There are many differences between federal and private student loans. Most show that federal loans are the better option, but you may need more money to meet your needs.
Oklahoma students can choose from private and federal government student loans. Which type is best for you depends on what they have to offer and your priorities. Often, students get both kinds of loans to finance their education. We’ll discuss what’s available and their differences. Student loan Convenient Bankruptcy helps students who can’t afford to repay their student loans. Using the right loan may help you avoid that situation.
Convenient Bankruptcy lawyers Alex Sullivan, Luke Homen, and Colin Barrett are Oklahoma student loan attorneys who help clients manage their student loan debts, including seeking a discharge. If you need assistance, call our law firm at 405-296-0059.
What are My Options?
There are generally two types of student loans—private loans and federal loans, according to the federal Department of Education:
- Federal loans for students and parents
- Private student loans offered by a lender like a credit union, bank, state agency, or school
Federal student and parent loans are the following:
- Direct Subsidized Loans and Direct Unsubsidized Loans
- Direct PLUS Loans (for graduate and professional students).
- Direct PLUS Loans (for parents)
Federal loan terms are generally more favorable for students.
What are the Differences Between the Two?
The government generates federal student loans, according to Forbes. Their terms and conditions are set by law and have many features, like income-driven repayment plans and fixed interest rates not usually offered by private lenders. Private funders set the terms and conditions of private loans, which are generally more expensive.
You must complete the Free Application for Federal Student Aid (FAFSA) to access federal student loans and other types of financial aid. That form isn’t necessary for a private loan, but lenders have their own applications and processes to follow.
Interest adds to the cost of the loan, and it may be your deciding factor if you’re choosing between the two. Anyone using a federal student loan pays the same fixed rate, no matter their credit score or income. A private loan’s interest rate could be lower than a federal one, but that rate may increase if it’s variable. Private loans require a credit check, and a co-signer may be needed to get lower rates. If you and your parents have a bad credit rating, interest rates will be higher.
Some private student loans have no origination fee, partly because you’re paying higher interest rates. Federal subsidized and unsubsidized loans have an origination fee of 1.057%, which is taken from the loan proceeds.
The consumer protections for those using federal loans include:
- If you experience an economic hardship, you may get up to three years in deferment and forbearance
- Interest doesn’t accrue while you attend school in school, during your grace period (six months after you leave school or graduate), and while in deferment
- There are many repayment plans to choose from, including income-based options if the balance is high compared to your income
- Career-based loan cancellation programs like the Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness
- You have a longer period of non-payment (270 days) before loans go into default, while private loans can go into default far earlier
Refinancing can only be done through a private company. If you have federal loans and take this option, it becomes a private loan, so you lose the benefits of federal loans. If you can wait until you have a stable income and a higher credit score, you should get a lower interest rate and overall cost.
Use One, the Other, or Both?
Given the cost of an advanced education, federal student loans may only be a partial answer. US News states that the average yearly tuition of its ranked private schools is $43,505, while the average tuition of state colleges is $24,513. This doesn’t include the cost of room, board, food, and other expenses, which could add tens of thousands of additional dollars.
Undergraduates may borrow from $5,500 to $12,500 in federal loans annually, depending on what year you’re in and whether you’re financially dependent on your parents, according to the federal Department of Education. Graduate and professional students may borrow up to $20,500 a year. For many students, the issue isn’t choosing one type of loan or the other. It’s how much of each loan they’ll use.
Trust the Oklahoma Student Loan Attorneys at Convenient Bankruptcy
There are many differences between federal and private student loans. Most show that federal loans are the better option, but you may need more money to meet your needs.
The student loan Convenient Bankruptcy law firm is here to help you navigate your options if repaying student loans becomes a problem. Are you ready to talk about student loan discharge with our student loan lawyers? If so, call us at 405-296-0059 or send us an online message today.
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