Financial aid can be provided by either the federal government or through private companies or entities like banks and lending agency. Before deciding which group to ask for assistance, make sure to understand how they work first.
How does a federal student loan works?
For a federal loan, the time when to pay the loan depends on when you can finish school or leave school. The interest is also fixed hence it doesn’t go higher after few years as well as it is lower compared to a loan from private entities. In case you will have financial crisis, there is a subsidized loan provided by the government where in the government will pay for the interest for period of time. When it comes to application, credit check is not necessary if you are applying for a federal student loan as well as there is no need for a cosigner. You can also change your mode of payment or lower your payment depending on your current status with no prepayment penalty fee. Another good thing is, if you opt to work with the government after graduating, your loan might be forfeited as well.
How does a private student loan works?
This is easier to get approved yet once approved, they might require you to start paying your loan even while you are still studying. As for the interest, it can be higher too with up to 18% interest for some customers. When you apply and get approved for a private loan, this is not subsidized by the government so you have to pay it on your own. Before you get approves, there are times when a cosigner might be needed and your loan cannot be consolidated into a direct consolidation loan. Sometimes, there are prepayment penalties involved and there is no chance for a forgiveness of loan even if you end up working for the bank who approved your loan.
With these differences in mind, make sure to check the best option first before even applying for a financial loan.