The government offers several federal student
loans for prospective and current college students. Unlike private student
loans, federal loans provide many advantages: no need for co-signer, low
interest rates, grace-period, varied payment terms, and many other
Here is a list different types of federal
college loans: Subsidized And Unsubsidized Stafford, Perkins, and Direct PLUS
loans, and federal direct loan consolidation. Each loan has certain
restrictions and eligibility requirements for a student to be approved. Here, I
will discuss about advantages and disadvantages of Federal loans versus private
loans in a detailed manner.
In regards to interest rates, all federal
college loans offer fixed rates with some grace periods after graduation.
Taking a Perkins loan as an example, it is provided by government and offers a
very low fixed rate of 5 percent with a 9 month grace-period time frame. This
loan is given to students who are in financial needs.
However, interest rates from private financial
institutions tend to fluctuate and not fixed. Private loans also have less
flexible payback options and high fees and penalties. But the good news is that
if a private loan company is certified by a school, the company can offer lower
rates opposed to direct private student loans from loan providers who are not
accredited.
As for direct student loan consolidation,
federal loans provide you with a consolidation option and a student can get a
slightly better rate of interest by doing so. However, if you have private
college loans, it cannot be combined with government student loans for loan
consolidation.
For eligibility requirements, college students
who apply for certain federal loans will need to show financial hardships to be
qualified. Individuals who request for federal loans do not have to worry about
credit score since the score is not involved in one of the qualification
criteria. However, if a student has previously committed unlawful conducts like
felony charges, he or she will be immediately ineligible for student financial
help despite of any financial reasons. As funds from the government are
transferred to federal loan participating schools, the colleges become loan
providers and make final decisions about recipients.
However, private lenders have more flexible
terms over who they lend the money to. The approval rate through private
lending institutions is over 80 percent. Unlawful behaviors could matter less
for a student when applying for the loan. The private lenders typically take a
look at credit history as a primary lending measurement. If a college student
or a co-signer has a great credit rating, he/she has a higher chance to receive
a decent interest rate and other incentives. In other words, if a student has a
bad credit history, interest rates and terms the student get from the lender
will be much higher than those with good credit score.