Federal Loan vs. Private Loan

Private Student Loan

Eligibility

• 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

• 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)

Pros

• 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.

• 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.

Cons

• 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.

• 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).

Repayment

• Standard 10-year repayment term

• Standard 15-year repayment term