As the start of the school year approaches, it’s important to understand as much about student loans as possible. High school and college students alike need to know the details of their student loan options. This is one of the best ways to avoid too much consumer debt.
Overview of Federal vs Private Student Loan Options
One of the biggest distinctions between student loan options is whether they are federally funded through the government or privately funded through a lending institution. FAFSA and other qualifications will affect which loans a person qualifies for when applying for aid. Most borrowers apply for federal loans first before going to private loans since the loan terms are generally more favorable through the Federal government. This can make repaying student loans easier.
There are three types of federal student loan options:
- Direct Subsidized Loans- available for undergrads, school determines borrowing amount, the Federal government pays for the interest while the borrower is in school
- Direct Unsubsidized Loans- available to undergrads and graduate students, school determines borrowing amount, interest begins accruing immediately
- Direct PLUS Loans- available to guardians of undergrads or to graduate students, max amount is cost of education minus other aid
Differences Between Federal Loans & Private Loans
| Federal student loans | Private student loans | |
|---|---|---|
How do you get a federal loan vs a private loan? |
Submit the FAFSA. | Apply directly with the bank or financial institution that issues the loan. |
Is your credit history considered? |
No. You don’t need a credit check for most federal student loans (except for PLUS loans). | Yes, along with other factors. |
Is there a limit to how much you can borrow? |
Yes. It’s determined by your FAFSA. | It varies by lender—often you can borrow up to the school’s cost of attendance (COA). |
Will my student loan application have a better chance of getting approved with the help of a cosigner? |
No. You don’t apply with a cosigner for any federal student loans. | Yes. If you don’t have good credit, it may help to apply with a cosigner. |
Does financial need count?
|
Yes, you may qualify for a subsidized loan. | No. Financial need isn’t taken into consideration for private student loans. |
Can you change your repayment plan after you take out a loan? |
Yes. | Generally, no. |
Hopefully, this overview of federal and private student loan options can get you started. Remember to apply for as many scholarships as you can, as well as start saving for other expenses on your own.
For more information on managing student loan debt, call ACCC today at 800-769-3571.
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