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Federal Student Loans vs. Private Student Loans (Page 1 of 2)

Few students can afford to pay for college out of their savings, so they use student loans to pay for school. Two major categories of student loans include federal loans and private loans. Because we believe that it is important to understand your education-funding options, this article investigates the difference between federal and private student loans.

These days, there are very few students who can afford to pay for college without some form of education financing. Two-thirds of undergraduate students have some debt, while 88% of law students need to borrow to finance their education. A typical undergraduate may graduate with more than $20,000 of debt, while graduate students may have significantly higher indebtedness. Law school students may graduate with an average of $80,000 in student loans. Typically, students have acquired both federal and private debt, but what are the differences between these types of loans? And is one better than the other? Read on for an explanation of both categories of student loans.

Many students rely on federal student loans to help finance their education. The most common federal loan is a Stafford Loan. These may be issued directly from the government to the student, or they may be issued by a private lender, such as a bank or credit union, belonging to the Federal Family Education Loan Program (FFELP). Either way, these loans are guaranteed against default by the federal government.

Something else to remember about Stafford Loans is they may be subsidized or unsubsidized. If you are eligible for a subsidized Stafford Loan, the government will pay the interest while you are in school. Subsidized Stafford Loans are generally given to students who can demonstrate financial need. If you receive an unsubsidized Stafford Loan, you will be responsible for paying all of the interest, although you may have the payments deferred until after graduation. If you choose to defer paying the interest until after graduation, the interest will be capitalized, or added to the loan amount. To qualify for an unsubsidized Stafford Loan, you do not need to demonstrate financial need.

The amount of your Stafford Loan will vary depending on your year in school. However, graduate students may borrow up to $18,500 each year (with $8,500 being subsidized) with a combined limit for graduate and undergraduate federal loans of $65,500 for dependent students. If you are an independent student, the cumulative limit you may borrow is $138,500 for your graduate and undergraduate studies.

Stafford Loans have variable interest rates, based on the 91-day T-bill, and this interest rate is adjusted each year on July 1. Stafford Loans have an interest rate cap of 8.25%. All lenders offer the same base rate for Stafford loans because the interest rate is predetermined by the government, although many lenders offer payment incentives and/or discounts to help you reduce your interest rate further. Another benefit of federal loans is you may lock in a fixed interest rate if you choose to consolidate your federal student loans. That way, you will not be affected by adjustments in the interest rate each year.

College Student Loans

A Helping Hand: College Student Loans

College students come in different shapes, sizes and backgrounds. There are those who have rich or well-to-do parents who pay for their children’s education. Some already live away from their parents and pay for their education themselves. Some others though, aren’t fortunate enough to have this financial capability but are very eager to continue their college education. But college tuition fees are huge investments which require large sums to be paid regularly. How can a financially handicapped individual cope with this?

Fortunately, there are a lot of colleges which offer college student loans to help out these individuals. College student loans are loans offered to students to assist in payment of the costs of professional education. Unlike scholarships, a college student loan is a form of financial aid that must be repaid, with interest, but usually has lower interest rates than other loans and are also usually issued by the government.

A good example of a government issued college student loan is the Canadian Student Loan. Canadian students are normally eligible for loans provided by the federal government, in addition to loans provided by their province of residence. But in this case, canadian college student loans are normally interest-free until one graduates, and are sometimes supplemented with grants, depending on need. Students who wish to apply for the Canadian and provincial college student loans must do so through their province of residence. The province of residence is normally the province where you lived before you were a student.

In the United States, the Federal financial aid programs offer students a lot of options regarding college student loans. Federal education college student loan programs provide lower interest rates and more flexible repayment plans than most consumer loans, making them a viable way to finance college education. The largest and most familiar federal student aid programs are:

Federal Pell Grants: Pell Grants are only awarded to undergraduate students who have not earned a bachelor’s or professional degree. Pell Grant college student loan applicants must submit a Free Application for Federal Student Aid. Awards depend on program funding. Each student can receive only one Pell Grant in an award year.

Federal Supplemental Educational Opportunity Grants: This college student loan program provides grants to undergraduates with exceptional financial need (students with the lowest expected family contributions) and gives priority to students who receive federal Pell Grants. Students are automatically considered when they submit a Free Application for Federal Student Aid.

Federal Stafford Loans: Stafford college student loans are low-interest loans available to undergraduate and graduate students enrolled at least half-time, without regard to financial need. Students are allowed to borrow money for educational expenses directly from commercial lenders such as banks, credit unions, savings and loan associations, and other lending institutions, or, for colleges participating in the Federal Direct Student Loan Program, from the U.S. government.

Federal Parent Loan for Undergraduate Students Loans: This college student loan program allows parents of undergraduate students to borrow up to the full cost of their children’s education, less any other financial aid for which the student is eligible.

Federal Perkins Loans : Another low-interest fixed rate college student loan for undergraduate and graduate students with exceptional financial need. These loans also offer generous repayment conditions. One doesn’t have to start repaying the loan, or interest on the loan, until schooling is finished or dropped below half-time status. A 9-month grace period is also given before the start of repayments.

Federal Work-Study Program : A college student loan that provides jobs for undergraduate and graduate students with demonstrated need who are enrolled on at least a half-time basis. Students are generally paid at least the prevailing federal minimum wage and may work as many as 40 hours a week.
In other countries, similar college student loan programs are also carried out in order to entice people to get into college.