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Federal Direct Loans vs. Private Student Loans

The Ins and Outs of Student Loans

As a student you have to realize that getting into huge amounts of debt is the last thing you want to do. In some cases people have been in so much debt after college that it has left them in a financial hole that is almost impossible to come out of. Getting loans for college without doing some studying has left many people in financial hardship.

It's simply not worth ending up a financial slave when you don't have to be one. The problem is, that you probably don't realize which loans you should take first and which loans should be used only as a last resort.

Don't fall for advertisements that make it seem like it's easy to pay loans back especially since there are different lenders and there is a huge difference between Federal Direct Loans and Private Student Loans. Before you even think of getting any loan, make sure you've exhausted all other sources of financial aid like scholarships and grants that don't have to be paid back.

Once you have pursued the other forms of financial aid, you might need a little extra money to cover the remaining cost of attendance. This is where loans can be used. But use them conservatively. Remember, the loans you get shouldn't be taken out to go on a shopping spree. The decision to take out excessive amounts of money will catch up to you if you don't assess your situation correctly.

You should first consider taking out Federal Direct Loans for the following reasons:

1. They have a fixed interest rate.

I know "fixed interest rate" might sound like a difficult term to understand but it's really not. It just means that the interest on your loan won't change. For example, if the interest rate is 5.8 percent, you can expect for it to stay the same throughout the time you're paying back your Federal Direct Loans.

2. They have a lower interest rate.

This is very different when compared to private student loans that have interest rates that can be twice and even three times as high as Federal Direct Loans.

3. More flexibility when paying back.

Private lenders are not as considerate when it comes to your situation and you could end up in a mess so be careful and make sure it is possible to pay back these loans on time because not paying them back can affect you later when want to get a loan to buy a house or car. If you still don't have enough money from your Federal Direct Loans to cover your year then I would consider a few things before taking out private student loans.

1. You need to reconsider your best college choice. Just because a school is good at a sport doesn't mean that it's worth the price you will pay for your major. If it's not affordable after considering your total financial aid package then carefully rethink your long term plan for paying for college.

2. Think about what career you're going into and don't take out more than you would be able to pay back when comparing it to how much you expect to make. Don't tread on dangers waters because taking out loans can become a burden for you and your future family.

Let's review the different sources of money you should use, in order of safest to least safe, when funding your college dream. First you have to make sure you've exhausted all the financial aid that's free like scholarships and grants. And second, take out Federal Direct Loans only if necessary but not excessively. And only as a very last resort should you even consider taking out private student loans.

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Student Loan Consolidation

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