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Private Student Loans Vs. Federal Student Loans

Millions of students in the United States rely on student loans to pay for their college. It is a long-term commitment, so it is important to know every aspects of a student loan. There are a number of differences between a private student loan and a federal student loan. No matter which one you opt for, try to limit the loan amount as much as is possible. Student loans are also installment loans, loans with monthly payments.

Private student loans

Private student loans are provided by banks and other financial institutions. They are not backed by the federal government, so it does not have any borrower protection features. The rate of interest, the term of the loan, the limit, and other conditions are all set by the banks/financial institutions. Again, the federal government is not involved in any of this. Factors such as your credit history, your study course, whether you can have a co-signer, your co-signer's credit history, and so on determines your eligibility for the loan. Private loans carry variable interest rates, the banks/financial institutions may reset the interest rates every quarter (based upon the market rates). Private loans are made directly to the students. This means, the legal responsibility of repaying the loan rests with the students. Private loans are easy to apply, they can be applied online or via phone. Once the loan is approved, it will be immediately available to the students. Private student loans may be tax-deductible. Another advantage of private student loans is that most of them do not carry a prepayment penalty.

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Federal student loans

Federal student loans are backed by the federal government. The funds help the students or the parents to pay for a college education. They are cheaper compared to private student loans. Also, they are more easily available. The interest rates are fixed for federal student loans. In few cases, the federal government will itself pay the interest on the loan. In effect, the loan will be subsidized for the student. Based on your income (after college and once you start your job), you can limit each month's repayment amount. If you are pursuing a career in public service, your loan may be 'forgiven' after 10 years. If you become disabled in the future, the loan will be discharged. In order to qualify for a federal student loan, you will have to submit the FAFSA (Free Application For Student Aid) form to the United States Department of Education. There are various federal student loans, your school's financial aid office will be able to help in determining which one you qualify for. They will also be able to help with your FAFSA form. The popular federal student loan programs include direct consolidation loan, direct PLUS loan, direct unsubsidized loan, and direct subsidized loan.

A college education can, to a great extent, improve your chances in getting a better job. Once you land a good, high-paying job, you will easily be able to pay off your student loan.

The Different Kinds of Student Loans for Higher Degrees

Given the growing costs of education worldwide, it is becoming increasingly difficult to pursue higher studies purely from your out of pocket expenses. For such purposes, most people nowadays take the help of student loans to pay off their tuition fees and get ahead in life to realize their dreams. However, it is a good idea, to first understand the various options available in the market before finalizing on the product of your choice.

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Stafford Loans

One of the most popular federal debt financing options, the Stafford loans are offered directly to the student by the Government of United States. Since these loans receive funding from Government accounts, they offer fairly competitive rates of interest to the borrower. Stafford loans are further subdivided into two categories namely subsidized and unsubsidized. You must be either a legal citizen or a qualified non citizen to be eligible for the loan. The loan amount becomes ready for repayment six months after the student has graduated or withdrawn from the course. Also, Stafford Loans do not involve any credit checks or collateral and are eligible for consolidation after graduation.

Perkins Loans

Another type of federal loan, which is designed for serving the purpose of both graduate as well as undergraduate students who belong to low income families, is the Perkins Loan. Although, the loan is funded by the Government, the amount is disbursed by the borrowers’ respective university or college. The interest rates are fairly low and the borrower does not run the risk of getting his credit score impacted, in case he fails to keep up with his monthly installment repayment. The borrowers are obligated to begin their repayment cycle after nine months of their graduating or withdrawing from the course. The interest rate is fixed at 5% and is paid by the government while the student is in school or within a grace or deferment period.

Plus Loans

Also known as the Parent Loans for Undergraduate Students, the Plus loans are aimed at providing the biological or adoptive parents of eligible undergraduate students with adequate financial assistance for the latter to pursue higher studies. The Plus Loans come at a higher rate of interest (which is fixed at 7.21%) as compared to the other federal loans and generally require the borrower to have a good credit score and a co signer to pledge the loan agreement. Unlike other federal loans, the Plus loans do not have a maximum limit that can be availed by an individual, and are eligible for use for a variety of educational purposes, also the ones that are not covered by other forms of debt financing.