Student Loans: Stafford Versus Private

When it comes to planning for your financial aid to pay for college, the most common options include applying for either a federal Stafford loan and private loans. Here’s are some of the basics to help you decide which one might suit you best.

To Be Eligible.

Federal student aids require you to complete a Free Application for Federal Student Aid (FAFSA) and you must be a U.S. citizen, permanent resident, as well as at least a half-time undergraduate or graduate student.

Private loans are based on credit criteria established by the lender, which may vary depending on whether you have a co-signer. You must also be at least a half-time student at a university approved by the U.S. Education Dept.

Interest.

Federal loan interest rates are variable each year, but they are capped at 8.25 percent.

Private loan interest rates are based on how good your credit is. The best rates are achieved when both you and a cosigner of yours are credit-approved. Interest is based on the prime rate and could change monthly if the prime changes.

Fees.

Federal loans have a three percent origination fee as well as a one percent guarantee fee.

Private loans may have a repayment fee of three percent in some credit tiers.

Max. Loan Available.

Federal loans are set by Congress.

Private Loans allow you to borrow up to the cost of attending the establishment. The requested loan amount must also be certified.The maximum loan limit is $100,000 without a co-signer.

Repayment.

Federal loans have a general 10-year repayment term, however extended repayment plans can extend up to 25 years. Borrowers have a six month grace period after graduation before its necessary to begin making payments, and federal loan consolidation is an option.

Private loans have a general 15-year repayment plan, and extended repayment plans can extend up to 25 years as well. Private loans are not eligible for federal loan consolidation, however combined billing to make single payments is an option.