In general, federal student loans have significantly more generous payment deferral options than private loans. (Check out Student Loan Hero’s repayment calculator to see the difference.)
FHA loans, a popular alternative for recent college graduates with modest incomes, offer a variety of repayment options. Students can pay off their loans in 10 years, 10 years, 15 years or 20 years. There are also federal income-driven repayment plans, such as the Pay As You Earn (PAYE) plan, that will make a student’s payments at a much higher rate.
But some private loans are even more generous.
The federal loan program that pays private student loans originated over $100 billion in outstanding loans in fiscal 2012. Private lenders now disburse more than $700 billion in loans to private students, and loans made up 31% of the student loan market in 2013, according to the U.S. Department of Education.
Private student loans have two key features: they typically pay higher interest rates than federal student loans, and they often offer less flexible repayment options. The key differences between federal student loans and private loans are summarized here. Federal Student Loans Federal student loans are subsidized, or subsidized by the government. Unlike federal direct loans, which do not need to be repaid by borrowers, subsidized loans require students to make annual payments into the Department of Education’s Student Loan Ombudsman, which then pays back the loan to the government. For private student loans, which cannot be discharged in bankruptcy, borrowers must make monthly payments into a bank account that pays back the loan to the lender. Private Student Loans The loan is made in the name of the borrower, and the loan amount is repaid in monthly installments, with the borrower’s ability to make payments dependent on how much income they have and how much they make. Loans are generally for 4 years, but can be for as long as you want. Your payments are made to the bank that makes the payments and there are no income limits for repayment. Your payments are the same whether you work full-time or part-time, whether you’re employed full-time or part-time. The borrower also has the option to pay off the loan over a longer period of time, as long as they have enough income to repay the loan. This is called an installment plan. If you are employed full-time, you would generally have no option to have a loan paid off over the length of the loan.
Can I get a loan to attend a college or university? The federal government does not directly help students get loans to attend a college or university. The Federal Direct Student Loan Program is one program that can help students finance their educational expenses at a public, private, or for-profit college or university. The Federal Direct Student Loan Program is a Direct Loan Program for those students who did not receive any federal student aid prior to completing four years of post-secondary education or its equivalent, such as a high school diploma, or a GED.
Students must apply for Federal Direct Student Loan programs through the Direct Loan Servicer for each Federal Direct Student Loan Program that they are interested in, and are assigned a loan servicer after that. The Federal Direct Student Loan Program is managed by the U.S. Department of Education and the U.S. Department of Education only issues loans to students who were financially needy as of the beginning of the program, according to the U.S. Department of Education website.
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