Thinking of applying for a student loan? You have the option of applying for both a private and a federal student loan. And though both do the same thing – financing your studies – their benefits differ widely. While government loans for low credit scores are considered to be the best option for students, most of them fail to explore this option and instead end up taking on a private loan.
Let’s check out how a government loan and a private loan differ in nature:
- Loan Repayment – One of the biggest advantages of a federal loan is that you won’t need to repay the loan until after you graduate or leave school. A private loan however, requires that you start with the repayments while you are still enrolled and studying.
- Rate of Interest – Another advantage of a federal loan over a private loan is that the interest rate tends to be lower compared to a private loan, which basically means that the total amount you have to pay back is lower compared to the amount of a private loan.
- Credit Check – A federal loan does not require a credit check but a private loan does. This makes government loans for low credit scores a more viable option compared to a private loan for students.
- Cosigner – In most cases, a federal loan does not require a cosigner whilst a private loan does.
- Interest – In a private loan, the interest is not tax deductible while interest may be tax deductible in a federal loan.
- Loan Forgiveness – A big advantage that a federal loan has over private loan is that if you work in public service then a certain portion of your loan may be forgiven. However, that is not an option for a private loan.