Will you need a loan to attend college?
If so, think federal aid first. Federal student loans usually offer borrowers lower interest rates and have more flexible repayment terms and options than private student loans.
What is a federal student loan?
Federal loans are borrowed funds that you must repay with interest. A federal student loan allows students and their parents to borrow money to help pay for college through loan programs supported by the federal government. They have low interest rates and offer flexible repayment terms, benefits, and options. Beginning July 1, 2010, all new Stafford and PLUS loans will be made under the William D. Ford Federal Direct Loan Program (Direct Loan Program). In the Direct Loan Program, the U.S. government is the lender, and loan funds are provided to students through their school.
What is a private student loan?
A private student loan is a nonfederal loan issued by a lender such as a bank or credit union. Private student loans often have higher interest rates and loan fees than federal loans, usually require a credit check, and do not provide the benefits of federal student loans. If you’re not sure whether you’re being offered a private loan or a federal loan, look at the name of the loan: does it include the word “federal”? If not, just ask the financial aid office at your school.
Why are federal student loans a better option for paying for college?
Federal student loans offer borrowers many benefits not typically found in private loans. These include low fixed interest rates, income-based repayment plans, cancellations for certain employment, and deferment (postponement) options, including deferment of loan payments when a student returns to school. For these reasons, students and parents should always exhaust federal student loan options before considering a private loan.