10 Benefits of Federal Student Loans Vs Private Student Loans


It is the norm for students to apply for financial aid while they are in college. And when you apply, your school will add student loans as a part of the loans you could apply for. You should find out the type of loans that your school is offering to you. Note that there are two main types of student loans. You have Federal and Private loans. Also, you have Federal student loans and Federal parent loans all funded by the Federal government. But, private student loans are not funded by the Federal government. They are usually made by a lender. And the lender can be a bank credit union, state agency or a school.

So if you want a loan to pay for college or a career school, then you should borrow Federal loans. Federal loans are subdivided into direct subsidized loans and direct unsubsidized loans. You also have direct plus loans for professional and graduate students. Finally, you have loans made out in the student’s names by parents called Federal parent loans or the Direct plus loans for parents. These loans are payable by the parents, not the student. So let us go fully into the benefits of Federal vs Private student loans.

Differences between federal and private student loans

The first point you should note is that federal student loans are given by the government for disbursement to the students who are eligible. Also, the terms and conditions are set by law. These terms include many benefits like fixed interest rates and income-driven repayment plans. These kinds of incentives are rare among private loan lenders.

Secondly, private loans are created by private organizations like banks, credit unions, and state-based or state-affiliated organizations. And the terms and conditions are set by the lender. This makes it more expensive to borrow.

Federal vs Private Student Loans Showing Clear Benefits

1. When payments fall due

For Federal student loans, the Payments don’t fall due until after you graduate, leave school, or change your enrollment status to less than half-time. But for private student loans, only a few allow you to defer payment until you leave school. Most of them need you to start repaying your student loan while you are still in school.

2. Interest rates

Interest rates are the primary areas you should focus on when making a decision between federal vs private student loans. For Federal student loans, the interest rate is flat and is often lower than private loans. Also, it is much lower than some credit card interest rates. You can look at the current interest rates on Federal student loans. But most Private student loans have either variable or fixed interest rates. And they are often higher or lower than the rates on Federal loans, depending on your circumstances.

3. Subsidies

If you have a financial need and you apply for a Federal student loan, as a result, you may qualify for a “subsidized loan. The government pays the interest while you are schooling on at least a half-time basis and during certain other periods. But in most cases, they do not subsidize Private student loans. This means you pay for all the interests on your loan.

4. Credit check

When you consider Federal vs private student loans, a credit check is another area you benefit from when you get a Federal loan. For basic Federal student loans, you don’t need to get a credit check to qualify for Federal student loans. Except for PLUS loans that check your credit to decide whether you are eligible. However, Private student loans usually need an established credit record or a cosigner.

5. Tax benefits

Here there is a uniform benefit. For Federal student loans, Interest may be deductible from Tax. While for Private student loans Interest may be tax-deductible.

6. Consolidation and refinancing

If you check the Federal vs private student loans, there is a clear advantage for the Federal loan when you wish to merge your debt. For Federal student loans, loans can merge into a Direct Consolidation Loan. But for private student loans, you cannot consolidate your student loan into a Direct Consolidation Loan. However, they allow you to refinance instead.

7. Postponement options

This is another winner for Federal loans. If you are unable to repay your loan due to certain problems, you may be able to temporarily postpone or lower your payments. But, for Private student loans, you have to confirm the position on this matter with your lender to get any options they may have for postponing or reducing your loan payments.

8. Repayment plans

As you examine Federal vs private student loans repayment plans, the federal student loans have clear policies. The Federal student loan borrower has many repayment plans, including an option to tie your monthly payment to your income. But for Private student loans, you should find out what the lender’s policies are about your repayment options.

9.     Prepayment penalties

For the Federal student loan borrower, there is no prepayment penalty fee. But you must confirm from the Private student loans lender if there are no prepayment penalty fees.

10. Loan forgiveness

As for Federal vs private student loans, the Federal loan’s borrower has a clear advantage in the area of loan forgiveness. For instance, a Federal student loan borrower who is working in the public service may be eligible to have some parts of the loans forgiven. You can learn more about loan forgiveness programs. But, many private lenders do not have loan forgiveness programs, but if you borrow student loans from state agencies, they may forgive you in special cases.

Conclusion: It is clear that if you want to borrow a student loan, you should get a Federal loan because of the obvious advantages it offers. And the flexibility you can get when repayment becomes difficult. So if you are looking for a student loan get a Federal student loan now.
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