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Federal Student Loans vs. Personal Student Loans

By: Stephen Bishop Jr.
Published: November 2007

Student loans are not for everyone. However, for those that decide to finance their education and school-related expenses with a student loan, there are many choices. For those that are not familiar with student loans, there are two major options, Federal and Personal.

Federal Student Loans:

Federal Student Loans are from the Federal Government. Stafford loans, PLUS loans, and Perkins loans are all Federal student loans. They can be either subsidized or unsubsidized. With a subsidized loan from the Federal Government, there are no interest payments while you are in school. In other words, the Federal Government handles them for you. With an unsubsidized loan, interest begins to build when you receive the loan, however, payments may begin at the time of graduation. The interest rates for most Federal loans are set by the Federal Government and they are not based on your credit history. Therefore, Federal loans have better interest rates when compared to personal loans.

There are several repayment options on Federal loans. Federal loans often take income into consideration when allowing repayment, and give the debtor a grace period, usually six months, after graduation. After taking out one or more Federal Student loans you are given the chance to consolidate them. Federal student loan consolidation combines all loans into one, allowing you to make one payment per month rather than several. Once consolidated, the debtor pays a fixed interest rate. Depending on certain situations, federal loans allow the debtor to defer payments.

Personal Student Loans:

Personal student loans are often called private student loans. They are often used along with Federal loans, and sometimes by themselves. Depending on the lender, you may need a co-signer to get a personal student loan. Sometimes people use personal loans when their Federal loan cannot cover all school-related expenses. Unlike Federal loans, applying for a personal loan requires a credit check. Therefore, interest rates and payment options can vary from student to student. Many personal student loans grant the debtor a grace period, however, personal loans do not offer the help of Federal consolidation. In comparison to Federal loans, personal loan lenders may or may not allow the debtor to defer their payments.

When a student makes the commitment to a Federal student loan, personal student loan, or both, it is very important for them to consider the factors that are associated with the two. Do your research, get a feel for all of your options, and make a solid decision. Student loan debt is an increasing problem and can be very difficult to overcome.

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