Federal student loans offer borrowers certain protections that private student loans may not, such as income-based repayment or student loan forgiveness. Private student loans offer different loan terms and may offer a lower interest rate. This is important because a high-interest rate means you could pay more over the life of the loan.
Income-based repayment or loan forgiveness programs are benefits of federal student loans, but a private lender may also offer you other perks, such as flexible payment terms, a lower interest rate, and deferred repayment options.
Federal student loans have borrowing limits (similar to limits on credit cards). If the cost of attendance exceeds the federal loan amount, that means you will need to cover the leftover cost. Graduate students may apply for no-cap Direct PLUS loans from the government, but undergraduate students do not have this option.
Cost of attendance
Many students choose to apply for a loan with a private lender to cover their leftover costs. Earnest Private Student Loans, in addition to covering the entire cost of attendance, also have rates that are based on the credit profile of you and/or any cosigner you have. This may mean higher or lower rates than those offered by federal loans, depending on the credit profile.
Grace periods and origination fees
A private student loan may offer a longer deferment period or grace period than a federal student loan. Some private lenders, don’t charge an origination fee while some federal student loans do.
With a private student loan company like Earnest, you get a 0.25% APR reduction when you agree to make monthly principal and interest payments by automatic electronic payment.
Before looking for loans with private financial institutions, such as online lenders, credit unions, or banks, explore all of your student loan options with the federal government.