GOBankingRates works with many financial advertisers to showcase their products and services to our audiences.
These brands compensate us to advertise their products in ads across our site.
This compensation may impact how and where products appear on this site.
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information.
it’s possible for you to read more about oureditorial guidelinesand our products and servicesreview methodology.
This guide will cover how these types of student loans differ and how to compare lenders.
What Are Federal Student Loans?
The government provides federal student loans to those who may need funding to attend college or university.
Federal student aid programs issue these loans, which are funded by taxpayers.
There are several types of these available.
Direct Subsidized Loans
The direct subsidized loan is offered to undergraduate students who are in financial need.
The Department of Education will make interest payments on the loan while you are in school.
Your interest will continue to be subsidized during grace periods and deferment periods.
You are responsible for making interest payments the moment you receive the loan.
Interest will accumulate while you are in school.
Technically, you only have to start repaying it six months after you graduate or drop below half-time enrollment.
PLUS Loans
PLUS loans allow parents to borrow money so they can pay for their childrens education.
Federal Consolidation Loans
These financial products let borrowers consolidate their federal education loans into a new loan.
That way, they can reduce their monthly payment and preserve their access to federal forgiveness programs.
You cannot combine multiple private student loans into a federal consolidation loan.
You also cant mix federal and private student loans in this key in of debt consolidation.
It only applies to federal student loans.
What Are Private Student Loans?
Private student loans can be issued bybanks, credit unions and online lenders.
These loans arent eligible for federal forgiveness programs, but some people flock to them for lower interest rates.
Private student loans offer more flexibility than federal loans, but federal loans offer more protection.
Federal vs. Heres what you should know.
Furthermore, federal law assigns a fixed interest rate for all borrowers.
Its based on the 10-year Treasury note rate plus a small bump.
Both loans may come with fees, such as origination or late fees.
Private lenders have more stringent requirements.
You will need a sufficient credit score and debt-to-income ratio.
Private student loan providers have different requirements, and you may need aco-signerto get approved.
Having a co-signer can also result in a lower interest rate.
Loan Limits
Federal student loans have strict limits on their amounts.
Those limits are lower for dependent students than they are for independent students.
The aggregate loan limit is currently $31,000 for dependents and $57,500 for independent students.
Both types of students can only have up to $23,000 of their loan subsidized.
Private student loans can cover the difference.
The limit on these loans is capped at your colleges certified costs minus any financial aid you receive.
This arrangement ensures a student isnt receiving too much money that will then accrue interest.
Private student lenders aim to provide students with exactly what they need and nothing more.
Repayment Options and Flexibility
Federal student loans have income-driven repayment plans that give borrowers more flexibility.
Loan Forgiveness and Discharge Options
Private student loans are not eligible for any loan forgiveness programs.
However, programs like the Public Service Loan Forgiveness Program are available for federal borrowers.
Summary of Private Student Loans vs. Federal Student Loans
Pros and Cons of Federal vs.
They are also a great choice for most borrowers due to their lower interest rates and flexible repayment options.
However, these loans can be advantageous for people who have high credit scores or a reliable co-signer.
Its based on your FAFSA form.
Submitting your loan utility with a co-signer can help you get better rates and terms.
Lenders will look at the co-signers credit score and debt-to-income ratio when assessing the software.
However, the co-signer is responsible for making payments if the borrower cannot keep up with the loan.
These are some of the factors to consider before borrowing:
Federal vs. you’ve got the option to learn more about GOBankingRates processes and standards in oureditorial policy.
Share This Article:
