The type of loan you choose depends on your eligibility requirements, your credit history and the amount you need. To help you decide whether a federal loan or a private loan is right for you, below is a loan comparison chart.
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Federal Student Loan
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Private Student Loan
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Eligibility
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- Must complete FAFSA
- Be a U.S. citizen or an eligible non-citizen with a valid social security number
- Be working toward a degree or certificate in an eligible program
- Have a high school diploma, GED or pass an approved ability-to-benefit (ABT) test
- Register with the Selective Service if you're a male between 18 and 25
- Maintain good grades
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- Must be 18 years or older
- Attending at least half-time in a degree, graduate, or certificate program to be eligible for a Private Student Loan
- Satisfactory credit history and minimum income required for approval (Many first-time students may need a qualified co-signer in order to qualify for the loan)
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Pros
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- You don’t need to get a credit check.
- Federal loans can help establish a good credit record.
- You don’t need a credit-worthy cosigner.
- Disbursements are made directly to your school and applied to your tuition and other direct costs.
- Offers a low interest rate
- The government pays interest on the subsidized loan as long as you are in school at least half-time.
- Repayment is deferred until you graduate.
- Interest may be tax-deductible.
- The government will pay interest during times when you're approved to defer your loan.
- If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.
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- May be used to pay for a variety of college expenses, from tuition to campus living expenses, school supplies, travel, and more
- Private student loans can help establish a good credit record.
- Disbursements are made directly to your school and applied to your tuition and other direct costs.
- Repayment is deferred until you graduate.
- Good credit will help you considerably when applying for a private student loan.
- If your credit isn't great, or if you haven't yet built it, you will need a credit-worthy cosigner
- Most loan products have 0% front end fees.
- You may choose a variable rate of interest or a fixed rate of interest.
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Cons
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- Some loans are awarded on the basis of need, some loans are not.
- The maximum loan you are eligible to borrow each year is limited by your grade level.
- Interest is paid by the government for some loans, but not for others.
- Loan fees (origination) are automatically deducted from each disbursement.
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- If you don't have good credit, and there is no one with good credit to cosign for you, you cannot get a private loan.
- Some lenders have set rates such as the current LIBOR rate (London Interbank Offered Rate- the interest rate international banks charge each other to borrow U.S. dollars) or the Prime rate (interest rate that lenders give to their best customers).
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Repayment
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- Standard 10-year repayment term
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- Standard 15-year repayment term
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