Federal vs. Private Student Loans- Which Should You Use?

federal vs. private student loans

Student loans…gross. Probably the last thing you want to hear about, right? There’s a battle between choosing federal vs. private student loans, and it’s a headache to figure out what’s what. 

Talking about student loans can be so stressful, especially when you are a full-time college student. You have enough on your plate! It shouldn’t have to take you hours to research what option is best for your loan choice. 

Whether you know a ton about how student loans work or nothing at all, you can still make an educated decision. In no time you will know the pros and cons of the federal vs. private student loans debate. 

So, what’s the difference?

Talking about loans can sound like gibberish when you are new to the world of financial decision-making. Even just the phrase “federal vs. private student loans” can make your head spin a bit.

No need to stress! Let’s break this down in simple terms:

Federal Student Loans

Federal student loans are simply loans that are funded by the government. This means that there are certain terms you must agree to that stay consistent with these governmental loans. 

There are a few different factors when it comes to repaying student loans to the government. Your payment plan is based on your income. 

There’s a system that allows for some wiggle room based on your financial state. However, there are fixed interest rates that can pile up if you aren’t careful.

Because of the nearly flat rate of interest and income-based payment plans, you can calculate nearly everything beforehand. Federal Student Aid has plenty of FAQs, tools, and loan simulators on its site to help educate and prepare you. This would be a great baseline to compare to before agreeing to any private loan options!

Private Student Loans

Private student loans typically have a similar process to federal loans, however, these loans may differ in their agreements. Because it’s a private loan, the organization, company, or bank that you begin this agreement with decides the terms. 

This gives you a little more freedom to explore better options for you, but it’s probably going to be more work. You could find a great deal, or you could settle for a bad one. It’s all in the work you’re willing to put into searching for it.

Here are some answers to questions you probably have about student loans:

When do you begin your payment plan?

Federal aid holds off all payment plans and interest rates until after you graduate. Private loans fluctuate based on who’s supplying them, but most require you to begin payment while you’re still in college.

What do the payment plans look like?

For federal aid, you begin payment after graduation with a fixed interest rate. This payment plan is based on your income so it’s appropriate to your situation.

When it comes to private loans, there’s a whole spectrum of options. You can find an organization that offers a payment plan that suits your needs. 

Is there loan forgiveness?

Federal student aid allows for some loan forgiveness occasionally depending on whether or not you work in public service. Private loans, although it depends on the institution, are more likely to forgive loans in unique circumstances. The same goes for postponing loan payments.

Do you need good credit for a student loan?

Federal loans don’t require you to get a credit check (the exception being PLUS loans). Private organizations often require you to get a credit check to qualify for loans. However, there is typically an extended understanding of your situation as a student.

Time to make your decision!

Now you get to decide what works for you when it comes to deciding between federal vs. private student loans. Think about what you can practically handle now as a student as well as after you graduate. 

Try to be realistic about your financial situation when searching for a financial option for college. Do your best to find scholarships and grants before you accept any loans to save yourself an unbelievable amount of money. And most importantly, don’t be afraid to ask for help!

You aren’t expected to know all of this on your own. There are tons of resources, organizations, and even people in your personal and professional life to help you.