Federal and State Student Aid Compared

Government-sponsored student aid can be much less costly than private lending options. Private lenders are interested in turning a profit on their loans. Government lenders are more concerned with encouraging students to go to college, and they are happy simply recovering the asset they invested without a profit. As a result, the interest rates tend to be lower, and the lenders tend to be more flexible if you use a federal or state loan option. The question, then, is whether to opt for the federal or state option available to you.

What Are the Limits?

The first thing to explore with your loan option is limits. Surprisingly, it is rare for any government loan to completely cover the cost of tuition, room and board to a traditional, four-year university. As a result, you will often have to combine loans in order to make ends meet. Research loan limits with your State Department of Education and the U.S. Department of Education. Typically, the state loan limits will be high enough to cover the cost of public education, and you may even receive discounts if you attend a state university. However, federal options may have more comprehensive limits overall.

What Type of Loan Do you Qualify for?

You will qualify in two ways for government loans. First, you will go through a credit check and application to ensure you are creditworthy. You will then be evaluated based on your ability to pay. This will help the government bodies determine if you should receive special assistance in order to make your loan payments. Assistance comes in the form of payment deferment until after you graduate or even subsidized interest rates. You may qualify for more need-based assistance on the state level or federal level depending on your unique circumstances.

What Are Your Options in the Future?

The loan you take will affect you in the long-run, not just while you attend college. Federal options may be more flexible in the future if you plan on pursuing loan consolidation, refinancing or forgiveness options. State loans are designed to benefit those students who intend on using their college degrees to contribute to the state economy. Therefore, if you plan on moving, you may find the loans less flexible. For example, you will not be able to consolidate a loan taken in your state with a loan for graduate school taken in another state in the future.

Can You Combine Both?

In most cases, you will end up taking a combination of local, state and federal loans in order to completely cover the cost of your education. Start with the cheapest option, such as a local grant. Take as large a grant as you can achieve, and then move on to the next option in line. Again, seek the largest limits possible at this interest rate and expense. Finally, it is important to note that government loans do not cover the cost of items such as rooming, books and dining. You will need to fill in these gaps with small private loans or credit card debt.


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