With the cost of higher education skyrocketing, student loans are putting Americans farther and farther into debt. While most of that can be blamed on the price of college…
A student loan is a type of loan that intends to help students pay for their tuition, school fees and living expenses when they pursue higher education. In the United States, there are two types of student loan: federal and private. A federal student loan is funded by the government through the U.S. Department of Education. A private student loan comes from private lenders, which include banks and any non-federal entity. The borrower is required to submit an application. Once the loan is granted, they must comply with the terms of the loan, including payment schedules and interest rates.
The federal student loan offers a Parent PLUS Loan for parents of dependent undergraduate students. It is designed to enable parents help out in funding their children’s higher education. The grant of the loan does not depend on the parents’ financial status, credit score or debt in relation to their income. However, they will not be approved for the loan if they have an adverse credit history unless they apply with a co-borrower who does not have an adverse credit history. Once approved, parents are bound by a fixed interest that does not change over the course of the payment period. The standard term for repayment is 10 years.
Any student who needs financial assistance can apply for a student loan. However, there are different sets of requirements for borrowers for either federal or private lenders that must be complied with.
To apply for a federal student loan, you must fill out and submit the Free Application for Federal Student Aid or FAFSA. Your school will let you know what financial aids are being offered based on the results of your FAFSA. If you want to apply from a private lender, you must fulfill their specific application requirements.
The interest rate is the percentage of the amount borrowed, and it depends on the type of student loan applied for. Federal loan interest rates are lower than interest rates from private lenders. For loans taken out from the U.S. Department of Education, interest rates are set by Congress and cannot be changed. Private lenders set their interest rates depending on your loan’s contract and variables.
Some student loans have grace periods before payment is due. Usually, the grace period is six months. Federal and private lenders have different payment plans to choose from, depending on the loaner’s financial capability to pay back the loan. The standard payment plan for a federal loan is usually 10 years, and it offers an income-driven payment plan, which may not be granted by private lenders.
You can opt to have a student loan from a private lender. Depending on the terms of your loan, there are different types of repayment plans to choose from. You will also have the opportunity to file your application with a co-signer, which may increase your chance of being approved with a better interest rate. However, private lenders may have more complex requirements than federal ones. Weigh your options by comparing the terms, requirements and benefits versus a federal loan in relation to your needs and payment capabilities.
Some students are able to sustain their higher education with the help of a federal student loan. However, some students need more financial aid than others. If this is the case for you, there are other loan options available to turn to, including the federal loan for parents (PLUS) and other financial loans from the government that can augment your expenses in school. You can also resort to private lenders to get more financial aid.
Some federal student loans do not require good credit from applicants, including the Parent PLUS loan. They charge low interest rates and should be accessible to students who need financial aid. Some private lenders require good credit from borrowers to be approved for a student loan, but they also give them an opportunity to have better interest rates and a higher chance of being approved by filing with a co-signer.
While it’s ideal not to be in debt by resorting to applying for a student loan for financial aid, most students need help in funding their tuition, living expenses, books and other miscellaneous fees while pursuing higher education. There are ways to find the best student loans that work for you depending on your needs, economic situation and repayment capabilities.
Federal and private student loans have different terms for eligibility, interest rates and payment plans. Your choice of student loan must be determined by your ability to comply with their individual terms. Shop around and do your research to compare the interest rates and the payment plan from each lender and determine which has the most financial benefits in the long run.