Andre & Mara Simoneau

Andre & Mara Simoneau

Financial Consultants

Lynx Creek Cir

Frederick, CO 80516

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May 26, 2021

The Better Choice: Federal or Private Loans for College

The Better Choice: Federal or Private Loans for College

Education can be one of the best investments you can make in your future.

Those with a bachelor’s degree earn, on average, almost $1 million more over their lifetime than those with just a high school diploma. And a person who gets a master’s degree can earn more money than someone with a bachelor’s degree!¹

But how should you pay for higher education? You may not have enough cash on hand to afford school. That means you’ll need student loans. That begs another question—should you get a federal or a private loan? There are many factors that go into answering this question. Let’s break down some pros and cons for both federal and private loans so you can decide which route is right for you.

Federal loans come straight from Uncle Sam. It all begins with filling out a FAFSA form. This form determines your eligibility for loans, grants, and work-study programs.

Federal student loan rates are typically lower than for private lenders. Federal loans also offer more flexible repayment options—you can make payments as a percentage of income or defer them until after school ends. You may also qualify for relief if you default on your loans. In general, a federal loan can be a good choice for many students, whether they’re pursuing a bachelor’s or master’s degree.

But remember, there are potential limitations to how much the federal government will lend you. Private loans may be needed to fill in the gaps. They typically charge higher interest rates and have stricter payment options. But they can sometimes be refinanced for better terms.

So if you need loans to afford your education, opt for federal loans first. Then, use private loans to cover the rest, refinancing as needed.

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¹ “The College Payoff: Education, Occupations, Lifetime Earnings,” Georgetown University Center on Education and the Workforce, 2011 https://cew.georgetown.edu/cew-reports/the-college-payoff/

² “Federal Versus Private Loans,” Federal Student Aid, https://studentaid.gov/understand-aid/types/loans/federal-vs-private