All about federal student loans
Like the name suggests, federal student loans are made to you by the federal government. If you’re a student borrowing for undergrad, they come in two varieties: subsidized loans (which are based on financial need) and unsubsidized loans. The main difference is that with a subsidized loan, the government pays the interest that accrues during school and through the grace period, while with unsubsidized loans, you’re responsible for paying that interest. (And if you don’t pay it before the grace period ends, it gets capitalized, which means it is added to the principal or base amount of your loan.) Interest rates on federal loans are fixed. However, there’s a cap on how much you can borrow each year. After graduation, you can choose from a variety of different repayment plans. And if you work in certain jobs or fields, there is the possibility of having your loans forgiven (i.e. wiped out) after a period of time of making payments.
To apply for a federal loan, you must fill out the Free Application for Federal Student Aid (FAFSA®). The application is available on October 1st each year.
The benefits of private student loans
While the government issues federal student loans, private student loans are made by financial institutions like banks or credit unions. And while federal loan terms are standardized, the terms of a private student loan will vary from lender to lender.
Interest rates on a private student loan can be higher or lower than rates on federal loans based on your creditworthiness and/or the creditworthiness of your cosigner, and that interest rate can be fixed or variable. Repayment assistance options vary by lender, so if you have a private loan and can’t make your payments, check to see what options are available. And with very few exceptions, private student loans generally don’t have loan forgiveness options.
To apply for a private student loan, submit an application directly with a specific lender.
Getting a private student loan
Private student loans can be a good option to bridge the gap between federal student loans and total college costs. Discover® Undergraduate Student Loans offer great rates and zero fees. You can also earn cash rewards for good grades, and get an interest rate reduction while enrolled in automatic payments.