayment period which is ten years.
The federal Stafford loan is available both to undergraduate and graduate students. The loan amount depends on the student’s years in school and whether they are in substantial financial need. You will usually require the assistance of the college financial aid office to determine your eligibility. Depending on financial need, a Stafford loan can be either subsidized or unsubsidized. In a subsidized loan, the government pays the loan’s interest while the student is in school, during deferment, and during their grace period. With the unsubsidized loan, the student is responsible for all interest. However, the unsubsidized loan is available to all students, regardless of income.
PLUS is an acronym standing for “Parent Loan for Undergraduate Students”. The federal PLUS loan is a low-interest loan which the parents of the student take out. For each year of the loan, parents may borrow up to the cost of attendance, after subtracting the other financial aid received which the student may be receiving such as scholarships and grants. Instead of being based on financial need, the parents must pass a credit check.
You will find more student loan answers here in the student loan category.
Each of these are excellent opportunities to be first considered by students seeking financial assistance. If for some reason none of these options are attainable, then the student may consider a private loan.
Private loans are intended to be a supplement to the federal loan programs, and to cover education costs that cannot be met by federal aid. They are available from schools, banks, and education loan organizations. The terms for private loans will vary, according to the lender and the student’s credit history.
The drawbacks of private loans are many. For one thing, it is a fact that they have credit requirements, so you may need a co-signer. The lender also determines the interest rates and fees, which will be based on your credit score. Private institutions seldom offer deferred payment options. However, they may offer perks such as interest rate discounts and rebates.
Regardless of which kind of loan you take out, remember that they always have to be paid back. Choosing wisely will help make that repayment process as easy for you as possible.
You must spend a bit of time shopping for loan suppliers. I’ve done some homework and found these alternatives for you. If you don’t qualify for government grants or loans, there are other competitive alternatives. Don’t panic, your solution is always there somewhere. Ask for loan quotes and compare them before selecting the final lender.
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