Student Loans: Federal Student Loans or Private Student Loans

College students who need financial aid have many options available including four federal government loans and private loans. Each option has its advantages, drawbacks, monetary limits, requirements and repayment terms. It is important to understand all aspects of each option before making a decision. The type of loan chosen can have an impact on your finances for years to come.

Grants and Scholarships
A student should always determine if they are eligible for any scholarships or grants before applying for a loan. Just as there are private and federal loans, there are also private and federal grants and scholarships. These sources of funds do not have to be repaid and there are countless options available.

Federal Government Loans
Stafford Loans
A Stafford Loan is a federally funded loan for graduates that will be returning at least half-time or for undergraduates. Stafford Loans are one of the most common federal student loans. Nearly all college students qualify and acceptance is not based on credit scores which makes it appealing for many students and parents of students. They can be subsidized by the government or they can be unsubsidized depending on the need of the student. The funding is supplied by the government through their Direct Loan program. Stafford Loans have a low fixed interest rate, the borrowing limits are increased with each year the student attends school and there are no required repayments while the student is in school.

PLUS Loans
The federal parent loan for undergraduate students, PLUS, allows parents to borrow funds needed for their child’s college or university related expenses above and beyond what any scholarships or grants cover. There is no cumulative loan limits with this type of loan. Like Stafford Loans, all new PLUS loan funds are made available through the Direct Loan program. PLUS loans are the responsibility of the parent not the student. However, after 2006 eligible graduate and professional students could apply for a PLUS loan to finance their own education.

Perkins Loans
The federal Perkins loans are loans given to students that demonstrate the most need financially. They are low-interest and the lender is the school itself and there are set loan limits per year. However, the actual amount is determined by the amounts of other monies being received, financial need and the availability of funds at the school of choice. Both undergraduates and graduate students who attend school at least half-time are eligible for a Perkins loan.

Federal Consolidation Loans
Federal student loan consolidation allows a student or parent of a student to consolidate multiple federal student loans into one loan. This results in having only one singular monthly payment rather than making multiple payments throughout the month. The U.S Department of Education will provide eligible borrowers with two options for consolidating their federal student loans; Special Direct Consolidation Loans and Traditional Direct Consolidation Loans.

Private Student Loans
There are hundreds, if not thousands, of private student loans are available. Most private student loans have higher limits than federal student loans and tend to be more flexible in repayment options and what the funds are allowed to be used for such as travel expenses, school related expenses like laptops and living expenses.

An applicant for a private student loan must be at least eighteen years of age and most first-time student borrowers will require a co-signer in order to qualify. Private loans do and will take credit scores and history into account. If you do not have good credit and have no co-signer, you may not be eligible for a private student loan. There must also be sufficient income present in order to qualify.

Some private lenders may also offer federal student loans and some federal student lenders may offer private student loans. It is essential to understand the financial need, the ability to repay the loan and which type of loan would suit your needs most efficiently and in the most cost-effective manner. There are pros and cons to each type of loan and it is best to ensure you have adequate time to research all your options. The financial aid decisions you make now can have a major impact on your life later.

Read more about federal student loan consolidation.

Wishing you all success and bright future.

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