In addition to scholarships and grants, loans are a way for students to help fund their undergraduate or graduate education. Although education is an excellent investment, students and parents still need to be careful to avoid taking on too much student debt.
Many college students in New Jersey wonder what the difference is between private and federal student loans. Here are some things to know about each.
Federal loans have advantageous terms
There are many advantages of taking out federal student loans before considering private loans, including:
- A fixed interest rate, rather than a variable rate that may significantly increase over time
- No credit check requirement, which is especially beneficial to people who have recently graduated from high school and might not have much credit history
- Many different repayment options
These terms are not generally available when taking out a private student loan. Federal student loans can be either subsidized, meaning that the Department of Education pays the interest while you are still in school, or unsubsidized.
Private loans fill in gaps
For all the benefits of federal student loans, one of the drawbacks is that they come with a maximum amount that you can borrow each year. In addition, subsidized loans are only available to students who have financial need. If the amount of federal loans that you receive is still not enough to pay for your education between scholarships, grants, and working part-time, private loans can help.
Knowing the difference between private and federal student loans can help you make a better decision regarding funding your education and avoid going into bankruptcy.