Considering the cost of tuition fees, student loans often become a part of getting a higher education. According to the research by the Institute for College Access and Success, sixty-eight percent of college senior students who graduated in 2015 took student loans. 2017 Student Loan Debt Statistics shows that most college students take loans nowadays. If education loan is needed, it is better to begin with the loans that are issued by the government. They are usually easier to repay and cost less than private ones.
Check below how exactly you can benefit when taking a federal student loan.
1. Credit History is Not Required
Private loans issued by a financial institution like a bank can be taken only on condition that a student has a great credit history. It means there was already a credit card or a car loan on a student’s name and everything was paid on time. Most applicants have short credit histories or do not have them at all. Considering this, not everyone can take a private loan independently.
A federal loan does not require having a credit history and be taken by any undergraduate who needs financial help. A student can register for a federal loan with a help of a Free Application for Federal Student Aid that is usually abbreviated as FAFSA.
Learn how a student loan might affect your credit score here.
2. No Co-signers Involved
The high-school graduated without a long credit history can take a private loan if a co-signer will support them. It is common for parents or grandparents to help a student with payments and become co-signers. They could hardly be relieved from this responsibility in the future. Co-signers are not needed for taking federal loans as they are not credit-based. When it comes to federal loans, student’s family does not need to be involved in taking a loan for education.
3. Lower Cost
Federal loans could cost less than private ones and there are a few reasons for this. The rates interest rates on federal loans are usually lower as they are offered by the government. Another advantage is that you may subsidize the interest rates on a federal loan. It means there is a chance a government may cover the interest for you. In addition, federal loans rates will be the same during the repayment period as they are fixed. A student does not have to worry about rate raises and can plan the budget for repaying a loan as well as about other student loan myths.
4. Payments Can Be Postponed
The federal student loan program allows enrolling for deferment or forbearance that could postpone the repayments. In case of deferment, a student will have up to three years to repay a loan. The forbearance may allow you to stop the payments for about a year. Keep in mind that the government will still add the interest during the period of forbearance. Both options to postpone the payments are great in case you temporary cannot cover your planned loans repayments. Deferment and forbearance options are not available when you take private student loans.
5. Chances of Loan Forgiveness
One of the most important federal loans advantages is the possibility of loan forgiveness. If you work as a government employee, public school teacher or are involved in a non-profit organization, a loan can be forgiven within several years. It does not mean it is easy to turn a loan into free money. Also, the debt could be canceled in case of borrower’s death.
Federal loans have a number of advantages. Before rushing to take a private student loan, think about all the options a government can offer. After applying for grants and scholarships, a federal loan should be the next option to consider.