LINK – Are Federal Student Loans Beneficial?

Have you taken a scholarship for your education? But still looking for ways to pay off your educational requirements?

Then apply for a federal student loan. They are easier to avail, cheaper as well as flexible. Discussed below are the ways of getting benefitted by taking a federal student loan.

Credit Check Not Needed:

Credit history is required by private banks to show how likely you repay your loan on time. It is also used to find out the interest rate at which you will be able to avail the loan.

But most students either did not have the chance to build up a credit history at all or may a low credit score. Federal loans are easy to qualify for. Unlike private bank loans, these loans can be applied for by any undergraduate who has financial requirements without any sufficient income and credit check.

 Co-signer Is Not Required:

Students without a credit history can still avail private loans if you get a co-signer. A co-signer is basically an adult having a well established and good credit history.

Mostly a parent or in some cases grandparents become a co-signer and agrees in paying off the balance if the student defaults during loan repayment. The consequences related to default are huge. So think a lot before co-signing.

But since federal loans are not based on credit history, a co-signer is not needed. So none of your family members have to take any responsibility for your loan repayment.

Rate Of Interests Are Fixed:

The interest rate for federal loans is fixed. So they will be constant during the entire loan period. Since federal loans will have a fixed rate of interest, so the rate that you will agree upon will never ever change. It will never be increased thus making you pay more money.

But private loans will never come with such security. They usually have variable rates and can easily change during the tenure of the loan repayment.

An interest rate that is variable may start off very low but has a chance of rising substantially as well as remaining high.

Lower Interest Rates:

The interest rate of private banks depends on your or your cosigner’s credit score. They are higher as private loans are risky for lenders. But federal loans will have lower rates of interest compared to the private banks.

During the year 2016-2017, the interest rate of the federal loan was 3.76 % for the undergraduates. You can opt for a lower rate of interest through student loan refinancing if you have a good credit history along with income after you graduate.

Deferment In Loan Repayment Allowed

Due to financial issues, if you are not able to afford repayments temporarily, then deferment will let you postpone your payments or lower them for almost three years.

Another program of federal loan known as forbearance will allow you to pause the payments until one year at one time. Private loans are never this much flexible.

Private lenders may lower the rate of interest or allow you to pay the interests only for some period. But not all private lenders will act the same way.

 Payment Of Interest By Government On Subsidized Loans:

Not all but some federal loans are subsidized. So when you are attending school or college, you will not be accruing any interest on the loan. The government will pay the loan’s interest for you.

You can enjoy this benefit until the grace period after you will leave school. If you need to defer the payments to a later period, then during the duration of loan deferment this benefit can be utilized.

Students who required huger financial help to pay for their education qualification for this federal subsidized loan. Private loans will never give you this benefit. Interest will accumulate of the private and unsubsidized federal loans from the time they are given to you. 

Loan Cancellation Guaranteed On Demise:

The U.S. Department of Education states that if students die or become permanently disabled, then the government will be canceling the loan automatically and discharging their debts. So there is no need for the loan repayment.

Any parent will also be discharged along with the loans that are taken for you if your parent holding the loan dies. But death discharge is never a guarantee for private loans.

Options Of Loan Forgiveness:

If you take a student loan you are responsible for paying the money along with the interest. If you take loans from a private bank or lenders, there will be no forgiveness opportunity. You will be responsible for paying off the total balance.

But there are some federal loans that can be forgiven. The balance can be cleared off. In case of federal loans repayment if you take part in a repayment plan that is income driven or work for the government or at any non-profit company then the loans can be dissolved.

So with these various benefits of federal student loan, it is very clear that taking government funding for education is better than availing private loans.