The Difference between Federal Loans and Private Student Loans

In choosing between Federal or Private Student Loans, many are left clueless. With this article, let's check on the advantages and disadvantages of both types of student loans to help you better decide which one to obtain.

What are Federal Student Loans?

Federal loans are student loans provided by the government that aims to help young people finish a college degree with available financial support. Federal loans have lower interest rates compared to Private student loans along with other benefits. For instance, Federal student loans give students the option to postpone their payments at a later time as well as longer repayment terms than regular loans. The Perkins Loan, Stafford Loan and the Federal Plus Loans are the three major types of federal loans today.

The Perkins loan imposes only 5% of interest for both undergraduate and graduate students who pass the requirement for this loan. Applicants for this loan must be US citizens or US resident, is enrolled to an eligible school, has satisfactory academic grades, no unresolved defaults, and has satisfactorily completed all Selective Service requirements.

The Stafford Loan offers a 6.8% interest rate and is divided into two categories- subsidized and unsubsidized loans. Subsidized loans are on a need based and the government would pay the interest for the whole school term. On the other hand, unsubsidized loans are open for all but the student would be responsible to pay the interest.

The Federal PLUS Loan is a low interest student loan for parents of undergraduate and dependent students. This loan is also open for all regardless of their annual income but it does require good credit status. All three Federal loans require applicants to submit a Free Application for Federal Student Aid (FAFSA) to be considered for the loan.

What Are Private Student Loans?

Private Student Loans are provided by private-owned firms or financial companies that are designed to give additional support to federal loans. Most students and parents acquire Private Loans as additional support for other expenses that may be needed such as rental fees and daily allowances.

Private loans often come with higher rates and fees when compared to Federal student loans and they do require applicant to have an excellent credit in order to be approved. In cases where the applicant has a low credit score, a cosigner may be required to get an approval.

Because many different financial firms offer private student loans, it is up to the student to research which company gives the best rates and terms. If you're planning on obtaining a private student loan, see to it that you've studied your choices well before signing up with any company. Also, watch out for private firms that may impose unreasonably high fees on your loan.

Ultimately, whether you choose to get a Federal student loan or a Private student loan or both, the efficiency of these financial aids would depend on how well you use the money for your education and how timely you are in submitting your repayments.