Every graduate’s student loan situation is different. You might have only federal loans, while another borrower could have exclusively private debt. And most likely, you will have a mix of loans that is unique to you.
As you graduate, take some time to fully understand your debt situation and the kinds of loans you have.
Loans from private banks or lenders, or directly from a school, can vary widely. Interest rates will depend on a number of factors, and unlike federal loans, these private debts won’t be eligible for deferments or loan forgiveness programs. Private loans typically don’t have a grace period after graduation, so you’ll have to start making monthly payments right away when you graduate.
Federal loans include Stafford (or Direct) loans, subsidized and unsubsidized. Also Perkins loans, Grad PLUS, and Parent PLUS loans are federal. These loans are eligible for many options for repayment, from income-based repayment to Public service loan forgiveness.
Some federal loans are from the Federal Family Education Loan Program. These loans are issued by private lenders, but are guaranteed by the federal government. These loans ended in 2010, so most of today’s graduates will not have used them.
Federal Direct Loan Program
The Federal Direct Loan Program supplies today’s federal education loans.
Whatever kind of student loan you have, remember that these debts are not dischargeable in bankruptcy. Even if you have no idea how you will be able to pay them back, you will be obligated to these debts for life. The best thing you can do is find a way to make your payments and stay current. Defaulting on your loans has no upside—you will eventually have to pay, and defaulting will cause your loans to cost you even more in the long run.
Which kind is better?
Typically, we say Federal loans are better than private. Federal loans have more options for repayment, more special programs for low-income borrowers, and are easier to defer if necessary. They’re also fixed-rate, while private loan rates can fluctuate.
If you can’t avoid a private loan, find out all the information you can. What is your current rate? Under what circumstances will the rate go up? What happens if you miss a payment? Do they offer any relief for financial hardships? Do you have a co-signer, and what are the implications for them?
Talk to a financial aid officer at your school, or get student loan counseling so you understand your debt situation. Do this as soon as possible, so you’re ready for whatever happens next.