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Tuesday, March 30, 2010

Private Versus Federal College Student Loans - Which is Better?

It is advised by all financial services providers that you apply for a federal college student loan before jumping straight into applying for a private loan. This does not necessarily mean that a federal student college loan is any better than a private loan, but just that is can offer you a more competitive deal in terms of interest rates. Private lenders can determine their own interest rates to a certain degree, and they are often found to be substantially higher than that of federal student college loans. Private loan interest rates are largely dependant on the borrowers credit score.

Some people do not get approved for federal student college loans due to not having the financial need after being assessed. In these cases, private student college loans are the only viable option that could be applicable.

Another reason why federal student college loans are more appealing is that they are federally guaranteed, and can possibly even be partially subsidized to those who are approved. There may be offers of further reduced interest rates that also make them more attractive, but then private student college loans can also offer reductions in rates, depending on which financial services providers you apply through. With federal student college loans you will need to fill out a Free Application For Federal Student Aid (FAFSA) form, but with private student college loans you could get approved within 24 hours. With private college loans, you will more than likely have to go through with a credit check to validate that you are a reliable candidate.

An advantage of private student college loans is that they send the funds directly to you so that you can distribute them as you see fit. Federal loans are usually paid to the school which could avoid any accidental spending on other irrelevant items.

Federal student college loans definitely seem to be the preferred loan of choice due to the advantages mentioned above, but if you are not approved for application then you are by no means setting yourself up for a lifetime of debt by opting to apply for private. If you have a decent credit score and you manage to find a suitable deal with a reputable private college loan provider, then you could walk away with a package that is equally as enticing as a federal student college loan.

Fill in your FAFSA form and see where that takes you before you start exploring private options. There is a wealth of information regarding both federal and private student college loans, so see which one fits your circumstances the best.

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