Federal student loan rates

Congress changes the interest rates on federal loans every , rates went up from 2.75% to 3.73% on direct loans for undergraduates. Rates on direct unsubsidized loans for graduate students went up from 4.3% to 5.28%. And Direct PLUS loan rates went up from 5.3% to 6.28%.

Since federal loans come with fixed interest, you don’t need to worry about paying these rates on loans you already have. The new rates only affect federal loans issued between .

Private student loans

Private student loans are often designed to step in and cover expenses when federal student loans fall short. They’re there for you when you can’t quite scrape together enough federal loans and scholarship money to pay for your dorm room. They also have fewer restrictions as to how you can use your money, using it for postgraduate expenses, such as bar preparation courses or residency-related expenses.

What’s more is that it’s not hard to find one that’ll give you a grace period before you have to start making payments – sometimes longer terms than federal loans offer. And while federal loans tend to come with low interest rates, they’re not always lower than what private lenders offer, especially for graduate students.

Federal student loans

The main problem with federal student loans is that they come with a cap. In the face of ever-increasing higher education costs, they frequently aren’t anywhere near enough to cover basic costs.

Only taking out federal loans just isn’t going to do it for students with limited scholarships or other means to pay for school.

There’s also a limit on how many subsidized loans you’re able to take out. This means that you won’t always be able to take advantage of the low interest rates and other perks that come with the best loans.

And you’ll want to be careful with setting your term limits after you graduate. It’s tempting to go with the lowest possible payment over the longest possible time, but you’ll end up paying more in interest over the life of your loan.

Private student loans

Any disadvantages of private student loans are primarily the result of them acting more like your typical personal loan. They can come with high interest rates and unexpected fees, and your payments won’t have anything to do with how much you earn.

One major problem that students could run into with private loans: Rates and terms are partially determined by a credit check. Many students don’t yet have a solid credit score, which means you’ll need to find a cosigner with good credit. If you can’t find one, you’re stuck with high interest rates and fees that could lead to potentially unaffordable payments after you graduate.

Which is the better option for me?

Say you’re just starting college and your parents are able to cover a good part of your tuition – so much that your school doesn’t see any reason to give you a scholarship. Because your needs are well under federal student loan borrowing limits, you’ll may want to go for them first.

But what happens after you finish college, and then law school, and then reach your lifetime borrowing limit? You still need to take the bar before you can start that job you’ve https://tennesseepaydayloans.org/ lined up in September, but bar study courses cost thousands of dollars that you don’t have. Here’s where you might want to consider taking out a private student loan.

Bottom line

Many students who can’t afford to pay for college out of pocket take out federal student loans to cover the basics. If you’re have remaining education costs that aren’t covered by federal loans – or simply need to borrow more than the limit – private student loans can help you out of that pinch.