The increasing inflation rate has hit the education sector, making it difficult for students to pursue higher studies. Study loans are a blessing, ensuring that deserving students do not have to skip higher education because of the lack of funds. 

In the USA, the government offers federal student aid to cover the educational expenses for students in colleges and schools. The students should meet the eligibility criteria to avail of any student loans. 

However, there is another option in the form of private student loans that have less stringent qualifying criteria. It is crucial to understand the details of these two loan categories. Moreover, one should make a fair comparison between them to figure out which one would best suit your requirements.

This article is a comprehensive guide to student loan categories and federal and private student loans. We will also compare the two in detail for better understanding. 

What are Student Loans? 

These powerful financial options provide students with funds for their higher education. The best student loans for college typically include tuition fees, study material costs, boarding expenses, and a wide range of other education-related expenses. 

All the applicants have to fulfill the eligibility criteria and prove their need for funds to avail the benefits of different types of loans available in the market. 

There are banks and credit unions that offer funds, and you will be charged a significant interest on the principal amount. Let us discuss different types of student loans and categorize them further. 

Types of Student Loans 

There are two different types of student loan categories:

• Federal student loans
• Private student loans

Each category has its own set of benefits, catering to the needs of all the students planning to use the financial aid to support their dream of higher education. 

These two vary in terms of interest rates, repayment plans, loan limits, and multiple other factors. We have discussed both categories in detail below, mentioning their benefits and application process for a better understanding of prospective students. 

Federal Student Loans

Federal student aid is a loan program with the backing of the US government. It offers funds for higher education to eligible students at varying interest rates and different loan terms tailor-made for the students.

Moreover, it offers borrower protection plans and loan forgiveness programs to help students with the repayment in case they face any financial crises. For most of the loans falling under this category, there is no need for a thorough credit check, and you do not need any co-signer to guarantee your loan.

The highlight feature of federal student loans is that the government pays the interest amount for the time you will be in school. 

Types of Federal Student Loans 

There are four major types of federal student loans. Here’s a brief about them. 

Direct Subsidized Loan: These are for undergraduate students, and the loan limit for direct subsidized loans is fairly low. The government pays the interest until the student is in college and a few months after that. 

Direct Unsubsidized Loan: These loans offer higher limits and can cater to graduate or professional students. The interest amount for the time during and after the school is accrued by the student. 

Direct PLUS loan: This loan is for professional students and parents of dependent undergraduate candidates. For this type, the credit check is mandatory and interest get calculated for the entire duration of loan repayment. 

Direct Consolidation Loan: This is a provision where students who have borrowed funds under federal loans, and consolidate all their loans under one. It makes them eligible to access loan forgiveness programs. 

Benefits of Federal Student Loans 

These college loans offer numerous benefits, like:

• Fixed interest rate throughout the loan period, making the final payable amount transparent from the beginning.
• Few loans in this category have a provision where the government pays your interest amount while you are in college.
• The repayment plans are more flexible, like income-driven repayment that lets you decide your monthly installment according to the money you make. 

How to Apply for Federal Student Loans 

The process of federal student loan application is simple, and there are no origination fees involved. Following are the steps that you will follow.

• Visit fafsa.gov and fill out your application for the federal student loan. Add all the information as asked in the application, and they will generate your student aid report.
• Review your student aid report (SAR) and make any corrections you want. It is the application that your preferred school will check to acknowledge your need for funds. 
• The school will conduct a counseling session to make you aware of the obligations and responsibilities of the loans. 
• Once everything is complete, you will sign the final agreement, choose the loan terms, and the financial body will disburse the funds into your account. 

Private Student Loans

These college loans are provided by private banks or federal unions to undergraduate, graduate, or professional students. The loan limit for this category is higher than federal aid, covering even the additional charges that are related to education. 

For most of the loans under this category, there is a strict requirement of going through a credit check. If the applicant has a terribly low credit score, he can look for private loans with a cosigner with excellent creditworthiness. 

Let’s explore the types of loans under this category and how you can apply for them.

Types of Private Student Loans

Different types of private student loans available in 2024 are discussed in brief below. 

Undergraduate Loans: These are for undergraduate students, covering their tuition fees and almost all other education-related expenses. It is necessary to have a co-signer to apply for this loan as an undergraduate student does not really have a strong credit history.

Graduate Loans: These loans are for graduate students and have higher loan limits. The loan terms may vary depending on your field of study. 

Parent Loans: These loans are for the parents of dependent students who wish to support their child’s education. The interest terms are chosen by the parents, and they hold the primary responsibility of repaying the debt.

Technical Education Loans: As the name suggests, these loans are for students pursuing technical education or wish to attend a training program in their field of study. 

Benefits of Private Student Loans 

There are numerous benefits that make this category the best option for student loans. Some of the perks are listed below.

• The loan limit for private student loans is higher than federal ones. So, you can use them to cover additional educational expenses.
• Private loan providers can offer varied or fixed interest rates, making them a competitive option for student loan applicants. 
• Many loan providers let you release the co-signer after you have made a certain set of payments. 

How to Apply for Private Student Loans?

Whether you opt for a Discover student loan or a Citizens Bank student loan, the application process remains more or less the same. The steps you will follow are:

• Sort your requirements and explore all the private loan options that comply with your requirements. For example, discover student loan is apt for any student belonging to any field of study, studying at any level. However, there are a few loans that are only available for graduates or undergraduates.
• Gather all the documents that your preferred financial body has asked for and fill out their application form thoroughly. 
• Review the loan terms and choose a plan for yourself that you can adhere to conveniently. Focus on choosing flexible repayment plans. 
• Once your financial organization approves the loan, you will sign the final agreement, and money will be disbursed into your account.   

Comparing Federal vs. Private Student Loans 

By now, you have got complete idea about federal student loans and private loans for students. The table below outlines a comparison on the basis of different aspects to help you understand which loan type would be apt for your requirements. It is crucial to check this comparison before you apply for a student loan. 

Tips for Choosing the Best Student Loan 

When you start exploring the options in loans for college students, the number of choices will make it challenging to make a decision. We are sharing effective tips that can help you narrow the options and choose the best loans for college students tailored to cater for your requirements. 

• Sort your requirements first and get clarity about a few things, like the amount you need, the repayment program that would be best for you, and all other loan terms. 
• Make sure you explore all the available loans for college students, looking for those that would best fit your requirements. 
• It is better to opt for loans that come with forgiveness programs, keeping yourself safe against any potential financial crises. 
• Get complete information about the application process for your preferred loan to avoid delays and complications. 
• Check if there is any fee involved in the application process, so you won’t get surprised at a later stage. 

Conclusion

Choosing between federal and private student loans is a tough choice before you apply for a student loan. You need a thorough understanding of each loan category and the types under it to decide which one would be the best for you. 

For example, federal student aid would work if you do not have an excellent credit history, and private loans are apt if you want a higher amount of funds. 

This article gives you information about federal and private student loans. Learn and understand its differences, and you can certainly make wise decisions to enjoy financial support to pursue your dream academic career.