What are the differences between Federal Student Loans and Private Student Loans for College? What are the advantages and disadvantages of both? In this article, let us talk about the basic facts you need to know about student loans.
What are Federal Student Loans?
Federal Student Loans is a provision by the government. These loans are created to assist students and families who need financial support to pursue college education. Generally, Federal Loans have lower interest rates and more flexible repayment terms than student loan offered by Private Lenders.
There are different types of Federal Loans available to students and their families. These are the Perkins Loan, Stafford Loans, and Family Plus Loans. Each of these are designed to assist consumers with different financial capabilities and situations.
The Perkins loans have a fixed rate of interest at 5% and are available for undergraduates and graduate students who meet the qualifications. To be approved for a Perkins Loan, one must be a US citizen or a US resident; must be enrolled in an eligible school; has satisfactory academic grades; with no unresolved defaults; and has satisfactorily completed all Selective Service requirements.
The Stafford Loan also has a fixed rate of interest at 6.8% and can either be subsidized or unsubsidized. Subsidized Stafford Loans are reserved for low income families and the interest rate will be paid by the government. On the other hand, students must pay the interest for the unsubsidized version of the Stafford Loan.
The Federal PLUS Loan is also a low interest loan for parents of undergraduate and dependent students. This type of Federal Loan is offered for all families who need financing assistance as long as the borrower can present a good credit history.
If you would like to know which of these three loans you are eligible for, visit the FAFSA or Free Application for Federal Student Aid website at http://www.fafsa.ed.gov/.
What Are Private Student Loans?
What about Private Student Loans? These are loans offered by private-owned financial companies and can be acquired as a supplement to government student loans. Unlike Federal Loans, anyone can easily obtain a private loan regardless of the family’s income bracket.
As can be expected, private loans for students will have higher interest rates so they must be chosen with care. If you plan to apply for a private student loan, make sure that you find a legitimate and reliable lending company. Understand all the Terms and Conditions of your lender before signing up for the loan.
About the Author
Samantha Wilson is a consultant for managing credit cards and finding the best student loans. For years she has written student credit card articles that helps build student credit, and student loan help articles that can be used as guides to handle student loan debt.