Private vs. Federal Loans

The celebration of your college-starting can really be the best time of your life. You almost have it all – the happiness of your parents, your own happiness, your hard work has finally paid off, you can start a new era in your life and change everything. Yes, it is a supreme joy that overwhelms you and your family. However, there is still one partybreaker lurking around – the money, which is from now on to be called the student loan.


Certainly, loans for students are a good solution, if you want to have some extra money, or if you’re diligent and you want to pay for the whole college throughout the years. Depending on your preferences and finances, you can choose between federal and private loans. The exact word “loan” does sound like something you know you’re going to regret, but it can save the house budget in the crucial moment.



Probably the most relevant difference between private and federal student loans is the charging of the interest. Federal loans have a fixed interest rate, and that is desirable since it means that the rate is not variable, it will not change during time. Private loans are more flexible with these rates, and their interest can vary. You should also know that this is not legally regulated; in other words, there is no legal limit for the interest rate when private loans are in question.


Federal loan can be subsidized: for undergraduate students with financial need, the government can pay the interest while you are at college. If you have the unsubsidized loan, then you pay all of the interest, although you can postpone it for several months after you graduate. In the case of a private loan, you alone pay the interest.



Repayment options are another thing you should consider. For private loans, typical repayment period is approximately twenty years, and monthly payment is not so flexible. Federal student loan has more options: it is adjusted to your income, and monthly payment can be reduced and postponed.



If you work in public service, there is an option for federal loan to be partly forgiven. There are so-called Loan Forgiveness Programs that offer the payment of some amount of the loan, under several circumstances (working in public service is one of them). However, it is unlikely that you will get the forgiveness for a private loan, this is currently only regulated for the federal ones.



Certainly, with both federal and private loan, the main problem is the amount that is given to you. Typically, the federal loan does not cover the tuition. Private loans offer more money, but then their interest is greater too. But, it is a good long-term investment, if you are going to be a well-educated individual.



If you’re applying for a private loan, it is very possible that you will need a cosigner. Most students don’t have any credit history, and that is usually necessary for getting this kind of loans. For federal student loans, you don’t need a cosigner in most cases.


The financing of the chosen college can be a problem for a student, as well for the whole family. But, it is worth it, that’s for sure. Therefore, if student loans can help you in dealing with the money during the most beautiful part of your life (the college time is unforgettable), then it is a risk worth taking.

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