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Private vs. Public Student Loans: Why The Differences Matter When It's Time to Repay

Student loan debt often follows a borrower for much of his or her life. Though it is difficult to fully understand what student loans mean as a college student, many people who take out large amounts of student loans realize that they will be paying them off for the next several decades.

What many students do not realize is that the type of student loans that they use can have a serious impact on their rights and responsibilities after their education is completed. If you or your child will be taking out loans for school, make sure you understand the differences between private and federal student loans.

Federal student loans are the most common types of loans. These loans are funded and backed by the United States government and offer many benefits. For instance, federal student loans offer fixed interest rates and income-based repayment plans. They also are generally not due until a student graduates or stops attending school.

Low-income students may also qualify for subsidized federal loans where the government pays the interest while the student is attending school. Most federal loans also do not rely on credit scores, which allows students to take out loans even if they (or their parents) have poor credit or little credit history.

In comparison, private student loans are financed by banks and private companies rather than the federal government. The interest on these loans is not subsidized and is often calculated at a much higher rate than federal student loans. These loans also use credit checks and often require a co-signer who will agree to make the payments if the borrower cannot.

The biggest difference between federal and private student loans comes after graduation. With a federal student loan, students who have trouble paying may be able to temporarily postpone or lower their payments. They also may be eligible to have portions of their student loan debt forgiven if they work in public service and meet other qualifications.

In contrast, private student loans offer none of these protections. If a student is having trouble making the payments, the private student loan company has no obligation to reduce or suspend payments. If the payments are not made on time, the private student loan company will pursue that student using standard debt collection techniques. Additionally, since most private student loans require a co-signer, the student loan company will aggressively pursue payment from that person or persons as well. In fact, the co-signer on that student loan can be pursued indefinitely, even if the student borrower dies.

When considering taking out student loans, always be sure to borrow only what you need. If possible, try not to rely on private student loans as these loans do not offer forbearance, postponement, or consolidation options. Neither private nor federal student loans can be discharged in bankruptcy except in extreme circumstances, so it is important to borrow money for schooling on terms that you can live with throughout the time for repayment.

If you are being harassed due to student loan debts, we can help. At Loan Lawyers, we can talk you through your legal options and create a strategy that will help you with your student loan debt issues. Call our firm at (888) FIGHT-13 (344-4813) for a free case consultation with one of our attorneys.

  • ABC News
  • American Civil Liberties Union
  • CBS 4
  • CNN
  • Daily Business Review
  • Florida Trend's - Florida Legal Elite 2014
  • Florida Trend's - Florida Legal Elite 2014
  • National Association of Consumer Advocates
  • National Association of Consumer Bankruptcy Attorneys
  • NBC News
  • National Consumer Law Center
  • The New York Times
  • Avvo
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