Friday, March 27, 2009

Federal Or Private Student Loans

It isn't very easy to decide between federal student loans and private student loans. Even with all the grants and scholarships, money may still be required for your education. Loans are the option but decide whether it is federal student loans or private student loans that's better.

For a loan to pay for education, always consider federal student loans first. Federal student loans are the largest source for education loans with long terms and low interest rates to suit students. They offer many benefits in comparison to other options that include:
- Lower interest rates
- Option of postponing payments
- Longer repayment terms
- Easier credit requirements

Eligibility is need-based for many of the loans including federal Perkins loan and the subsidized federal Stafford Loan. To apply for the loans a complete FAFSA is necessary.

Federal student loans student loans have a number of common characteristics:
Federal student loans Perkins loan: A low interest loan for students with exceptional financial needs the Federal student loans Perkins loans takes the FAFSA details into consideration. For undergraduates $4,000 per year and $6,000 for graduate students mark the upper limit.

Federal Stafford Loan: Available to both undergraduates and graduates, the Federal Student Stafford Loan determines the amount based on the student's year in school and their financial dependence or independence. The college financial aid office makes the decision for eligibility. These loans can be subsidized or unsubsidized depending on the student's financial need. Subsidized loans are on the basis of financial need. The government pays the interest during the student's time in school in deferment and grace period. Unsubsidized loans are available to all irrespective of income and the responsibility for all interest is with the student.

Federal Student PLUS Loan: 
Also called parent loan for undergraduate student the Federal PLUS loan is low on interest and meant for parents. Every year parents borrow the cost of attendance, minus other financial aid like scholarships, grants, student loans, etc. The PLUS loan is not about financial need and requires a credit check for qualified applicants.

The purpose of private student loans is to supplement federal student loans programs from schools, banks and education loan organizations. Used mainly when federal student loans aid falls short, these loans have varying terms depending on the lender and credit history. Certain facts need to be considered when deciding on a private student loans.

- Private student loans have credit requirements including a co-signer
- The lender based on your credit score decides interest rates and fees
- Private student loans often lack deferment options
- Private student loans programs may offer benefits like discounted interest rates and rebates.

Irrespective of which loan, think conservative and borrow wisely. All loans require repayment, including federal student loans and private student loans. Usually private student loans are unsecured requiring no collateral but possibly with a higher interest rate.

The absence of government backing on private loans, credit history determines approval. Bad or no credit history could mean higher interest rates. A co-signer is always possible. Timely repayment of loan will result in a good credit history soon. Apart from tuition and fees, private student loans can also cover living expenses, supplies, computers and other daily expenses.

Most student loans permit deferment of principal and interest payments while being enrolled in school. You can also opt to make interest payments while in school and defer payment of the principal. Interest payments may also be tax-deductible. With no deadline private student loans can be applied for at any time. According to the financial institution of your choice, preapproval can take minutes with the money reaching you directly in just a few days.

Thousands of banks, credit unions and financial institutions offer private and federal student loans. An Internet search will give you ample options to explore.

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