Paying for college can be difficult because the cost is so high, and it can also be hard to understand. There’s a ton of terminology like loans, grants, scholarships, financial aid, the FAFSA, etc. to learn about as well. If you are paying for college on your own, the entire process can be even more daunting. That being said, have no fear! There are a variety of resources throughout our site to help you. In this post we are specifically focusing on federal and private loans, and which one might be the best for you as an individual.
So, what is a federal student loan? These loans are given through the US Department of Education to students that they themselves (or their parents) meet certain requirements for. Federal student loans have a fixed interest rate, and that interest rate itself is often lower than those connected to private loans. You do not necessarily have to have someone to cosign your loan, and there are a variety of ways you can go about paying off these loans when you have finished college. Depending on the industry you end up working in after graduating college, you may also be eligible for a loan forgiveness program. This is not all-encompassing, but hopefully helps to give you a better understanding of what a federal student loan is.
Private loans, on the other hand, can be any loan that is not offered through the federal government. These loans often do not have a fixed interest rate, meaning the amount that you will have to pay back can raise. Banks, credit unions, and other lenders are the people giving out these loans. Private loans also have fewer options for how you can pay back the loans, and fewer options to reduce or forgive them, either. Similar to federal loans, you and/or your family will likely have to meet certain requirements to even qualify for receiving a private loan.
So Which One?
While every student’s situation will vary, all students should really consider taking out a federal loan first, before taking out private loans. The federal student loan gives students much more flexibility and stability, through the multiple repayment, reduction, and forgiveness options, and the fixed interest rates. Private student loans could be considered riskier, as your interest rate is likely to go up and how you repay the loans is set in a tougher stone.
While this article has hopefully helped you gain a better understanding of the difference between federal and private student loans, we do have more articles on students loans that can be found on our site. Be sure to use our college match tool to find the best schools for you, and see your personalized net price estimate for each school in the country.