The terms for federal and private student loan program are different from eachother. For example, how much amount you are borrowing, when you will pay back, how much interest rate you’ll owe? However, there are advantages and disadvantages of student loan at the same time. Students apply for the loan because they want to finance their educational expenses but on the other side, they have to pay an interest rate on amount that they borrowing. Here are two types of student loan program that we discuss below.
Federal Student Loans
The federal government loan program was introduced in 1958 by capitalizing loans directly from the United States of America Treasury. In Federal student loan program, the Federal Family Education Loan (FFEL) program guaranteeing student loans.
Benefits of Federal Loans
- The fundamental advantage of federal student loan program is that there is no need for co-signer to get approval for loan. Because the governement institution “Federal Family Education Loan (FFEL)” guaranteeing your student loan.
- In federal student loan program, you will pay a fixed interest rate on your amount of the loan that you borrowed. Usually it remains same for the whole duration of loan program and you will charged lower interest rate under the federal student loan program.
- In federal student loan program, you credit history doesn’t matter to get approval for the loan. You financial need determines whether you are eligible for this federal student loan or not.
- The main benefit of student loan program is that it gives flexibility in repayment terms. For example, due to some personal expenditures, you are getting trouble in repayment of your loan, you can postpone your payments for 12 months. So only federal student loan program gives the benefit to postpone your payments in your hardship.
- Federal student loan program gives more flexibility in the event of a personal financial crisis, enabling you to put loans on deferment or in forbearance.
Disadvantages of Federal Student Loans
- The main disadvantage of student loan program is that the loan may not cover all your costs because the amount you can borrow is set by Congress.
- If you can’t pay your payments to the loan program, the federal government has wide reaching power to get its money back.
- Federal student loans are not bankruptable
Private Student Loans
Private student loans are a form of unsecured personal loan. Private student loan are not guaranteed by any government institution like “Federal Family Education Loan (FFEL)”. So Private student loans have also some advantages and disadvantages as well.
Benefits of Private Student Loans
- In Private student loans, to cover your costs, you can take out the amount as much as you need because the total amount of the loan program is not limited.
- In Private loan program, you are not barred from qualifying if your parents make a good income.
Disadvantages of Private Student Loans
- The fundamental disadvantage of Private student loan program is that your credit score is considered in getting approval for your loan. To get approval for the loan, your credit score matters.
- Almost every investor company that is offering a Private student loan program requires a co-signer in order to get a loan.
- Repayment terms in Private student loan is difficult than federal student loan. In addition, you can not postpone your payments for 12 months.
- Private student loan charges higher interest rates on the amount that you borrowed.