Considered to be a lifeline by several students, federal loans are perfect for the students who want to pursue their dreams of higher education. The students need to fill up the FAFSA form in order to avail the loans; the loan is disbursed only when the federal agencies are convinced about the need of financial assistance. The federal loans come at lower interest rates than the private educational loans as these are in the form of financial aid from the government. In exceptional cases, the federal loans are even partially or completely waived off for the students who excel in their respective field of education. There are similarities too between the private and federal loans as the repayment schemes are quite the same.
In order to avail the federal loans, students are required to fill up the FAFSA form, which is not the case when someone applies for private educational loans. These loans are considered to be need based; hence, the students have to convince the federal agency about the need of the loan. On the other hand the private loans are decided purely on the basis of the financial status and credit scores of an individual.
The federal loans are not directly provided to the students and instead the funds are deposited with the student’s school and they can only be used for COA. On the other hand the private loans are disbursed to the bank account of the applicant or borrower.
Federal loans are managed by the government; hence, there is a fixed cap on the amount of money that can be spent as loans. Thus, the applicants might not receive the entire expenses for funding his education and would have to partially pay for his own studies. As far as the private educational loans are concerned, they cover entire cost of educational program for which the loan is applied.
The biggest advantage offered by the federal loans is that the students are offered a grace period of 6 months after graduating or leaving the institution. Deferment on the loans can also be achieved but that requires a lot of paperwork. Deferment with the private lending companies cannot be received easily; in fact, several lenders do not offer deference at all.
Federal loans can be completely waived off in special cases and the students might not have to repay anything at all. Substantial deferments are available for students who want to go ahead with higher education. The rate of interest is fixed on the federal loans and is considerably lower than the private loans. The repayment terms of federal loans are 10 years (average) whereas for private loans, the repayment term varies with the amount of loan.