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.
The Cons of Private Student Loans
Most private student loans do not offer income-driven repayment plans. Private student loans do not qualify for teacher loan forgiveness or public service loan forgiveness. Private student loans have limited options for financial relief when a borrower experiences financial difficulty.
One approach is to start with paying down your private student loans. Private loans aren't eligible for forgiveness through the government. If you have private and federal loans, your federal loans may be eligible for federal student loan forgiveness depending on your occupation and other factors.
Differences Between Direct Subsidized Loans and Direct Unsubsidized Loans. In short, Direct Subsidized Loans have slightly better terms to help out students with financial need.
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.
There are no income limits to apply, and many state and private colleges use the FAFSA to determine your financial aid eligibility. To qualify for aid, however, you'll also need to submit a FAFSA every year you're in school.
A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college. Here are the types of student loans. (Keep in mind that not all students are eligible for every loan.)
If yours requires "school certification," your school must confirm your enrollment and make sure you borrow within the total cost of attendance, including federal loans, scholarships, and grants. It's always a good idea to borrow federal loans first because they typically offer better terms.
Your loans' payment history, length of credit, and hard inquiries of private student loans can all have an impact on your credit score. Keep track of all payments and due dates and consistently monitor your credit reports to help you manage your student loans.
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.
Explore your federal options first
For most student borrowers, federal Direct loans are the better option. They almost always cost less and are easier to repay.
For most students and families who decide to borrow, federal student loans are the best option. Repayment on federal student loans doesn't start until after you leave school, and with fixed interest rates and payment plans, monthly payments can be manageable.
There is no income cut-off to qualify for federal student aid. Many factors—such as the size of your family and your year in school—are considered.
Nearly eight in ten students graduate with less than $30,000 in debt. Among those who do borrow, the average debt at graduation is $27,100 — or $6,775 for each year of a four-year degree at a public university.
Among our partner lenders, you'll need a credit score of at least 670 to qualify for a private student loan, although some lenders don't disclose their minimum credit score requirements. However, the higher your score, the better. Most lenders will give you better rates and terms if your score is at least 700.
While federal loans are only available through the federal government, private student loans can come from other lenders, including large-name banks you may already be familiar with, such as SoFi. In most cases, federal student loans are preferable because of the benefits they come with.
Private student loans should be the last option you consider after maximizing all other types of financial aid. For more information about borrowing loans for college, check out this article on Private vs. Federal Loans.
Private lenders typically check a borrower's financial standing to help them analyze the risk they take by lending money. They'll run a credit check to see how you've handled debt in the past. It can be tough to qualify independently without a credit history or a limited one.
What income is too high for FAFSA? There is no income that is too high to file a FAFSA. No matter how much you make, you can always submit a FAFSA. Eligibility for need-based financial aid increases as the cost of attendance increases, so even a wealthy student might qualify for financial aid at a higher-cost college.
For example, if your citizenship status changed because your visa expired or it was revoked, then you would be ineligible. Other reasons for financial aid disqualification include: Not maintaining satisfactory progress at your college or degree program. Not filling out the FAFSA each year you are enrolled in school.
A common myth is that students from high-income families won't qualify for FAFSA funding. In reality, there's no maximum income cap that determines your eligibility for aid. Although your earnings are a factor on the FAFSA, only some programs are based on need.