Private and Federal – How to Choose the Best Student Loan for You

Student loans are a much debated subject in the USA, but also globally.

While some people agree that the opportunity to finance your education is a great thing because more and more people have access to education, there are also voices who state that education should be free for everyone and student loans do more damage in the long run.

The reality is that if you can’t pay for your education yourself or get a full-time scholarship, you are probably looking into getting a student loan. The main purpose of this article is to provide information based on which you can decide which student loan is best for you.

The first main thing you need to know is that there are 2 main categories of student loans: federal loans and private loans. Each of them has their advantages and disadvantages that you should carefully consider between applying for one.

Don’t just rely on the information provided in this article – go compare actual offers from schools and loan institutions so you know perfectly well what you’re getting yourself into.

Federal Student Loans

For most students, federal loans are the best bet for a multitude of reasons.

Advantages

First of all, the interest rate is usually fixed and lower than that of private loans, meaning that you know what you will pay even after graduation. The loan itself is not very expensive and some programs even offer the possibility of paying the interest off your loan while you are still in school.

Drawback

The only drawback of this type of loan is that the funds you can access are usually limited and might not cover everything you need.

Are Federal Student Loans Right For Me?

If this is the case, there are several things you can do. First of all, you can aim to provide the rest of the sum yourself. You can apply for various scholarships, get a part-time job, get more room-mates in order to lower costs or ask your parents for help.

If all these are not viable options or still don’t cover all necessary costs, you should be looking into a private loan.

Private Loans

Remember, private loans carry higher interest and offer less flexibility than federal loans. These are usually provided by banks and other credit institutions. You might need a co-signer for your loan and remember that the interest rate banks advertise is usually for those with a very good credit score – your interest could be significantly higher.

Advantage

The main advantage here is that you can borrow a much larger sum of money that can cover all your student expenses.

Drawbacks

There are several drawbacks to these, the biggest one being the fact that you have to pay interest while in school and your rates are most often variable. Plus, qualifying for such a loan is not exactly easy.

Using all this information backed up with what you can find online gives you the best available odds to choose the student loan which works best for you.

Remember that your academic future also affects the loan – taking more years that necessary to finish college requires more money than you initially plan. Study your way through school so you have the best chances to repay the loan as soon as possible.

Image credit: Manage Money, on Flickr

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