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Federal Student Loans Vs. Private Student Loans.

Article By : Patrick Mansfield | U.S. Consumer Finance
Federal Loans Verse Private Loans.
Federal Student Loans Versus Private Student Loans

Paying for college is an expensive endeavor. Many students who attend college require financial aid to pay for their education. These loans can be either federal student loans or private loans. There are clear differences between the two types of loans.

Federal Student Loans

The federal student loan is financed by the United States government. This type of student loan is less expensive than the private student loan because it offers a fixed interest rate. In addition, it also has a more flexible payment plan that is based on the borrower's income. The benefits of the federal student loan are low-interest rates, flexible payment plans and interest rates are fixed.

Types of federal student loans include:
  • Federal Perkins Loans
  • Direct PLUS Loans
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
The Private Student Loan

The private student loan is not funded or subsidized by the federal government. This type of loan is financed by private companies such as banks and other lending institutions. The eligibility for qualifying for this type of loan can be based on a student's credit history, cosigner, and schools choice and selected major.

There are several factors that make private student loans different from federal student loans.
  • Payment options are not as flexible.
  • Students may not have the option to reduce or postpone payments.
  • Interest rates are variable which means the loan is more expensive.
When applying for a loan, it is important to remember that all student loans require repayments. Both types of loans offer harsh penalties for individuals who default on the loans.
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