Differentiating between federal and private loans

No matter whether you graduate or not, you must repay your loan plus interest if you borrowed it from the government or a private institution. Before you sign a student loan contract, make sure you understand what you are signing. If anything is unclear, ask your lender or school counselor.

Student loans from the federal government come in three forms:

  • Loans subventioned directly
  • An interest rate that is not subsidized when borrowing directly
  • PLUS loans usually fall into two categories: Graduate PLUS Loans, which are available to graduate and professional students, and Parent PLUS Loans, which are offered to the parents of students.
Student loans from the federal government are generally more flexible than those from private lenders:
  • A credit check is not required for federal PLUS loans (parent and graduate student loans).
  • In some cases, federal student loans can be repaid based on an individual’s earnings after college.
  • Borrowers can change their repayment plans even after they have taken out federal student loans.

There are differences between federal student loans and private student loans in terms of interest rates, repayment options, and other features. See how you can check Are signature student loans federal or private.

 Federal student loans, scholarships, and grants allow you to pay for college.

  • Variable or fixed interest rates are usually associated with private student loans. You will have the same monthly payment whether the interest rate is fixed or variable. The variable rate may increase or decrease depending on the index of the loan.
  • You have the option of making interest-only or fixed payments while in school. Making in-school payments may result in a decrease in your overall student loan costs.
  • For some private student loans, FICO Credit Scores are available for free every quarter.
  • With private student loans, students (often accompanied by a cosigner), their parents, or creditworthy family members can borrow money.

In this chart, federal loans are compared with private loans.

How to apply for federal and private student loans

Federal student loans

In order to apply for federal student loans, the Free Application for Federal Student Aid (FAFSA) must be completed. Between October and June each year, FAFSA forms must be submitted. By filling out the FAFSA, you can apply for federal student loans, grants, and work-study programs. The FAFSA is required to apply for federal student loans, grants, and work-study programs.

Loans to private students

You can apply for private student loans whenever you need them as long as you give the lender sufficient time to process your loan and disburse (transfer) the funds. However, if you are applying for a full year, your lender may disburse funds semester-by-semester.

To borrow federal and private loans, always complete your FAFSA first. When you’re accepted to a college, you’ll receive a financial aid package. To be able to pay for college, you will need to know how much aid you are eligible for so you can estimate how much private student loan you will need. 

Loan terms and conditions for federal and private loans

There are no differences in the terms and conditions of federal and private student loans. Here are the most important things you should know before you take out a college loan:

  • What is the service provider?
  • Who provides the service? 
  • If a cosigner is required for the loan, who is it? 
  • What is the cost of the interest rate?
  • Interest rates vary or are they fixed? 
  • Is it necessary to make payments while you are enrolled in school or after you graduate?
  • What is a late payment penalty?

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