Federal student loans are offered by the federal government, whereas private student loans are offered by private lenders (we partner with the best private lenders).
While there are many types of federal student loans, U.S. Citizens and eligible noncitizens pursuing their degree can typically access Direct Unsubsidized + Subsidized Loans and Parent PLUS loans.
All federal student loan interest rates and fees are set on July 1st of each year and remain fixed for the life of the loan. Federal loans come with a standard repayment schedule and offer a wide range of repayment assistance options.
Typically, undergraduate students hit their cap on Stafford loans (subsidized + unsubsidized) and then the family decides whether to take out Parent PLUS or private loans for the rest. Parents with good credit scores (650+) tend to gravitate towards private since they can get better rates on that market. For Parent Plus oans disbursed on or after July 1st 2021 and before July 1st 2022, the federal interest rates and fees are 6.284% Interest + 4.228% Origination fee.
Federal student loans do not screen creditworthiness (or the ability to repay), whereas private student loans include a credit review to determine the borrower’s anticipated ability to pay. Additionally, there are benefits unique to the federal program such as Income Driven Repayment Plans and Public Service Loan Forgiveness
When you apply for federal student loans, you will find that you may qualify for one or more of three types of loans: subsidized or unsubsidized direct loans (also called Stafford loans), PLUS loans, and Perkins loans. Direct loans are awarded to most undergraduate students, while PLUS loans are generally reserved for graduate students and to parents of dependent undergraduate students. Perkins loans are actually funded by your school through a program with the federal government, and not all schools participate.
Unlike private loans, federal student loans have interest rate caps to protect you. Unsubsidized direct loans are capped at 6%, while subsidized loans are capped at 6.8%. Perkins loans are capped at an attractive 5%.
Though you will be borrowing money from the federal government, you have options for your loans. We highly recommend shopping around if you’re going with a bank-issued federal student loan because you might be able to find a reduced interest rate or other benefits.
Do read the fine print, as some benefits disappear if you miss a payment or even if you’re just a little bit late with a payment. We all know that the months (and years) after you graduate from college can be uncertain financially, and you don’t want to trap yourself in a loan that will punish you if you hit financial hardship.
That said, federal loans offer you a lot of options that private loans do not if you find yourself out of work or otherwise experiencing financial hardship. For example, you may be able to suspend your payments for a few months while you get back on your feet, or you may be able to tie the amount you pay to your income so that you aren’t overburdened.
Public service can also offer you loan forgiveness with some federal loans. And these are just a couple of the ways the federal government will work with you to ease your financial stress and help you pay back your loans.
So, how will you know if you’re eligible for grants or federal loans? There’s just one application for federal financial aid, so you don’t have to submit multiple applications for grants, loans, etc.
Applying for financial aid is easy. Just go online and fill out a FAFSA (Free Application for Federal Student Aid). Several sets of algorithms will be applied to the income and tax information you supply for yourself and your parents (if you’re a dependent student) to determine what kind of aid you qualify for and how much. Then, once you receive your aid package, you can determine whether or not you’ll need to supplement your grants and/or federal student loans with any private loans.
Lending Ben works hand-in-hand with the best, most trusted names in private student lending to help students and their families find the money they need for college. Through use of comparison tools and loan searches, Lending Ben provides over 20 different loan options for students. Lending Ben is designed to help students and their families wend their way through the maze of financial aid information.
Disclaimer: The information obtained throughout the Lending Ben site is intended to be used for educational purposes only. All product names, logos, and other trademarks displayed within the site are the property of their respective owners. Here at Lending Ben we strive to provide you with accurate, up-to-date information, but suggest checking the source directly. We recommend consulting a licensed financial professional before making any financial decisions. This site may be compensated through our partner relationships. Lending Ben is not endorsed or affiliated with the U.S. Department of Education. The Lending Ben site is free though it makes money off affiliate programs. That means when you click on our recommended lenders’ links and reviews, you are sent to third party websites where specific actions, such as applying for a student loan, may result in revenue generated by our platform. Lending Ben has no affiliation with student.ed.gov.Lending Ben has relied solely upon lender information. Lender information may change at any time.
