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Top 6 Reasons Why Federal Student Loans Are the Best Option!

Whenever I talk to people about financial aid options for college, I always recommend that they stay with the programs offered by the U.S. Department of Education. Depending on the level of need, it is often possible to find enough money to pay for the cost of attendance withoutresorting to private loans.

This is good, because the advantages of what the U.S. Department of Education offers to students make their programs the clear choice over a private loan from a bank. Here are the six biggest ones:

  • In-School Deferment. Federal loans defer repayment while you are in school at least half time. Many private loans do not.
  • 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 depending on your credit score.
  • Loan Qualifications. Most federal loans do not require a credit check (particularly those for undergraduate students). Private loans require credit checks, and you may need a co-signer.
  • 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. Note that the points above generally apply to loans to students, but Parent PLUS loans still offer advantages in interest rates, deferments and forbearances, and payment plans.

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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Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.