What are the differences between Federal vs Private Graduate student loans?
A graduate degree is an investment in your future, and plotting out how you’ll pay for this educational experience is important.
Both private and federal loans are available for domestic students to assist with the cost of tuition (or even living expenses), so take time to consider how you plan to finance this carefully.
Although some scholarship or assistantships are available through most programs, typically many students have some component of their financial aid from loans.
Federal vs Private Graduate Student Loans
- Federal loans are those distributed by the government
- Private loans can come from a variety of sources, including credit unions, a school, or a bank.
Federal Student Loans
There are several benefits to federal loans that make them more appealing.
For many students, the goal is to max out federal loans before seeking help from private lenders.
Federal loans generally have fixed interest rates and repayment options based on income, in addition to being slightly easier to apply for.
For example, most federal loans do not require a credit check (except for graduate PLUS loans).
As long as the student remains enrolled at least half time, the payments on those loans can be deferred.
After graduation, loans can be consolidated into one monthly payment to make repayment simpler, and sometimes portions of the loan can be forgiven with some public service (think Teach for America or the Peace Corps).
If the student faces trouble repaying a federal loan, there are temporary postponement or lowered payment options.
In order to receive federal loans, a student must complete the Free Application for Federal Student Aid, which opens the door to up to $20,500 in government support each year.
Students facing increased living expenses can also expand their loan options by considering the graduate PLUS loan.
Private Student Loans
Unlike federal loans, private lenders are not required to work with fixed interest rates, and as a result, private rates are almost always higher than what the federal government offers.
Sometimes, these rates can even climb close to 20%, which can increase the underlying repayment by a significant amount.
Private lenders also are stricter with their application guidelines and tend to require an established credit record.
Especially for younger graduate students, this record of credit might not be established or sufficient for approval.
Those with lower credit scores might increase the overall cost, too, which is why it’s recommended that students receive federal loans first before turning to private lenders.
Private loans are also incredibly strict when it comes to repayment.
They generally offer three options:
- immediate repayment
- interest-only repayment
- deferred payment
Private loans can be discovered through a variety of online platforms and by working with the financial aid office at your university.
Be sure to compare options before applying to ensure you’ve found the private loan that’s the best fit for your needs.
If possible, receive as much aid as you can through the federal government prior to seeking private loans.
There are multiple ways to finance your graduate education, all of which can be uncovered with a little research on your part.
Spend some time understanding federal vs private graduate student loans and determining your student loan options and let the financial worries of graduate school leave your mind.
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