There are many different types of college financial aid available to college-bound students, with student loans being an option that many students consider. Roughly 46 million students have federal student loan debt.
Students who need additional financial aid can choose between federal student loans or private student loans. However, there are many benefits of federal student loans that private loans don’t always guarantee.
10 Benefits of Federal Student Loans
1. No Credit History Is Required
A significant advantage of federal student loans is that many government-owned student loans don’t require a credit history or credit check. The only federal student loan that requires a credit check to determine eligibility is a Direct PLUS Loan.
To see if you’re eligible for federal student loans, you’ll need to submit a completed Free Application for Federal Student Aid (FAFSA®).
Recommended: How Credit History can Impact Student Loans
2. No Cosigner Required
Private student loan lenders might require a cosigner for student borrowers who don’t have a credit history or credit score. However, students who haven’t established their credit are still eligible to apply for a federal loan without a cosigner.
Having no cosigner requirement is an additional step to lending that federal student loan borrowers can avoid.
3. Fixed Interest Rates
Fixed interest rates are among the notable benefits of student loans owned by the Department of Education.
Generally, private student loans allow borrowers to choose between fixed or variable interest rates. A fixed rate doesn’t increase or decrease throughout the loan term, making monthly payment amounts easier to anticipate.
Variable student loan rates can be advantageous during a low-rate environment, but borrowers risk their interest rate changing at any point during the repayment term. This variable feature can make it more challenging to predict how much money to budget toward monthly payments during repayment.
4. Low Interest Rates
A higher interest rate increases how much you’ll pay toward your college education overall. Generally, federal student loan rates are lower than private student loans or when using high-interest credit cards to pay for college expenses.
5. Interest Doesn’t Accrue During College
Federal Direct Subsidized Loans are designed so that borrowers aren’t responsible for paying back interest that accrues while in school.
Interest that accrues on loans from this federal program is paid by the government while the student is enrolled at an eligible school at least half-time. When you leave school, any interest that accrues on Direct Subsidized Loans is the borrower’s responsibility to repay. Students who borrow Direct Unsubsidized Loans or PLUS Loans are responsible for repaying interest that accrues while they are in school. Subsidized federal loans are only available to undergraduates.
6. Forbearance and Deferment Options
Some private loan lenders offer forbearance and deferment options to borrowers who need to temporarily pause their student debt repayment. However, these options vary between lenders and some might not offer forbearance and deferment at all.
An advantage of federal student loans is that they offer extensive forbearance and deferment options for different situations. For example, eligible borrowers can request deferment while undergoing cancer treatment, during economic hardship, while enrolled in school, during unemployment, and more.
Federal student loans offer general or mandatory forbearance, depending on your situation. Borrowers who are eligible for forbearance can request it if they need to pause or reduce their monthly payment for a short period.
7. Repayment Grace Period
Another benefit of federal student loans is that they come with an automatic six-month grace period. The grace period kicks in when the student graduates, leaves school, or drops below half-time enrollment.
This time frame gives federal loan borrowers additional time to get their financial situation ready, like securing an income or a job, in preparation for repayment.
8. Income-Driven Repayment Options
Borrowers who are unable to afford their monthly student loan payment may be able to enroll in an income-driven repayment plan.
Income-driven repayment plans offer 20- or 25-year terms. Payment amounts are limited to 10% to 15% of a borrower’s discretionary income. Depending on a borrower’s situation, their payments might be as low as $0 per month.
9. Student Loans Can Be Discharged
Borrowers of federal student loans might not be required to repay their federal loans in certain circumstances. A federal loan discharge might apply when:
• The school closes while the borrower is enrolled.
• A borrower experiences total and permanent disability.
• The borrower dies.
• The borrower of a Perkins Loan works as a teacher or other eligible professional.
• The borrower’s school affected the loan or the borrower’s education in some way.
• A school falsely certifies the borrower’s loan eligibility.
• The borrower who has withdrawn from school doesn’t receive a refund of the student loan funds from their servicer.
10. Student Loan Forgiveness
Access to student loan forgiveness is another advantage of federal student loans. Unlike student loan discharge which requires borrowers to have experienced an extraneous situation to qualify, student loan forgiveness is more accessible to borrowers.
The Department of Education offers loan forgiveness through Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and loan forgiveness under an income-driven repayment plan.
For example, PSLF requires participants with Direct Loans to make 120 qualifying monthly payments under an income-driven repayment plan. Borrowers must be working full-time at a qualifying employer. Qualifying employers include nonprofit organizations or government entities during the time the required payments were made.
After the required payments are made, their remaining Direct Loan balance can be forgiven. Note that the forgiven balance may be considered taxable income by the IRS under certain situations.
Alternatives to Student Loans
Although federal loans offer borrowers many benefits, there are limits that mean not all students are able to finance their education entirely with student loans. Student loans are one type of financial aid, but there are other ways students can finance their education. These include:
Grants
Grants can be need- or merit-based. They’re provided through the federal or state government, by the student’s school, or via third-party organizations. Pell Grants and Teacher Education Assistance for College and Higher Education (TEACH) Grants are a couple types of federal grants.
Unlike student loans, recipients aren’t generally required to pay back grants for college.
Scholarships
Scholarships, like grants, aren’t repaid by the student after leaving school. Scholarships can be found through schools, private and nonprofit organizations, community groups, employers, and professional associations.
This aid option might be available based on students’ merit or need.
Private Student Loans
Federal student loans offer many benefits, but as briefly mentioned, there are annual and aggregate borrowing limits. For students who either don’t qualify for federal loans or have reached the maximum limit, applying for private student loans is another option.
Private student loans are available from state organizations, banks, credit unions, and online lenders. Borrowers must have qualifying credit, and loan features and terms of private student loans vary by lender. Again, it’s important to note that private student loans are not required to offer the same borrower benefits as federal student loans.
The Takeaway
Federal student loans offer a variety of borrower benefits, including no credit score requirements, fixed interest rates, and deferment and forbearance options for borrowers who face financial difficulty during repayment. However, students may need to rely on a variety of different finding sources to pay for college.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What is the average student loan debt amount?
In 2024, the Education Data Initiative reported that the average student loan debt is just over $40,000. This includes both federal and private student loans.
Are student loans bad for your credit score?
Borrowers’ student loan payment status is reported to credit bureaus. Student loans can be advantageous toward building a credit history when payments are made on-time and in full.
However, making late payments or missing payments can adversely affect a borrower’s credit score.
What are the key advantages of federal over private student loans?
There are numerous benefits of student loans from the federal government compared to private student loans. The main advantage is that federal loans offer multiple repayment options, including income-driven plans that can bring monthly payments as low as $0, and most federal student loans do not have a credit score or credit history requirement.
Additionally, federal borrowers receive automatic deferment during school, and an automatic grace period after leaving school.
Photo credit: iStock/AndreaObzerova
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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