Federal Student Loan vs Private Student Loan
Finding sources to fund a college education troubles many high school graduates and students returning to school for another college year. Not all incoming college students are fortunate enough to have parents who can support their pursuit for higher education financially. After all, college education is expensive, the funding of which should be considered carefully. Here is a brief discussion of Federal Student Loans and Private Student Loans.
The most popular route that students take to make their college education possible is by obtaining federal student loans. As the name implies, federal student loans are a form of assistance that the government grants qualifying applicants who wish to attend college. Federal student loans are generally offered under the names Stafford Loans and the PLUS loans. Stafford student loans are readily available to students, while PLUS loans are available to parents and graduate students. Federal student loans are popular among incoming college students because they are relatively easier to get, have fewer eligibility requirements, and offer lower interest rates over longer repayment terms. Since credit requirements are negligible with federal student loans, even people with bad credit scores can apply for them without much worry.
The problem with federal student loans, however, is that they are limited; the money that an incoming college student can borrow from federal student loan programs is often not enough to cover all college education related expenses. After all, a college student needs to pay more than just tuition and fees. College students also need to buy text books, supplies, a laptop computer, printer and accessories in order to keep up with today’s technology integrated studies. College students also need to pay living expenses, such as room and board at the dorm, an apartment off campus, utilities, laundry, gas, and other such expenses. All these expenses add up quickly, and the money available through federal student loan programs is too little to pay for everything that a college student truly needs.
To help bridge the gap between what the federal government can afford to lend and what today’s college students need, some college students opt to work part-time jobs while studying. Some, on the other hand, apply for what are called Private Student Loans. Private Student Loans are loans originated by banks and lending institutions which choose to offer financial assistance to college students. Chase, for example, offers up to $40,000 per academic year, up to $150,000 per college student.
While private student loans can be riskier than federal student loans, for most it’s the only viable alternative given the rising cost of college education. The interest rates are generally higher, and if the college student is not careful or discerning enough, he or she may have trouble repaying both federal and private student loans after graduation. College students with a bad credit score may need a co-signer, though many programs do not require a co-signer. Parents generally have a better credit score and can help the student obtain lower interest rates on private student loans by co-signing.
Ultimately, it’s the college student’s decision as to which loan programs he or she will use. The important thing to remember is to budget your expenses and to know your limits. Try one of our Excel based student loan calculators to help you compare Federal Student Loans vs Private Student Loans.