13 Advantages of Federal Student Loans

When it comes to college, one of the main aspects to consider is funding. Tuition is expensive, and that in addition to fees and other associated costs, the price of higher education can really rack up. This requires many students to take out loans — about 65% of 2019 graduates utilized student loans to pay for their college degrees. What is even more important to consider is the type of loan you use, as there are several different types. One loan type that should be considered is a federal loan, and here are 13 reasons that these loans are a great option.

You don’t need credit history

In the case of loans from banks or credit unions, credit history is required to apply and receive loans. But to apply for federal student loans, this is not necessary. Student’s families can utilize the Free Application for Federal Student Aid (FAFSA) to apply for federal loans, a route that many say is easier than attempting to secure a private loan.

You don’t need a co-signer

Because federal loans do not require credit history, students do not need a family or friend to co-sign. This is a great advantage for young adults who have not had the chance to dabble in credit yet.

Federal loans have fixed rates

Private loans have variable rates, but that isn’t something you have to worry about with federal loans. These types of loans have fixed rates that protect borrowers from having their monthly rates change after college.

Interest rates are lower than private loans

Interest rates are typically lower for federal loans in comparison to private loans. For loans disbursed from January 1, 2020, to July 1, 2021, the interest rate is 2.75%, which is great for borrowers. A consultant at LendingTree said, “The federal government is offering a discount to consumers on that risk.”

Interest usually doesn’t accrue until after graduation

For students with financial need, they have the option of taking out subsidized loans, which do not accrue interest as long as they are enrolled in school on a minimum of half-time status. The other option is private loans, which typically do not offer a subsidized option.

You can use forbearance or deferment to help

If you are not in a position to start paying off student loans right after graduation, you have options. You can apply for forbearance or deferment, which will reduce your monthly payment based on your income, and may even temporarily eliminate your payments altogether.

There is usually a grace period for repayment

For most federal student loans, the federal government will give a period of time before you have to start repaying back the loan. After graduation, students get a grace period of at least six months. For unsubsidized loans, interest will begin to accrue during the grace period; but the Department of Education takes care of interest during the grace period for subsidized loans.

Repayment is based on income

Regardless if you are needing a low payment or no payment, federal student loans are all based on your income. There are several payment plans that are great options, one being Pay As You Earn. This option caps payments to no more than 10% of discretionary income.

Defaulting on loans is extended

As soon as a payment is missed for private loans, the loan is considered delinquent. For government loans, the borrower is not considered to be in delinquency until three payments are missed, and default status is not reached until nine months of missed payments.

Consolidation is an option for credit assistance

Consolidation is a bit trickier for private loans, but much easier with federal loans. Refinancing is a great option to bring down your monthly payments and to give your credit a break.

Loans do not befall your family if something happens to you

With some loans, debt can follow a borrower even if they die. But with federal student loans, in the case of death, the loans are discharged. This option is also available for borrowers who are permanently and totally disabled.

Loans can also be forgiven

Within initiatives like the Public Service Loan Forgiveness program, borrowers have the opportunity to have their loans forgiven. For 10 years of public service, and with 120 monthly payments, borrowers can have their loans forgiven.

Parent borrowing has no limits

Some private loans have caps on parents’ borrowing for students, but this is not the case for federal loans. Parent PLUS loans are federal loans that families can use if students need additional funding for college.