Which Is Best For Me?

Submitted By: Vanessa McHooley

Federal Student Loans versus Private Student Loans – which is best for me?

You have gotten all the grants and scholarships you can, but you still need money for your education. It’s time to look at loans. But which is better – federal loans or private loans?

Federal loans
If you need to take out a loan to help pay for your education, you should always look at federal loans first. The largest source of education loans around, federal loans are long-term loans with low interest rates designed for students who need money for their educations. They have several benefits when compared to other borrowing options, including

- Lower interest rates
- Options to postpone payments
- Longer repayment terms
- Easier credit requirements

Eligibility for some of these loans, such as the Federal Perkins Loan and the Subsidized Federal Stafford Loan, are needs-based, while others are not. You will need to complete a FAFSA to apply for these loans.

The most common federal student loans are listed below:

Federal Perkins Loan
The Federal Perkins Loan is a low-interest loan available to students who have exceptional financial need, based on the information provided on their FAFSA. Undergraduates can borrow up to $4,000 per year, while graduate students can borrow up to $6,000 per year.

Federal Stafford Loan
The Federal Stafford Loan is available to undergraduates and graduate students. Loan amounts depend on a student’s year in school and whether they are financially dependent or independent. Your college’s financial aid office determines your eligibility.

Stafford loans can be subsidized or unsubsidized. Financial need determines which type a student is eligible for. Subsidized loans are based on financial need. The government pays the interest while the student is in school, in deferment, and in their grace period.

Unsubsidized loans are available to all students, regardless of income. The student is responsible for all interest.

Federal PLUS Loan
The Federal PLUS Loan (Parent Loan for Undergraduate Students) is a low-interest education loan for parents. Each year, parents can borrow up to the cost of attendance, minus other financial aid received (scholarships, grants, student loans, etc.).

The PLUS loan is not based on financial need. Qualified applicants must pass a credit check.
Private loans
Private loans are designed to supplement federal loan programs and are available from schools, banks, and education loan organizations. They are usually used to cover education costs that cannot be met by federal aid.

Terms for these loans vary according to the lender and your credit history. Keep these things in mind as you consider taking out a private loan:

- Private loans have credit requirements, and you may need a co-signer
- The lender determines the interest rates and fees, which may be affected by your credit score
- Private loans may not offer deferment options
- Private loan programs may offer borrower benefits, such as interest rate discounts or rebates

No matter what type of loan you take out, be conservative and borrow wisely! All loans have to be repaid, whether federal or private.