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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Who You Pay And How Much You Owe For Student Loans

It is so hard at times when you are a college student to remember about student loans when you have to deal with homework, tests, a love life and all of the other distractions. Pretty soon college is over and now you are fully responsible to take care of those student loans that you have put on the back burner for four years. This can be a scary task when you see thousands of dollars staring you in the face.

There are going to be some important steps to take when figuring out how to pay off this student loan. We are going to take a look at some simple, but somehow easily neglected questions that put a lot of graduates in trouble for their financial future. Pay attention because your credit may be at stake here.

1. What is the name of the loan?

Many students are young and need some guidance on how to get a loan and they usually go to their parents or a trusted family member for some help. This is good, but also can be bad if you don't pay close attention to how you are getting the loan and through whom.

You need to know what type of loan you have because it will be crucial in finding out how you make your payments and what terms and conditions you have agreed to for the repayment of this debt. Some loans like the PLUS Loan actually will be the responsibility of the parent, which is a very nice gesture and make sure to help out when you can.

Some of these loans may be federal loans such as a Stafford Loan or a Perkins Loan. Others may be private loans created by lending companies or banks. Some of these may be easier to consolidate if you get into a bind down the road and you are looking to minimize your scheduled payments.

The easiest way for you to figure this out is simply to look at the statements that could come monthly or usually each semester. If you have lost this information or if you have changed your address then I would suggest that you contact your financial aid office for your college you are attending. If they don't know for sure then they will definitely let you know who to get in contact with.

2. How much do you owe total?

Usually if this is a federal loan then the amount offered to you is decided by the Department of Education according to the school you are attending and your financial circumstance. They may give you more than what you need or end up giving you not enough and require you to get another student loan.

Whatever happens, these statements each month you receive will let you know what you have been offered and what you owe. Many times you will not be responsible for the loan until after you are done with school. Now some private loans may not give you that benefit in return for better interest rates, so you will have to decide what you can pay and when.

3. Whose pockets am I filling?

When you get a loan, it will come attached probably to a certain bank. That bank may sell your loan to Sallie Mae, which is the government agency created to help market student loans for the country.

They may keep it or sell it off to someone else. Whatever happens to your loan, you will be notified in your statements and your terms will stay the same as long as you keep your side of the terms. Be aware that some companies or organizations may go after you harder than others so make sure your payments are a priority and preferably automatic.

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How to Get Rid of Student Debt!

Higher Interest Rate Debt Must Go First

Whether to pay off or make investments is a question that needs to be answered at a later time, once the student has prioritized his loan payment schedule. The loans with high interest must be settled first. Most noted Debt Consolidation and Management experts agree that one must first make provisions to pay off debts with the highest after tax interest rates. Currently, the rate of interest for federal student loans is at its lowest in the last 30 years. Hence, the recent graduates have the opportunity to settle their loans at the low interest rates and can request loan term extensions for deferring repayments. Recent Tax Law amendments have also made provisions for exemption of taxes on interests for Student Loans.

Joining The Forces Can Aid Debt Elimination

However, debt elimination may sound easy but can turn out to be really complicated. There are options available that can help students to reduce their debts. Students may consider the Armed Forces, i.e. The Army, The Navy, Air Force, Marine Corps, and the Coast Guards that provide great educational benefits. At the same time, students must decide about some effective loan payback programs. One of the better payback programs is offered by the U.S. Army that pays back up to $65000 worth of loans over a period of three years.

U.S. Peace Corps are another excellent choice. In case a student has an outstanding Perkins Loan, then 15% of the loan amount is paid off every year of active service in the U.S. Peace Corps. At the end of two years of service 30% of the loan gets eliminated. In case of any other federally guaranteed loans, students are entitled to defer loan payments while they are serving in U.S. Peace Corps. Thus, Peace Corps can be a viable alternative for reducing some debt and at the same time upgrading your resume.

Paying Off or Investing

Counseling Services Organizations providing advice on student loans agree that investments can be made every month with the saved money after consolidation of loans. A student can take benefit of the sharp decline in interest rates by quick consolidation of several loans, thus saving money that he can further use towards loans repayment. He may even consider investing the excess funds in some meaningful venture.

Ideally, it will be best to invest excess funds in ventures that can offer a higher rate of interest than the rate of interest the student has to pay in order to cancel his student loans. Similarly, it will be a good decision if the student wishes to open an Individual Retirement Account with the excess cash left after paying off the loan.

Actually, there is no definite answer to whether one must consider investing the excess cash or not. In any case, even if the student decides to utilize the funds for repayment of loans, he is actually making a long-term investment for current debt elimination will increase the ability to obtain finance in the future with better terms.

READ MORE - How to Get Rid of Student Debt!