Are you wondering what the differences are between federal and private student loans? You’re not alone. A recent survey by Citizens Bank reported that 44% of graduates don’t fully understand the difference between federal and private loans.
Since you’ll likely be paying your student loan debt for many years following graduation, it’s important to choose the right kind of student loan. Here’s what you need to know.
Federal Student Loans
| Pros|| Cons|
The government issues federal loans based on individual student needs. They come with significant advantages.
Flexible grace periods are a particularly valuable perk of federal student loans. Kristin Moon, an independent college counselor and founder of Moon Prep, says “A little-known secret is that a grace period can be reset for federal loans. For Stafford Loans, if students return to at least a half-time status within six months, their grace period resets. It is as if it were never used. If the student drops below half-time status a second time, they again receive the full six month grace period. This does not apply to private loans.”
Private loans are not backed by the federal government. They do not offer grace periods and they are not as flexible when it comes to repayment. However, there are some benefits and disadvantages to private loans.
| Pros|| Cons|
While private loans do have some significant cons, these loans can bridge the gap between tuition rates and federal loan allowances.
Featured Student Loans
|Lending Partner||APR Range|
3.35% – 6.74% APR (with AutoPay)
2.615% – 6.54% APR (with AutoPay)
|Variable: as low as 2.52%*|
Fixed:as low as 3.25%*
|Variable: 2.56% – 6.73%*|
Fixed: 3.37% – 6.99%*
|Variable APR (Refinancing): 2.79% – 6.46%*|
Fixed APR (Refinancing): 3.35% – 6.46%*
|Variable APR: 2.81% – 10.24%*|
Fixed APR: 4.45% – 11.76%*
Student loan planning: Getting your ducks in a row
Are student loans right for you? That depends. If you want to take on a full course load and need cash to support your studies, loans can be a viable option. However, you do have to educate yourself on the terms of each loan to find the option that best suits your specific needs.
It’s vital to compare rates and fees before making a choice. Take the time to create a spreadsheet that compares loan terms, interest, fees, and other payment details for every option you’re considering.
Student loan debt can be crippling, but it doesn’t have to be. Choose loans responsibly, borrow only what you need, and take the time to comparison shop. Used wisely, loans can bridge the gap between the profession you want and the education you need.