Private vs Federal undergraduate student loans – Limits without Cosigner
Introduction
For many people paying for their college is a top financial priority. But the increasing cost for higher education for the students is beyond many people’s financial reach.
When the parents don’t have savings or investments to pay for the cost of their children’s college education, then may need to investigate loan options.
But there are differences in the Federal undergraduate student loans and the Private student loans for the college education.
People with lower income can qualify for the subsidized loan for which the government pays the interest while the students are in the school.
Let us compare the Federal undergraduate student loans and the private student loans.
Eligibility criteria
The Federal Stafford loan is available on both need and non need basis. This is called the subsidized and unsubsidized loans.
The credit cheque is not required. The borrower has to complete the free application for Federal Student Aid.
The candidate must be a U.S. citizen or a permanent resident of United States. He or she should be full time or half time undergraduate or graduate student.
The Private student loan is provided based on the criteria established by the lender. The credit qualification varies according to the loan is backed by a co-signer or not.
The individual must be enrolled at least half time at a five year college or university. The college should be approved by the U.S Education Dept.
The approval rate is more than 80%. The co-signers do not have to provide the proof for the income. There is no requirement for the income.
Interest Rate
The interest rate for the Federal student loan is set by the formula of the Federal. This is non-credit based. The interest rate is variable and it is reset annually.
Every year it is capped at 8.25%. It is 4.7% in the grace period in school and 5.3% in the repayment.The interest rate for the private education loan is set by the lender.
This is credit based education loan. The interest rates will vary according to the credit history.
In case of the student borrower and the co-signer is credit approved the lowest pricing is available.The interest rate is variable and is reset monthly. This change depends on the prime rate. It starts as low as prime -0.25% and goes to prime + 6%.
Repayment
The Federal loan repayment has the standard ten years of time to repay the money. There is variety of repayment plans which includes 25 years for those with $30,000 in student loan debt.
Consolidating the Federal loan is the best option for the repayment of the loan.
The standard repayment of the private loan is 15 years.
This also have variety of loan repayment plans like extending the time limit for the repayment. The combined billing is available for convenience of making single payment.
Loan Limits
The loan limits are set by the congress. The limit for the Federal education is as below,
Year 1: $2,625
Year 2: $3,500
Years 3 & 4: $5,500
Graduate $8,500
In the private student loan, the maximum aggregate loan limit including all student loan debt, federal and private is $100,000 without a co-signer. There is no limit at all if you are receiving the loan with a co-signer.
