5 advantages of federal student loans over private loans

0

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our affiliate lenders that we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276 is referred to herein as “credible”.

Federal student loans are supported by the U.S. Department of Education and offer unique benefits not found on private student loans.

Federal student loan benefits include low interest rates, earnings-based repayment options, and access to student loan programs.

Here’s What You Should Know About Federal Student Loan Benefits:

Here are some benefits that are unique to federal student loans

Federal student loans offer borrowers several benefits and protections. Here are some unique benefits that you can enjoy with federal student loans:

No credit check or co-signer required to take out a state student loan

Unlike personal student loans, most federal student loans do not require a credit check. Many student loan borrowers do not have an established credit history, but as long as you attend an accredited school, you may still be eligible for federal student loans.

All you have to do is fill out the free application for federal student aid (FAFSA).

However, be aware that Direct PLUS loans require a credit check.

Find out: How to Qualify for Financial Aid

Lower interest rates than private student loans

Government student loan interest rates are set by the government, which means that they are often lower than private student loan interest rates. Federal student loan interest rates are fixed, which means your interest rate does not change during the life of your loan.

Here are the federal student loan interest rates for the 2020-2021 academic year:

  • Directly subsidized loans: 2.75%
  • Direct unsubsidized loans: 2.75% for undergraduate borrowers; 4.30% for borrowers with university degrees or professionals
  • Direct PLUS loan: 5.30%
Top: When considering a Direct PLUS loan, keep in mind that you may be able to get a lower interest rate on a private student loan – depending on your credit.

Learn more: Ultimate Guide to Federal Stafford Loans

Deferral of your student loan payments is possible

With the student loan deferral, you can pause the payments for your student loan. You can qualify for a moratorium if you:

  • Experiencing economic hardship
  • Go back to school
  • Are in active military service
  • Lose your job
  • Experience a serious illness
  • Meet other criteria

Subsidized loans do not accrue interest during a deferral period. However, if you have Unsubsidized Loans or PLUS Loans, you will continue to accrue interest while your loans are deferred.

Cash: Federal vs. private student loans

Income-based repayment plans are available

Federal student loans give you access to income-oriented repayment plans (IDR). When you sign up for an IDR plan, your monthly payment is based on your income – which means your monthly student loan payment could be reduced.

If you stick to your IDR plan, the remaining balance may be waived after 20-25 years, depending on the plan.

Here are the four IDR plans available:

Federal student loans can be granted

Federal student loans offer several possible avenues for obtaining student loans. For example, after 20-25 years with an IDR plan where you regularly make timely payments, you may be eligible for loan waiver.

Or, if you work for a nonprofit or government agency, you can qualify for public service loans after just 10 years of qualified student loan payments. If you choose this route, make sure you submit the necessary documentation each year to maintain your eligibility.

Continue reading: Everything You Need to Know About the Perkins Loan

Private student loans can help fill funding gaps

When you’ve reached your state student loan limits, private student loans can help fill funding gaps.

A few reasons why you might choose private college loans:

  • You may get a lower interest rate: In some cases (mainly PLUS loans) you can get a lower interest rate on a student personal loan depending on your credit. You can also get a lower interest rate with a creditworthy co-signer.
  • Can apply for a loan at any time: Unlike federal student loans that have strict application deadlines, you can apply for a personal student loan at any time.
  • Higher credit limits: Personal student loans allow you to potentially borrow up to the amount of the tuition fees for your school.

Private student loans do not offer the benefits of federal student loans (ex.

When deciding on a private student loan, be sure to shop around and consider as many lenders as possible in order to find the loan that is right for you. Credible makes it easy for you – you can compare your rates from our partner lenders in the table below in two minutes.

Lender Fixed prices from (APR) Variable rates from (APR)

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.09% +

1.48% +

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.23% +1

N / A

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

2.94% +2.3


0.99% +2.3

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.2% +

1.03% +

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.02% +7th

2.2% +7th

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.83% +8th

1.69% +8th

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.75% +

N / A

Credible rating



Credible lender ratings are rated by our editorial team with the help of our lending business team. Lender evaluation criteria include 78 data points on interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options, and more. Read our full methodology.

3.5% – 12.6% APR9

1.13% – 11.23% APR9

Compare prices without influencing
Your creditworthiness. 100% free!

Compare now

The lowest APR, reflecting Autopay, Loyalty, and Interest-Only Payback discounts, when available | 1Disclosure of citizens | 2.3College Avenue Disclosure | 7thEDvestinU information | 8thINvestEd Disclosures | 9Sallie Mae disclosures

About the author

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a personal finance expert. His work has been featured on Business Insider, Investopedia, The Balance, The Huffington Post, MSN Money, Yahoo Finance, Mint.com, and others.

Continue reading

Share.

Comments are closed.