How to Pay for a College Education: Private Loan versus Federal Loan

In order to pay for a college education, a federal loan or a private loan can be used. Both options have some advantages and disadvantages associated with them. Here are a few things to consider about private loans and federal loans for college expenses.

Federal Loans

There are several federal programs that are designed to assist students get money for college. When you are preparing to go to college, federal loans should be one source of funding that you check out. Federal loans typically have a very low interest rate and flexible payment programs. With a federal loan, you can defer payments while you are in school and wait until you graduate to start paying. This presents you with a lot of flexibility while you are in school.

Getting approved for a federal student loan does not depend on your credit history. Therefore, as long as you are a US citizen, do not have any outstanding debts with the government, and plan on attending college, you should be able to get some type of federal loan.

When applying for federal loans you will have to fill out the FAFSA. FAFSA stands for Free Application for Federal Student Aid. This is a document that must be completed by all those who plan on trying to get some type of federal aid. The FAFSA helps the government determine your financial need for assistance. Those that have the greatest financial need are typically given more help. Those that are in the greatest need should receive subsidized loans from the government. If you receive a subsidized loan, the government will pay the interest for you on your loans while you are in school. In addition to that, the interest rate on your loan will be lower overall.

Private Loans

Another option that you have for funding college expenses is getting a private loan. While nearly everyone can secure a federal loan, sometimes you still need a private loan to pick up additional expenses. Private loans are typically at higher interest rates than what you would get from a federal student loan.

The approval process for a private student loan does depend on your credit history and the credit history of any cosigners. They will also take a look at your income to make sure that it is sufficient to repay the loans. Therefore, not everyone will get approved for private student loans.

Private student loans do not typically have any restrictions on what you can use the money for. This means that you could use it for books, tuition, room and board, transportation, or any other living expenses that you might incur while attending college. This often makes this type of loan a nice supplement to Federal loan when federal loans are not enough to cover everything. Getting these loans can make it possible to free up your time while you are in college for studying, instead of having to work in addition to attending class.

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