What’s the difference between federal and private student loans? What are the different types of federal and private student loans? And how can you apply for the loan type you choose?
Federal Student Loans
Federal student loans are loans administered by the federal government, specifically, The U.S. Department of Education’s office of Federal Student Aid. If you apply for financial aid by completing the FAFSA, the student loans administered to you are federal. There are several types of federal student loans:
Direct Subsidized Loans are loans for undergraduate students who demonstrate financial need to help pay for college or career school. The U.S. Department of Education pays the interest on Direct Subsidized Loans while you’re in school at least part-time, for the first six months after you leave school, and during deferment (postponement of loan payments).
Direct Unsubsidized Loans are loans for undergraduate, graduate, and professional students but are not based on financial need. Borrowers with this loan type are responsible for paying all of the interest that accrues.
Direct PLUS Loans are loans for graduate and professional students (Grad PLUS), as well as parents of dependent undergraduate students to help pay for school expenses not covered by financial aid (Parent PLUS). A credit check is required to receive Direct PLUS Loans.
Direct Consolidation Loans allow borrowers to combine all of their eligible federal student loans into one loan with a single loan servicer. The benefits of consolidation and how to apply can be found on our blog here.
The benefits of federal student loans compared to private student loans include:
-The interest rate on federal student loans is fixed and usually lower than the interest rate on private student loans.
-You don’t have to begin repaying your federal student loans until after you leave school (6 months, known as the grace period).
-The federal student loans mentioned above are all eligible for income-driven repayment (IDR) plans, (these plans cap monthly required payments in proportion to your income).
-Federal student loan borrowers are free to change their repayment plan even after the loan is disbursed.
-The federal student loans mentioned above are also eligible for student loan forgiveness, (PSLF and IDR plan forgiveness).
-Federal student loan borrowers can postpone their loan payments if they’re having trouble paying.
How you can apply for federal student loans:
Private Student Loans:
Benefits of private student loans include:
How you can apply for private student loans:
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