Federal loans have more benefits than private loans. Interest rates are fixed and lower than the average private loan, so that saves you money with interest over time.
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.
A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college.
Yes, focus on your private loans first (both because they are private and because the interest rate is higher than your federal loans). Use the avalanche method for best results. You'll also want to shop around to refinance those private loans. (Leave the federal ones alone.)
Most borrowers choose fixed-rate mortgages. Your monthly payments are more likely to be stable with a fixed-rate loan, so you might prefer this option if you value certainty about your loan costs over the long term. With a fixed-rate loan, your interest rate and monthly principal and interest payment stay the same.
Direct Subsidized Loans and Direct Unsubsidized Loans are federal student loans offered by the U.S. Department of Education (ED) to help eligible students cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school.
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.
Bottom line. While your credit score will not be a factor when applying for most federal student loans, private lenders consider credit history as part of the application process.
Federal student loans usually don't require a credit check, making them easier to get for most students.
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.
In general, federal loans have stronger borrower protections and lower interest rates than private student loans (regardless of what your federal loan may be called). Because of these benefits, you should focus your efforts on paying off your private loans first.
The interest rate on federal student loans is fixed and usually lower than that on private loans—and much lower than that on a credit card! You don't need a credit check or a cosigner to get most federal student loans.
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. (This may not be the case if you are a parent or graduate student considering federal PLUS loans, though.)
Eligibility for federal student aid is based on financial need and on several other factors such as U.S. citizenship or eligible noncitizenship, enrollment in an eligible program, satisfactory academic progress in college, and more.
Understanding student loans can be complicated, but knowing the key differences between federal and private loans can guide your decisions. Federal loans offer lower fixed interest rates, more flexible repayment options, and are easier to access than private loans, which come with higher rates and less forgiving terms.
Some of the easiest loans to get approved for if you have bad credit include payday loans, no-credit-check loans, and pawnshop loans. Before you apply for an emergency loan to obtain funds quickly, make sure you read the fine print so you know exactly what your costs will be.
Comparing two options side by side is the best way to figure out which is the better deal. Compare how much cash you need to have at closing, the monthly payment, and how much interest you pay over the time you expect to be in your home.
If you're an undergraduate student with bad credit, don't let that stop you from applying for federal financial aid — your credit score won't matter.
Given the option, you should accept a Direct Subsidized Loan first. Then, if you still need additional financial aid to pay for college or career school, accept the Direct Unsubsidized Loan.
What happens to the leftover financial aid money? Well, that depends on you and how you want to handle it. In general, you'll receive a refund. You can then decide whether to send the money back or keep it and use it for future educational expenses.