The type of loan you choose depends on your eligibility requirements, your credit history and the amount you need. To help you decide whether a federal loan or a private loan is right for you, below is a loan comparison chart.
Federal Student Loan
Private Student Loan
Eligibility
Must complete FAFSA
Be a U.S. citizen or an eligible non-citizen with a valid social security number
Be working toward a degree or certificate in an eligible program
Have a high school diploma, GED or pass an approved ability-to-benefit (ABT) test
Register with the Selective Service if you're a male between 18 and 25
Maintain good grades
Must be 18 years or older
Attending at least half-time in a degree, graduate, or certificate program to be eligible for a Private Student Loan
Satisfactory credit history and minimum income required for approval (Many first-time students may need a qualified co-signer in order to qualify for the loan)
Pros
You don’t need to get a credit check.
Federal loans can help establish a good credit record.
You don’t need a credit-worthy cosigner.
Disbursements are made directly to your school and applied to your tuition and other direct costs.
Offers a low interest rate
The government pays interest on the subsidized loan as long as you are in school at least half-time.
Repayment is deferred until you graduate.
Interest may be tax-deductible.
The government will pay interest during times when you're approved to defer your loan.
If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.
May be used to pay for a variety of college expenses, from tuition to campus living expenses, school supplies, travel, and more
Private student loans can help establish a good credit record.
Disbursements are made directly to your school and applied to your tuition and other direct costs.
Repayment is deferred until you graduate.
Good credit will help you considerably when applying for a private student loan.
If your credit isn't great, or if you haven't yet built it, you will need a credit-worthy cosigner
Most loan products have 0% front end fees.
You may choose a variable rate of interest or a fixed rate of interest.
Cons
Some loans are awarded on the basis of need, some loans are not.
The maximum loan you are eligible to borrow each year is limited by your grade level.
Interest is paid by the government for some loans, but not for others.
Loan fees (origination) are automatically deducted from each disbursement.
If you don't have good credit, and there is no one with good credit to cosign for you, you cannot get a private loan.
Some lenders have set rates such as the current LIBOR rate (London Interbank Offered Rate- the interest rate international banks charge each other to borrow U.S. dollars) or the Prime rate (interest rate that lenders give to their best customers).
