Which Student Loan Is The Best Overall?

Loans always come with an interest rate. With lower interest, you will pay less, which is good when considering the best overall student loan. 

To answer the query “Which student loan is the best overall,” we must examine the college loan types available. 

Federal and private loans are the two types of college loans available. They both have their benefits and drawbacks. Although there has always been a silent battle of Federal vs. Private loans, which is better? 

The government funds federal loans, while private loans are provided by private lenders such as banks and credit unions.

But, for the sake of our question, “Which student loan is the best overall” we will take a closer look at the various types of both Federal and Private loans and provide a reasonable conclusion.

Read Also:  College Ave Student Loans: 10 Things To Consider Before You Apply

Federal Student Loans 

Which Student Loan Is The Best Overall

Federal student loans, as the name implies, are loans the federal government gives to help people with college expenses.

The government offers different types of student loans. They include the following; 

1. Federal Direct Subsidized Loans 

The Direct Subsidized Loan is better known as Subsidized Stafford Loan. They are the most affordable type of federal financial aid. 

These loans are for students who are studying at an undergraduate level and who can show they need financial assistance.

It has a fixed interest rate of 3.73%, and the government pays the interest charges while the student is still in college. 

You can borrow up to $3,500 in your first year. However, each school decides how much a student can borrow within annual and total limits. 

2. Federal Direct Unsubsidized Loans 

The Federal Direct Unsubsidized Loan, or Unsubsidized Stafford Loan, is both for undergraduate and graduate students, regardless of financial need. 

This Loan has the same fixed interest rate as subsidized loans and is accessible to everyone.

Also, you can borrow more money than a Direct Subsidized Loan and choose to pay the interest while in college or add it to your loan amount if you pay after school. 

However, this means you’ll pay more over time. In addition, interest charges on this Loan begin accruing when the Loan is given.

3. Federal Direct Plus Loans

These Loans are for parents of dependent undergraduate and graduate students. It is also given to graduate and professional students who has good credit. 

It covers the total cost of attending college minus any other aid received. They have a fixed interest rate of 6.28%. 

4. Federal Perkins Loans 

Perkins Loans are for students with exceptional financial needs, and interest rates for these loans are lower than for other federal student loans. 

It has a low fixed interest rate of 5% and doesn’t require any payments while you’re in college. In this program, your school is the loan lender, with a payback period of nine months after graduation to 10 years.  However, this program was canceled by Congress in 2017. 

Pros of Federal Loans

Here are the advantages of federal student loans.

1. Lower interest rates

Federal student loans offer lower interest rates than private student loans.

2. Fixed interest rates

These loans have permanent interest rates that will not change throughout the loan period; This makes budgeting and planning for loan payments more predictable.

3. Repayment assistance programs

Federal student loans offer repayment assistance programs, such as tying your income to the loan or postponing the loan.

This is to help borrowers manage their loan payments if they struggle to pay.

4. Subsidized loans

The federal government offers subsidized loans, which means that the government pays the interest on the loan while the student is in school and during specific periods.

5. Forgiveness programs

Federal student loans have loan cancellation programs, such as Public Service Loan Forgiveness or Teacher Loan Forgiveness. 

These programs can help borrowers get some or all of their loan debt forgiven if eligible.

Cons of Federal Loans 

Below outlined are the downsides of federal student loans.

1. Borrowing limits

There are limits to how much you can borrow in federal student loans, which may not cover the total cost of attendance at some schools.

2. Origination fees

Federal student loans come with origination fees, which are deducted from the loan amount and can reduce the money you receive.

3. Qualification requirements

Federal student loans have specific requirements that students must meet to be eligible, such as being enrolled at least half-time in a degree program.

Read Also: Best Student Loans

Private Student Loans 

Which Student Loan Is The Best Overall

Private Loans come from banks and private organizations; hence they require good credit and often require an adult with good credit to cosign the loan.

These loans aren’t subsidized and may have higher interest rates than federal loans. Also, their rates can increase over time, depending on the lender. 

The terms of these loans may also not be as favorable as those of federal loans.

Types of Private Student Loans 

Different types of private student loans are based on the student’s status and degree program. 

1. Undergraduate student loans 

Private undergraduate student loans require students to have a co-signer since they may need a credit history or a steady income. 

2. Parent student loans

These loans are available to parents or guardians to help their child pay for school, and the student is not responsible for repaying the Loan. 

3. Graduate loans 

Graduate loans are given to graduate students. However, graduate students may qualify for a lower interest rate with a good credit history.

Pros of Private Student loans 

Below are the advantages of private student loans.

1. No borrowing limits

Unlike federal loans with borrowing limits, private student loans can cover the entire cost of attendance.

2. No requirement for demonstrating financial need

Unlike federal loans, private student loans do not require borrowers to demonstrate financial need.

3. No degree

Many private loans require no degree to apply for one. This makes getting financial assistance accessible to many people.

The Cons of Private Student Loans 

Below are the drawbacks of private student loans.

1. Higher interest rates

Private student loans often come with higher rates than federal loans, especially for borrowers with limited credit histories or lower credit scores.

2. Limited repayment options

Private student loans offer fewer repayment methods than federal loans, with some lenders offering no income-driven repayment plans or loan forgiveness programs.

3. Credit requirements

Private student loans require a credit check. Also, borrowers with poor credit or no credit history may need a co-signer to qualify for a loan.

4. Co-signer requirements

Private student loans require a co-signer, a parent, or another individual with good credit, to guarantee the Loan. If the borrower refuses to pay, the co-signer must repay the Loan.

5. Lack of borrower protections

Private student loans do not offer borrower protections as federal loans, such as deferment, forbearance, or loan forgiveness programs.

Read Also: College Loans Beginner’s Guide: Understanding Your Options

Which Student Loan Is The Best Overall

Choosing the best student loan option depends on individual circumstances. However, federal Direct Unsubsidized and Subsidized Loans are excellent choices for students who need to borrow money for school. It is best to use them first before considering private student loans. 

They have a fixed interest rate and provide more options for repayment than private loans. You can adjust your payment plan as necessary.

It has flexible options for postponing payments through deferment or forbearance and payment plans that limit your payments to a percentage of your income after completing your education.

But, there are limits to how much you can borrow under these programs—that’s where private loans supersedes these options.

Private student loans should only be considered if the federal funds are insufficient to cover the attendance cost and you did not qualify for any federal loans.  

Evaluating the differences between private and federal student loans and how they fit into your financial situation is essential before deciding.

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