Federal Student Loans vs Private Student Loans
Kyle Staff, Joe Limond, Tim Bradshaw, Dave N.
What's the Difference Between the Two Types of Loans?
One of the biggest differences between privately funded loans and federally funded student loans is that private loans require a credit check. Usually the private institution will determine if you are eligible to receive a loan based on the student and his or her parent's credit history. This leaves some students out of luck in receiving aid if they have poor credit history. Unlike some federally funded loans, private loans require the student to pay an interest rate set by the private institution. The interest rate on privately funded student loans varies greatly from one institution to the next. If all student loans were privately funded, many students would not be able to pay for their college educations. Students coming from poorer homes, who would usually rely on interest-free government aid, would find it difficult to find an institution willing to risk granting them a loan. Many people say that a student searching for aid should only resort to a private institution if they are unable to receive a federal loan.
The Pros and Cons of the U.S. Government Having Control of Student Loans
Last September, the House of Representatives passed a bill that ousted private lenders
from the student loan business. This action gave the government total control of the
student loan business. The bill was passed by a 253 to 171 vote. While this is considered
by many in the House as a great step forward in turning the country around, some people
are sceptacle. The passing of the bill has upsides and downsides.One of the major upsides
is the new bill saves taxpayers $87 billion. Everyone is always looking to pay less
taxes, and that is a considerably large amount that would be saved. The private banks
that would normally give out the student loans will no longer reveive government
subsidies, which is where a lot of that $87 billion gets put into. Private banks strongly
oppose this bill for several reasons, the main one being that the government seems to be
taking too much power.
A Minnesota resident who is attending a Minnesota university, a Candian province, or a school in another state that has signed an a grrement with the Minnesota Office of Higher Education.
A Minnesota non-resident that will be attending or is attending a university that is eligible in Minnesota.
Must also have a cosigner that has good credit.
Those who would like to apply must also seek other sources of student loans from the government. They then send in a form to see how much the student is allowed to recieve. The maxium amount cannot exceed the price of tuition. The finacial aid adminastrator also sends a recommended amount and gives the family or student different loan options.
The Maximum amnount one can borrow is 7,500 dollars a year. Graduate students can recieve up to 9,000 dollars a year. The loan payments are made quarterly. Repayment period is about 7 to 9 years although those who have recieved more than 19,000 may have longer repayment periods.The interest rate on the loan can change and may change every quarter. The average interest rate has been 6.02%. However this has been changed. As of October 1st 2009 the interest rate will be 2.5%. The interest rate on a loan may not change more that 2% every year.
To apply you must talk to your finacial aid office.
If your school uses the online application click here.
Private Loans
Private loans, also known on UMD’s website as “alternative loans”, are loans offered by banks. Unlike government loans, private loans are competitive loans vary greatly in size, eligibility, and repayment options. Banking is a business and as such the banks compete with each other to attract customers (you, the borrower). They base their interest rates on either the Prime Lending Rate or the LIBOR rate and against each other’s rates. These interest rates are not capped however, meaning that they could rise over the duration of the loan- a lifespan that could be anywhere from 10-25 years. Each bank holds its own standards on eligibility for specific loans- students without co-signers may or may not be allowed to take out a loan at a favorable interest rate (or take out a loan at all) at some banks but accepted at others. Once the student has a loan, payments on that loan might begin immediately or the student may be able to defer the payments until they are 6 months out of school. One problem with deferring private loans is that interest still accrues once the loan has been dispersed, not waiting until the loan is being paid back. Overall, private loans are available in many shapes and sizes and finding the right loan requires a large amount of comparison shopping.
