Federal student loans are cheaper, more available and have better repayment terms than private student loans. For example, they have three-year deferments and forbearances, while forbearances are limited to just one year on private student loans. They have income-driven repayment plans.
Despite these benefits, these loans have a few disadvantages, including a lack of subsidized options for graduate students, difficulty qualifying for bankruptcy, and funding limitations.
Make sure you understand how interest is calculated and the fees associated with your loan. Both of these factors will impact the amount you will be required to repay. Remember that interest rates and fees are generally lower for federal student loans than private student loans.
A $30,000 private student loan can cost approximately $159.51 per month to $737.38 per month, depending on your interest rate and the term you choose. But, you may be able to cut your cost by comparing your options, improving your credit score or getting a cosigner.
The monthly payment on a $70,000 student loan ranges from $742 to $6,285, depending on the APR and how long the loan lasts. For example, if you take out a $70,000 student loan and pay it back in 10 years at an APR of 5%, your monthly payment will be $742.
Direct Subsidized Loans: You won't be charged interest while you're enrolled in school or during your six-month grace period. Direct Unsubsidized Loans: Interest starts accumulating from the date of your first loan disbursement (when you receive the funds from your school).
Federal student loan interest rates have risen to their highest levels in years, and rates for some loans for graduate students are at record highs. Interest rates on federal student loans are set annually by Congress, influenced by the 10-year Treasury note rate plus a fixed increase.
Are Sallie Mae loans better than federal student loans? In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not.
Borrowers must repay their student loans with interest
In general, interest accrues daily on federal student loans, including while a borrower is in default, and interest rates are set each year and fixed for the life of the loan.
If you make your monthly payments on time, student loan debt won't necessarily harm your credit score. On the other hand, if you are late on payments (considered "delinquent"), in default (late on payments for 270+ days) or see your debt go to collections, this can cause your credit score to drop.
Student Loan Interest Deduction
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
Federal student loans are made by the government, with terms and conditions that are set by law, and include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans.
The interest rate on a federal student loan is fixed and is typically lower than private loan rates. No credit check or cosigner is required to qualify for most federal student loans. Repayment doesn't begin until after you've left college or dropped below half-time enrollment.
Independent undergraduates and dependent students whose parents are unable to obtain PLUS Loans: $57,500 (including up to $23,000 subsidized). Graduate and professional students: $138,500 (or $224,000 for certain medical training) including undergraduate borrowing (including up to $65,500 subsidized).
This can happen. The FAFSA relies on two-year-old tax information. Or your family may be facing big expenses that the FAFSA didn't ask about. If your financial aid offer seems way off, contact the college's financial aid office.
The most common types of federal student loans are Direct Loans, Parent PLUS Loans, Graduate PLUS Loans, Stafford Loans, Consolidation Loans, Perkins Loans, and Federal Family Education Loans (FFEL).
Which is better: Subsidized or unsubsidized loans? Subsidized loans are the best first choice for borrowers; since the federal government covers the interest that accrues on your loans, it's less money for you to pay out of pocket.
Lack of protections: Private lenders don't offer student loan forgiveness programs, and most don't offer income-driven repayment plans.
Most financial aid does not cover all school-related costs. Scholarships, grants, and work-study programs can be highly competitive. You may have to maintain certain standards to meet eligibility requirements during each semester. There's less flexibility on how you can spend funds.
The maximum amount you can borrow depends on factors including whether they're federal or private loans and your year in school. For federal direct student loans, undergraduates can borrow up to $12,500 annually and up to $57,500 total.
You'll have to repay the money with interest. Subsidized loans don't generally start accruing (accumulating) interest until you leave school (or drop below half-time enrollment), so accept a subsidized loan before an unsubsidized loan. Next, accept an unsubsidized loan before a PLUS loan.