Few students can afford to pay for college these days without some form of financial aid. Choosing the right student loan may seem overwhelming, but if you are familiar with the basic types of loans, your decision will be much simpler.
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There are two main categories of student loans – federal student loans and private, or alternative, student loans. Here are some of the differences between the two:
Federal Student Loans
Federal loans are not based on your credit history, so getting approved may not be as difficult as private loans, depending on your financial situation. Some of the other general benefits of federal loans include guaranteed protections if you encounter unemployment or financial problems after graduation and flexible repaying plans. Interest rates are generally lower for federal loans, as well.
Federal student loans may either be subsidized or unsubsidized. If the loan is subsidized, then the government will pay the interest while you are in school. If it is unsubsidized, interest begins accruing at the start of the loan, even if you don't start paying it back until after graduation. Federal student loans can come through your school, banks, or savings and loan or credit unions.
Private Student Loans
Private student loans usually have higher rates and greater upfront fees than federal loans. Your credit history does affect your ability to qualify for a loan. Repayment options are not as numerous as with federal student loans, and some may not let you defer payment while you are in school. With private loans, interest begins accruing immediately.
Because private loans come from innumerable places, you can receive private loans on top of federal loans to cover any financial gaps. You may want to look into Sallie Mae student loans, which generally have good repayment incentives including a break on interest rates after 4 years of on-time payments.
Lenders will almost always approve you for as much money as possible, but that does not necessarily mean you should borrow the full amount. Never borrow more than you can comfortably afford to pay back. A good rule of thumb is to plan on spending no more than 10% of your post-graduate income on repaying student loans.