Federal vs. Private Student Loans

Federal vs. Private Student Loans

Federal vs. Private Student Loans. Ugh.

Honestly, I hate everything about student loans. I hate writing about them, I hated having them, and I especially hate that so many people I know (both friends and students) still struggle with them or are about to start struggling with them. The real thing that is infuriating is that the current college system has all but made this crippling debt a requirement to become educated. Colleges have bloated budgets, inefficient spending habits, and REALLY well-paid administration. It’s unsustainable, and I’m terrified to see the bubble burst (think housing crash, but slower and longer lasting). That’s my prediction at least. I hate them.

The only silver lining is that I really enjoy helping people figure out what to do with these stupid things and how get rid of them as fast as possible after they graduate from college. 

An ugly but increasingly common reality is that most people won’t be able to avoid taking out some form of student loans during their time in college. Whether it’s a federal or a private loan, I still consider it bad debt that you need to destroy as quickly as you can. To be totally honest, telling people which type of student loan is better feels like choosing between a wasp sting and a spider bite.

Both of them are scary and freak me out (the bugs and the loans).

Here is a chart that I put together to give you some quick information on Federal vs. Private Loans:

Federal Student LoansPrivate Student Loans
Can be subsidized if you meet the income requirements. Not subsidized (Obama won't spot you the interest.)
Could technically have your loans forgiven if you sell your soul to the government. Not forgiven by the government, just like it should be!
Don't have to make payments on most types until 6 months after graduation.Might need to make payments while still in school.
Don't need credit to apply.Could need credit to apply.
Has forbearance or deferment options.Not all private loans have these options - depends on the lender.
Interest rates are fixed.Available in fixed interest or variable rate interest.
No cosigner needed.Might need a cosigner.
No pre-payment penalty fees (Really good feature.)Might have some, depends on the lender.

If you have to use student loans while you are attending college, federal loans are the way to go. You have a few different options for loan repayment if you fall on hard times, and you might not get the same options with a private student loan. And please, please, please do not even THINK about applying for federal loans with the goal of having them forgiven by Obama. The requirements for forgiveness are ridiculous and should not factor into your decision in any way. Seriously.

You may have to do a mix of federal and private loans while you are in college. I have had several people email me and reach out via twitter and Facebook about this. I get it, the federal loan limit is $57,500 for undergraduate degrees…and that just isn’t enough sometimes when you consider living expenses in addition to tuition.

If you have both types of loans after college and the interest rates are similar, pay off the private ones first. Private loans don’t have the same flexibility as federal loans and could get you into some serious credit issues if you find yourself in a situation where you can’t pay the loans back quickly.

I’ll leave you with this: whether your loans are federal or private, my advice is the same. Destroy your debt as quickly as possible. Claw, scratch, and fight your way out of debt so that you can live the rest of your life without the burden of student loans.

 Live differently, your bank accounts will thank me later. – M$M


Scales Image:  Hans Splinter

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4 comments… add one
  • MarkD Apr 13, 2015, 11:57 am

    And before you get ANY loan check to see if you will be able to pay it off. Here is a handy quick calculator which will estimate what your total student debt will turn out to be https://www.yourmoneypage.com/education/studentloan.php

  • Nate M May 21, 2015, 8:22 am

    It amazes me how often people don’t know whether they have federal or private student loans. It seems like everyday we get a caller who thinks that they have only federal loans, when really their Sallie Mae loans are actually private. Education in this area is tough, I appreciate you putting out this post in order to help!

    • Millennial Money Man May 25, 2015, 12:09 pm

      Totally agree Nate – education in this area is pretty lacking. People see Sallie Mae and think Federal without even realizing that they do both kinds of loans. I don’t think Sallie Mae makes it really clear either (probably for a lot of reasons).

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