Student Loan Review – Comparing and Contrasting with Government Loans

Private student loans are loans that are not offered under any government program. These are simply loans that banks and other lenders offer to finance your education. You usually need to be enrolled to use student loans, but some private loan programs allow you to borrow even after graduation. Before using private loans, find out how they work and what are the pros and cons.

Generally speaking, it is best to start with federal student loans before moving on to private student loans.

Government loan programs have certain advantages that you cannot find in the private loan market. There is, of course, a trade-off, but most students are better off maximizing the federal loans available to them before thinking about private loans.

Of course, it is best to borrow as little as possible. Student loans are relatively easy to come by – especially government loans. Unfortunately, you’ll have to pay all that money someday, and it may be harder than you think to get the money. Try to minimize borrowing or avoid it altogether.

Benefits of Private Student Loans


Why would you choose or avoid a particular type of loan? Two factors that may occur are:

  • Qualifying for a loan
  • Amounts available to borrowers

Federal student loans are easy to get – you don’t need any credit history or any proof of income for certain loan programs. The government is willing to give you money as long as you are in school.

Private student loans, on the other hand, require relatively good credit. If you do not have a credit history (or if you have bad credit), you are unlikely to receive a private student loan. However, it is still possible to borrow with the help of co-signatories.

  • What is credit?
  • Basics of co-signing

Although government loans are easily qualified, they may not be sufficient to cover their costs.

You cannot borrow as much as you want – there is a dollar limit. For students who borrow to cover the cost of living in addition to tuition, fees, and books, it’s easy to limit.

Often, students in private colleges and out-of-state students need more than government programs will provide. Private student loans, on the other hand, allow you to borrow much more – for better or worse.

Other important differences


There are other differences between private student loans and government programs. Government programs tend to have lower interest rates and repayments can be flexible.

Private student loans most likely come with variable interest rates, so it may be difficult to project what your costs will be. For more details see:

  • Benefits of Federal Student Loans

Refinancing and consolidation can also be different, depending on the type of loan you have. Private loans are more or less refinancing, while government loans can really be consolidated.

Define “Student”

In some cases, private student loans may be your only option to cover the cost of education. To qualify for government credits, you may need to be enrolled at least halfway through certain types of programs (degree or certificate programs, for example).

Depending on what you study and where you do it, federal credits may not be available.

You may also need money after graduation. While you may not think of this as a “student” loan, some form of financing may prove to be handy for you while professionally practicing your feet.

For example, you may need to complete licensing programs (bypassing industry exams or completing business hours) before you can work to get paid. Some private student loans cover your expenses as you complete these tasks.

Less paper

You may find that paperwork is less burdened with private student loans. For federal loans, you must complete the GFIC (application and series of questions required for specific student assistance programs, including loans and grants), which requires gathering information about your family and personal finances.

Some families prefer not to share this information, and students may no longer want to go through the process for personal reasons.

Private lenders can offer loans

Private lenders can offer loans

Private lenders can offer loans without the GFIC. You will still need to do the paperwork, but their forms may be more comfortable for you.

Remember that private lenders will have higher standards, so you can only borrow if you have enough credit and income to prove you will repay the loan (or an acceptable co-signer).

Remember also that government loan programs have certain benefits that you cannot get with private lenders – it may be worth doing the GFIC.

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