If you are in the student loan market, you will find two types of loans available to you. They are federal student loans, which are funded by the government, and private student loans, which are funded by banks, credit unions, or other financial institutions fund.
Private and federal student loans should be used to pay for your education expenses such as tuition, accommodation, personal needs, books, stationery, computers or electronics for college or school, and transportation.
The money should never be used for holidays, entertainment, or luxury goods that are not linked to your education.
When applying for a loan, always consider what you might have to pay back – and never borrow more than you think you will need.
The criteria for both require that you apply for a new every year you are in college, and you have to be part-time or half-time or student.
Both have their merits, but many experts agree that you may get more benefits over time from a federal loan.
Here is a summary of how they compare.
Private. Many financial institutions require payments while you are still in school or college.
Private. This may have variable interest rates, and some could climb to greater than 18%, and though the rate sometimes drops, you could end up paying a lot more for your loan.
Private. They are not subsidized, so you pay the interest yourself.
Private. Some of them need a credit profile. If you do not yet have a credit record, you will need a co-signer with a good credit profile.
Private. Interest may not be tax-deductible.
Private. Most of them do not offer postponement payment options.
Private. There is no chance that a private lender will offer a loan forgiveness program.
Private. This does not apply to private student loans, which may have different interest protocols.
These are the main differences between a federal student and a private student loan. There is no cost to apply for a private or federal student loan, but there are different application criteria for each of them.
Paying back your loan can take up to 10 years, or sometimes up to 20 years. The federal student loan process offers a program known as Public Service Loan Forgiveness (PSLF), whereby the balance of your loan will be written off if you have paid 120 months under a payment qualifying plan.
However, you have to apply for this benefit, and you have to be employed in certain public service occupations or a non-profit organization. If you are eligible and are approved, you can wave the balance of your student debt goodbye!
Under certain circumstances, your federal debt may be discharged if, for example, you become permanently disabled, closure of the educational institution during the period of study, if someone has used identity theft to secure a loan in your name, or obviously if you die.
It is unlikely that a private loan debt will be discharged, especially if you have a co-signer who would be liable if you cannot pay.
Any way you look at it, whichever loan you decide, is a big step and a major decision for your future life.
If you have a good job with a good income and have built up a good credit score, you can refinance your student loan. This means taking out a loan with a private lender, usually at a lower rate, to pay off your federal student loan.
Borrowers have saved about $18,000 by reducing the rates on their student loans by an average of 1.7 percentage points.
This information is according to experts in the marketplace of online lenders.
Find out all the ins-and-outs of any student loan you want to pursue, whether it be federal or private.
It always pays to shop around for the best deals, especially private financing.