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Being a college student, you’ll likely be given an option between federal and private loans as part of your aid. So what’s the difference between the two? Federal loans are funded by the government while private loans are offered by private lenders and organizations – such as a bank, or credit unions.
And typically, a federal loan is much more flexible in terms and benefits compared to a private loan. Here, we’ll discuss the benefits of a federal loan over a private loan.
Applying for the four types of federal loans are easy.
There are four types of federal loans being; a subsidized student loan, unsubsidized student loan, graduate plus loan, and parent plus loan – and applying for them is fairly easy. There are no credit checks, and no co-signer is needed.
You don’t need to repay It until you graduate.
Which means you can focus more on your studies since you don’t have to start repaying your loan until you graduate, or leave school.
Fixed Interest Rate
Interest rates on federal loans are fixed and are usually lower compared to private loans. And having a lower interest rate is always a good thing because it means less money is owed over-time.
You have the option of getting a subsidized loan.
A subsidized loan means that while you’re still in school, the government will handle the payment of the interest on your loan.
Most don’t require credit checks.
Since you’re still in school you may not have much of credit history. Taking out private loans while having no credit history might be a hard one, and even if you do, you need to have a pretty high credit score in order to qualify for one, getting approved is another story.
While federal loans, on the other hand, can help you build your credit score and history if you’re up to date with your payments.
No co-signer needed.
Private loans will require you to have a co-signer especially if you have a poor credit score. But since a federal loan is not credit-based, they have no need of that.
When choosing a student loan, you may be offered with a federal loan or a private loan. For most borrowers, choosing the latter option is usual; however, choosing an advance offered by the government comes with a lot of benefits.
Advantages Of Federal Loans Over Private Loans
Cheaper Interest Rates And Fees
Compared to private loans, federal loans charge a lower interest rate and fees. In addition, the rates they offer are fixed, meaning the amount you will pay on a monthly basis will stay the same until the end of the loan’s term.
A private lender, on the other hand, often provides variable rates, therefore, your monthly repayment may increase due to several factors.
Having A Good Credit Is An Option
Most private lenders will only accept those who have a good credit remark but with federal loans, it’s not the same thing. Even if you have a poor credit remark or have no credit history at all, federal loan providers will still accept your loan application and grant it providing that you have met their other criteria.
You Can Get A Loan Even Without A Cosigner
Most students who have little to no credit histories can still qualify for a private loan; however, the lender would require them to have a guarantor, which could be their parent or an eligible adult. However, not all borrowers will find this favorable so in case you want to get a loan without a cosigner, you can rely on a federal loan instead.
With private loans, the student is not allowed to postpone any repayments unless it’s fine with them to settle penalty fees. On the other hand, a federal loan may allow you to defer your loan for up to three years. If you want to find a more flexible repayment term, you can look for a lender who will offer more.