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Know Your Student Loans: Federal versus Private Loans

Over the last few decades, the number of college students who need student loans to pay for school has gradually increased. If you need a student loan for a specific reason, you'll have to choose between federal and private student loans. We've prepared some data to assist you in weighing your alternatives.

Start with the FAFSA

The Free Application for Federal Student Aid (FAFSA) is an acronym for Free Application for Federal Student Aid. It is critical to apply regardless of your income. You might be qualified for college subsidies or student loans from the federal government. However, you can only get federal student loans if you fill out the FAFSA.

What are Federal Student Loans?

Direct Subsidized Loans, for which the government covers the interest while you're in school, Direct Unsubsidized Loans, and Direct PLUS Loans for graduate and professional students are all examples of federal student loans. A Direct PLUS Loan is also available for parents.

The government of the United States issues a federal student loan. Law dictates the terms and conditions of these loans. Borrower safeguards include set interest rates, income-driven repayment programs, deferment and forbearance during times of financial hardship, and loan forgiveness in specific cases. Furthermore, you won't have to start paying back federal student loans until you graduate, leave school, or enroll for less than half-time.

Private lenders can re-finance federal student debts that have been aggregated into a government Direct Consolidation Loan. While refinancing can save you money month after month and throughout the life of the loan, you may forfeit some of the government's protections.

When to choose a private student loan

Private student loans have several advantages over federal student loans when it comes to paying for school or refinancing after graduation. For starters, private loans often have lower total interest costs over the life of the loan, but you'll almost certainly be compelled to make interest-only or full payments while still in school. Second, private student loan applications are not restricted by the time of year or the amount of money you require.

To apply for a private student loan, simply go to a lender and fill out an application. The lender and your credit score (or the credit score of your co-signer) will determine how much you may borrow, as well as your interest rate and duration — not the cost of the college you wish to attend. Private student loans may be the best alternative if you have your heart set on a specific college that government loans will not pay in full.

Finally, refinancing private student loans can help you save hundreds of dollars by lowering your interest rates. Private student loans, on the other hand, cannot be transferred to a government backed Direct Consolidation Loan.

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