Federal vs Private Online College Loans: Which is Right For You?

“As a graduating high school senior I’m starting to look into student loans. I’m wondering what the main difference between a federal loan like Stafford and a private loan is? Why would I choose one over the other?”

Federal Student Loans vs Private College Loans

Being proactive about paying for college is important for anyone looking to attend college either in person or online. Getting your facts straight about your options is also important.

Student loans are a great way to pay for college, but if you’re not on top of how they work, they can end up costing you more than what you initially intend to borrow.

The best way to think of student loans is that there are primarily two sources: the US Federal government loan program and alternative private loans. It is imperative that you understand the loan amounts, fees, interest, and repayment guidelines based on the type of loan(s) you choose to pursue.

Federal Student Loans for College

Many students and parents begin with the FAFSA (Free Application for Federal Student Aid). The federal aid program offers several different types of loans for undergraduate degree-seeking students.

The Federal Subsidized Loan which is based on need and the government pays (subsidizes) the interest during the period the student is enrolled in school. A Federal Unsubsidized Loan can be awarded as well, but the student is responsible for repayment of all interest accruals.

Federal loans have a six month grace period either after graduation or at the end of enrollment. There are annual maximum loan award amounts under the federal program based on need, student grade level in school, enrollment level, and total lifetime aggregate limits.

It is important when you are looking at the colleges you wish to attend to visit their Net Price Calculator so you can estimate your cost of attending the college and the funding you will need to meet your financial obligations.

Private College Loan Options

You may choose to seek an alternative private loan either independent of or in conjunction with your federal loans which may depend on the costs of the particular college you choose to attend. Most colleges have a preferred private lender list they can provide you or you may find one on their web site.

Private loans are credit worthy loans and often require a co-borrower who has an established credit history. It is also important to note that the interest and repayment guidelines may require payment to begin while the student is in school.

On the contrary, the Federal loan program allows you to defer payments until you’ve been out of school for six months, will work with you on a repayment schedule that fits your income, and sometimes will offer loan forgiveness if you work in certain fields of study.

Fixed vs Variable Interest Rates for College Loans

Another huge factor in determining what loan type is right for you is the current interest rates. Federal student loans offer fixed rates, which means they don’t change for the life of your loan. Your payments will always be predictable.

Private loans can often have a variable rate of interest, which may fluctuate over time. This means your payments could increase without warning and you could end up paying more than you anticipated when you originally accepted the loans.

Ultimately, each student needs to determine what works best for their financial aid needs. It is important to make informed decisions because student loan debt can take many years to pay off down the road. Always remember to take advantage of your college’s financial aid department. They can help you with any questions or concerns.

If you are a junior or senior in high school and are looking into what type of college is right for you there are many online college programs worth considering. Whether you choose a traditional in person university or find an online college program acquiring grants or loans well in advance is essential to making your college experience less stressful from a financial perspective.

Online College Advice


View posts by James
These days information is at our finger tips. When we want it, wherever we want it. For this reason online colleges have become a valid way to get your degree. I've spent (and am spending) hundreds of hours researching the world of online education for my own children. This blog will hopefully help you save some time in your research so you can get your degree a little bit faster.

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