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Why Federal Student Loans Are a Better Option Than Private Loans

If you are looking for ways to pay for college, you are probably being inundated with information about all of the options out there. Loans are offered by federal and state agencies, along with private lending institutions, and it can be hard to sift through them and pick the best one for you.

However, of the three here in New Jersey, I always recommend that people stay with the programs offered by the U.S. Department of Education. Here's why!

Reasons to Go Federal

The biggest reason is the wide variety of repayment options available after graduation, including income based repayment, but here are several other reasons.

  • In-School Deferment. Federal loans defer repayment while you are in school at least half time. Many private loans do not offer this; check the terms.
  • Interest Rates. Federal loan rates are fixed and most times much lower than private ones, while private ones run 8% to 10% and can have variable rates.
  • Loan Qualifications. Most federal loans do not require a credit check, but can still help you establish a good credit record. Private loans require credit checks, and the interest rates can vary with credit scores. Also, you may need a co-signer, which federal loans do not require in most cases.
  • Forbearance and Deferment. Federal loans offer many different deferment and forbearance options if you are temporarily unable to make the payments. Many private loans do not do this; check the terms.
  • Subsidized Loans. The federal program has subsidized loans that will pay the interest during in-school or post-graduation deferments, thus preventing it from accruing and then capitalizing into the loan balance. Private loans do not have this.
  • Loan Forgiveness. Federal loans can be administratively discharged in instances such as disability or death. Most private loans do not offer this option, and even if it did, it is highly unlikely that it would apply to any cosigners.

So as you can see, there are many reasons to go with federal loans over private ones, and you may be surprised at how much money is available. With Parent PLUS loans added to what is there for students, you may not have to go anywhere else for aid to cover the cost of attendance!

More Information

If you are looking for more information about federal financial aid for college, then download my free book, Applying for Federal Financial Aid: The Definitive Guide for Students and Parents.

For more information about what happens after you graduate, get my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

You can also access the latest news on student loans, get answers to Frequently Asked Questions, and read articles in my Library. Continue to educate yourself as you go through the process of making smart decisions about college financing!

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