Government Versus Private Student Loans

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When you find that loans are necessary to successfully fund your education, deciding between government and private student loans is your first priority. With all of the information bombarding you regarding student loans, the decision may seem overwhelming.

Make an informed decision about the types of student loans that are right for you by keeping the following comparisons in mind.

Government student loans

Offered by the U.S. government, federal student loans come subsidized and unsubsidized. The latter type of loan starts accruing interest soon after you receive the money, whereas the subsidized loan doesn't accrue interest until after you graduate. With both types of loans you aren't required to pay until after graduation.

Benefits:

• The interest rate is fixed and often much lower than private loans
• No credit check is required, except for PLUS loans
• No co-signer is necessary
• Paying off student loans helps you build credit
• You can defer making payments if you go back to school
• If you work in certain professions, you may be eligible to have a certain portion of your loan forgiven
• Eligible for student loan debt consolidation

Drawbacks:

• Many government student loans, such as the Stafford, have a lending limit
• You must file the FAFSA by a certain time each year in order to be eligible for a loan
• Loans are given based on apparent economic need

Private student loans

As their name suggests, private student loans are offered by private lenders. Such loans are sometimes used to cover the educational costs that remain when federal loans aren't enough. Private student loan rates can vary widely, so it's important to do some comparison shopping.

Benefits:

• Loans aren't need-based and amount offered is determined by credit history
• Can close the gap between the amount of money you actually need and the amount of loans provided by the government
• Come in variable- or fixed-interest rates
• Offer various payment options
• Paying off private loans helps you build credit
• Sometimes eligible for private student loan consolidation

Drawbacks:

• Interest rates can be substantially higher than government loans
• Approval requires a credit check
• You may require a cosigner depending on your credit history

Armed with the facts regarding government and private loans, you can make an informed decision that helps you more effectively deal with after-graduation debt management.

Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.