Student Loans 101: Federal Loans v. Private Loans - Which is better?

Taking out student loans can be a bit confusing. But it's something that most people attending college will need to do. Knowing the options you have is the most important thing, so that you make the right decision for yourself. Here’s a general outline of the two main types of loans:

Government Student Loans:

Off top, federal loans are almost always better for students. They have many extremely beneficial perks for students that are not usually offered with private loans. To receive federal loans, you must fill out the Free Application for Federal Student Aid, or FAFSA. This is the best type of loan to start with. Here’s why:

  • Don’t have to pay loans off until after you graduate, leave school, or change enrollment status to less than half time.  
  • Six-month deferment period after graduation.
  • Lower interest rates than private loans
  • Sometimes, the interest is subsidized, or paid for, by the government while you’re in school.
  • Fixed interest rate.
  • Interest may be tax deductible.
  • No credit check or credit score is necessary to receive loan.
  • No cosigner is needed usually.
  • Repayment plans vary, so you can choose what works for you.
  • You can consolidate your loans into one big loan.
  • Interest may be tax deductible.
  • Student loan forgiveness may be an option if you work in public service.

Private Student Loans:

Private student loans are a great option if you were not given the full amount of federal loans needed to cover the cost of school. For example, your tuition costs $10,000, and you got a federal loan for $7,000. It would be beneficial to take the remaining $3,000 out as a private loan.

  • Private loans can be taken out at credit unions, banks, or private lenders.
  • Payments can be required to be made while you’re still in school.  
  • Deferment period depending on lender.
  • Variable interest rates.
  • No interest is subsidized – you pay all of the interest.
  • Interest is not tax deductible.
  • Loan consolidation is not an option.
  • Repayment options must be confirmed with lender.
  • Cosigner may be needed.
  • Loan forgiveness program is very unlikely.

Michigan First Credit Union has an AMAZING private student loan option through Michigan First Student Choice.  I will write a separate post detailing their private loan options that have almost the same perks as taking out a federal loan.

Questions? Hit me up.

Be Easy,

Erin

Source: https://studentaid.ed.gov/sa/types/loans/federal-vs-private