Taking out student loans is a common way to fund one’s education in the U.S. According to the Brookings Institution, about one in every eight Americans has student loans. 

Perhaps you’re currently among them, or you’re planning to take out student loans in the near future. You have two main options to consider if so: federal student loans and private student loans. Understanding the differences between the two may play a critical role in your education and your finances.

Federal Student Loans: What You Need to Know

The U.S. Department of Education offers financial assistance to students through such loans as:

• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans

The government offers Direct Subsidized Loans and Direct Unsubsidized Loans to undergraduate students. The government offers Direct PLUS Loans to students in graduate and professional programs, and also offers a version of such loans to parents who will help pay for their children’s education.

Private Student Loans: Essential Information

Various private lenders may also offer student loans. Examples of such lenders include (but are not necessarily limited to) the following:

• Banks
• Universities and other educational institutions
• Credit unions

Additionally, some state agencies may offer loans.

Benefits of Federal Student Loans

Federal student loans offer a range of advantages that private student loans may not offer. They include:

• Lower interest rates, as Congress establishes limits for federal student loan interest rates
• Repayment plans that may account for such factors as family size and income
• Loan forgiveness programs for those who meet certain qualifications
• The option to potentially suspend loan payments for a period of time if you experience unanticipated financial hardship

These are among the key reasons many students first consider federal student loans before taking out private loans. However, there are instances in which taking out private loans may be necessary.

Reasons to Take Out Private Student Loans

Although interest rates for private student loans may be higher than those for federal student loans and repayment plans may not offer the same degree of flexibility, a student might nevertheless choose to take out a private loan for such reasons as:

• Covering costs they are unable to cover through federal loans
• Receiving funds more quickly, as some private lenders disburse student loans more quickly than the government does.

There may also be circumstances in which a student is able to work out more favorable repayment options through a private lender. For instance, although repayment options for federal student loans tend to be more flexible, if a student works through a local credit union, the lender may know them well enough that they’re willing to tailor a repayment plan to their needs and situation.

Choosing Between Federal Student Loans and Private Student Loans: Factors to Consider

No single blog entry or overview can tell you whether you should take our federal student loans, private student loans, or both. That said, when making this decision, you’ll be more likely to make the right choice for you by accounting for such factors as:

• How quickly you need the funds
• Whether you have a relationship with a private lender that might work in your favor
• Whether you meet the eligibility requirements for particular loans
• The full extent of your financial need
• Your credit history, as a private lender will likely need to perform a credit check before approving a loan

Be aware that taking out student loans also isn’t your only option for funding an education. You may qualify for scholarships, or you might even be able to borrow money from a close family member or friend if you are confident in your ability to eventually pay them back.

The main point to remember is that conducting thorough research is always smart when sorting through your student loan options. If you take your time to weigh your options now, your odds of being happy with your student loan situation in the future will be greater.

Debt Legal Defense is a San Antonio law firm offering student loan relief and defense services.