Federal Loans vs. Private Loans

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Weighing the Facts:

Federal Student Loans Vs. Private Student Loans

Table of comparisons between Federal and private loans.

The Works
Term Federal Private
Lender Federal government. Banks & credit unions.
Interest Fixed, set annual & capped. Most variable, select fixed.
Availability Financial need, limited reward amounts. Limites & interest rates based on credit score (650 or higher).
Co-Signer None, annual FAFSA application required. May require
Loan Forgiveness Select eligibility. No programs

Federal & Private Benefits

  • In-school deferments
  • $2,500 Federal tax benefit
  • No prepayment penalty
  • Repayment grace period

The Terms

  • Lender: Resource that provides loans and sets all lending requirements, including interest rates & fees
  • Fixed interest: Rates that never change for the lifespan of the loan
  • Variable interest: Rates change based on benchmark rate
  • Grace period: Set period of time after leaving school before a loan enters repayment, often 6 - 9 months
  • Prepayment: Payments made prior to end of grace period, ultimately reducing total interest
  • Principal: Original loan balance, including origination fees
  • Credit score: Calculated from an individual's payment history, amounts owed, length of credit history, new credit & types of credit used
  • Deferment: An agreement between the lender and the borrower to delay payment for a period of time, generally interest continues to accrue
  • Financial need: Process used by the federal government to determine aid awards, calculated by subtracting a student's expected family contribution from their cost of attendance