Federal student loans are by far a better choice as compared to private loans. Federal loans are subsidized by government programs. In contrast, private loans are the ones that are funded by credit unions and banks, and other lenders. The federal government, and not the banker or lender, sets limits, rates, and terms and conditions for federal student loans.
There are many benefits of taking a federal loan instead of private loan. Here are 4 reasons why you should stick with federal student loans instead of a private loan.
Obtain Loan Even with a Bad Credit Score
You can get federal loans without a low credit score. Private banks, on the other hand, will scrutinize your past credit behavior to decide if you are eligible for the loan. Your ability to get a private loan at a lower rate depends on your credit score.
This is not the case with federal loans. The loans are offered at a fixed rate. You can be able to obtain the loan at lenient terms even if you had made some bad choices in managing your debts in the past. These loans are offered to individuals based on their financial need instead of their past credit behavior.
Postpone Federal Loan Payments
When facing hard times, you can temporarily postpone payment of federal loans for up to three years. Private loans, on the other hand, do not offer such generous offers. They can agree to extend payment of the loan or lower the rates, but no one would be willing to postpone installment payments.
That being said, you should be warned that the interest rate will keep on incurring when you take the deferral option. So, while you won’t have to pay any fines or penalties, the debt amount will keep rising the longer you postpone payment of the loan.
Eligible for Income Based Repayment
Students that apply for federal loans can opt from income based repayment. What this basically means is that the installments will be based on the income of the individual. This greatly eases the burden of making debt payments for the borrowers.
Loan Forgiveness Opportunities
Federal student loans can be forgiven either in part or in full in certain situations. Individuals with low income won’t have to pay any installment if the full amount is not paid after 20 years. For public employed persons, the period is 10 years.
On the contrary, private loans don’t offer any forgiveness opportunities. You are responsible to pay the entire amount in installments without break. Unless you apply for a bankruptcy, you have no way out to reduce the impact of the debt burden.
On a final note, federal student loans offer greater benefits as compared to private loans. You will face less trouble paying back federal loans as they entail more generous terms and conditions. So, if you are facing financial difficulties, it is advisable to stick to federal loans to finance your education.