Understanding Student Loans: Federal vs. Private

By Alicia Geigel on July 12, 2018

As a college student, one of the biggest worries, if not the biggest worry, is funding your education. For most of us, it is no surprise or shock that the price of going to college is getting more expensive each year. Along with tuition, the rate of attendance has skyrocketed due to increasing prices in room and board, books, transportation, food, etc.

According to data collected by the United States Bureau of Labor Statistics, the average in-state tuition rates and fees at public National Universities have increased 237 percent, with out-of-state tuition and fees for the same public universities increasing by 194 percent. The reasons for the significant increase in the price of college attendance varies, but one thing remains constant: students are still going to college and at increasing rates. But how does everyone pay for it?

Student Loans - can’t live with ‘em and wish you could live without them. Unfortunately, for most of us, student loans are an inevitable and unavoidable aspect of the college experience. As exemplified in the data presented above, in present society, it has become increasingly more difficult to fund a college education without the addition of some supplemental form of payment aka student loans (unless you’re really lucky, which in that case- good for you). With an increasing amount of students going to college, more students and parents are using loans as a means to pay for increasing tuition rates.

Understanding student loans can be complicated, especially if you don’t fully understand the scope of what you are signing up for or frequent terminology that is common in the applications and documentation. Are you a soon-to-be college student or the parent of a future college student? Are you unable to pay for college completely on your own? Nervous and scared about tackling the world of student loans? Check out my complete guide to understanding the two types of student loans: federal and private, as well as a short list of need-to-know terms that will make the process easier!

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Key Terms, as defined by Ryan Lane of US News:

  • Promissory note: “This is your loan’s contract. If you need answers about your repayment options or rights as a borrower, look in your promissory note.”
  • Servicer: “A servicer is the organization that sends you student loan bills and collects your payments. They are not your lender. Your lender, which is the federal government for all federal education loans issued since July 2010, hired them to provide you with customer service.”
  • Subsidized: “Subsidized loans are ones that the government pays the interest on while you’re in school and during approved deferment periods. In addition, they will pay this interest during your grace period if you borrowed these loans before July 1, 2012.”
  • Unsubsidized: In contrast to subsidized loans, unsubsidized loans’ interest starts accumulating the second the loan is taken out.
  • Grant: A specific type of financial aid that doesn’t have to be repaid
  • Work Study: A type of assistance that helps college students pay for additional college expenses by providing part-time employment.

Federal Loans

Many of us are used to the process of filing a FAFSA (Free Application for Federal Student Aid) during our high school and college years, but the details (big or small) can be easily overlooked. Federal student aid is one of the most common ways to get financial aid as both an undergrad and grad student. Based on financial information from either yourself or your parents/guardians, the FAFSA determines exactly how much financial you are eligible to receive from the federal government through either loans or grants.

Loans taken out from the government (also known as Stafford Loans) are either subsidized or unsubsidized and have to be paid back, while grants are financial rewards that do not have to be paid back. Types of loans that you can be taken out include PLUS Loans as well as the Perkins Loan.

There are two kinds of PLUS loans: the Parent Plus Loan, which is available for parents of undergrad students, and the Grad PLUS Loan, for grad students seeking financial aid. The Perkins Loan is a subsidized loan provided by the federal government that is based on financial need. Taking out loans is an efficient way to pay for your college education, plus there are numerous options available when it comes time to pay them back, such as deferment of payments and loan forgiveness.

Private Loans

Private student loans while slightly similar in nature, are vastly different from loans provided by the federal government. Private loans are not funded by the federal government and instead funded by banks, credit unions, state loan programs and other types of lenders, according to the Consumer Financial Protection Bureau (CFPB).

Private loans typically have higher interest rates, lack flexible repayment options, and borrower protections like federal loans do. However, many students who do need more money than what was provided by the federal government, do find that private loans are the next reliable option to help fund their education.

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In current times, it is becoming harder and harder to afford college. According to Ray Franke, professor of education at the University of Massachusetts, Boston, “the long-term trend, [college tuition] has been rising almost six percent above the rate of inflation.”

Though this fact seems discouraging, funding your college education is indeed possible if you work diligently and utilize the best of your skills. There are plentiful resources out there that can lead you through your college years and not leave you with the feeling that you’re  drowning in debt once you’re done. If you plan wisely and ahead of time, there is nothing that can stop you from accomplishing your dreams and goals! As always, good luck!

By Alicia Geigel

Uloop Writer
social justice advocate, avid lover of 90s fashion, the proud mama of a yorkie named "nugget", feminist, body positive, weight trainer in progress, classic rock fanatic, and reality TV addict! if you want to learn more about me, visit my profile and check out my articles!

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