Choosing a student loan: Public vs. Private

What drives the students to choose private loans federally - and it is right for you?

Loans - It's a very loaded word, especially when it comes to finance higher education. Although all have the same purpose - to help pay for school - may come from a variety of sources.

All students are invited to submit the FAFSA, which determines eligibility for financial support. With this form, eligible students have the option to borrow from the federal government through a variety of loan programs. And all students, regardless of need, qualify for unsubsidized Stafford loans.

But some students choose nonfederal aid; Instead of choosing private loans. Why is this?

Lower monthly payments. While federal student loans have a lower interest rate, private student loans actually have lower monthly payments. This is due to the conditions of these loans are usually 20 to 25 years compared to standard term of 10 years with federal education loans. While this seems ideal for a recent college graduate, the reality is that the borrowers have to pay more than four times the interest over the life of the loan.

Marketing. While banks are in the business of helping people achieve their dreams, they are also in the process of making money. That's why they offer a lot of initial benefits for the students to try to attract to choose your lender as student institution. For example, some institutions advertise introductory rates that are competitive with rates on federal student loans, but these are not guaranteed to last the life of the loan as is the case for federal student loan funds.

Bureaucracy and privacy. Federal student loans require families to submit the FAFSA, disclosure thus all their financial matters for the federal government. Some people may be uncomfortable with this. Private loans are much less invasive and only institution sees your information. In addition, applications are much simpler than filling out the FAFSA.

Eligibility and confidentiality. Many families of middle and upper class feel that they cannot benefit from the aid; Therefore never submit the FAFSA. But unsubsidized Stafford and PLUS loans are not depending on needs; Families only have to fill out the FAFSA to qualify. Through these opportunities, they can take advantage of lower interest rates. At the same time, families simply feel more comfortable borrowing through bank has been in years.

Satisfactory academic performance. Finally, some students do not have a choice if your GPA is below 2.0. When a student falls below this line, he or she is no longer eligible for federal financial aid. Instead, they merely rely on private student loans to finance their higher education.

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