Federal vs. Private Student Loans: Which Are Right For You?
Updated on May 21, 2019
When it comes to choosing student loans for your education, you have a huge range of options. While it’s great to have so much choice, this often leaves prospective college students feeling a little overwhelmed. Student loans fall into two categories – federal and private. Many college students actually opt for a combination of these two types of loans to cover the cost of their education. Here’s what you need to know about these two types of loans before applying.
Federal loans are loans made by the government. There are a few key benefits to taking out student loans from the government, the main one being that the interest rates are typically very low and stay fixed throughout the term of the loan. You don’t need to start making payments until you graduate, and there are options for income-based repayment plans. Federal student loans do not require a credit check, and there is often the option for some loan forgiveness if you work in a job with public service. However, since they are based on your family’s financial status, they can be difficult to qualify for in the full amount that you need.
If you can’t get enough funds for your education through federal loans, then you can use private loans to supplement. Private loans are usually funded by a financial institution, like a bank or credit union, or through an educational institution. Each private loan is different and has different interest rates and repayment plans. The interest rates with private loans are generally a little higher, and you may need to start making payments while you are still in school. You will likely also need to complete a credit check or have a co-signer to qualify for the loan. Although private loans can be more expensive in the long run, it’s worth it to shop around before making a final decision. Since there are so many different options, there’s a good chance you will be able to find a private loan that is reasonable for your financial circumstances.
Within these two categories, there are many different loans to choose from. Federal and private loans each have their benefits and challenges, which is why many people opt for a combination of both.