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Government Student Loans: What Are the Benefits?
Government student loans, known as federal student loans, are your go-to option to borrow money for college.
Brianna McGurran Student Finance and Careers Expert | New York Observer, WNYC
Brianna is a former columnist and staff writer for NerdWallet who focused on student loans and money management for 20-somethings. Much of her work helping readers with budgeting and debt is featured in her personal finance advice column, "Ask Brianna," which was syndicated by The Associated Press.
Des Toups Lead Assigning Editor | Student loans, repaying college debt, paying for college
Des Toups was a lead assigning editor who supported the student loans and auto loans teams. He had decades of experience in personal finance journalism, exploring everything from car insurance to bankruptcy to couponing to side hustles.
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After grants and scholarships, government student loans, more commonly known as federal student loans, should be your next choice to pay for college. They’re generally less expensive and more generous than private student loans. And you don’t need good credit or a co-signer to get them.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.69-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. As certified by your school and less any other financial aid you might receive. Minimum $1,000. Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 9/3/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
Variable APR
5.59-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. As certified by your school and less any other financial aid you might receive. Minimum $1,000. Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 9/3/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.69-15.49%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 9/10/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Variable APR
5.54-15.70%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 9/10/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Credible lets you check with multiple student loan lenders to get rates with no impact to your credit score. Visit their website to take the next steps.
Lower rates and fees
Federal student loans generally have lower interest rates than private loans. Rates for new federal loans are also fixed, meaning they’ll stay the same during your entire loan term.
Private loans frequently offer variable rates, which increase whenever the Federal Reserve raises the interest rate benchmark. If you have a choice, a fixed-rate private loan is usually the better option.
Student loan refinancing can get you a lower interest rate if you have strong credit and income once you leave school. It can also help you turn variable-rate private loans into a safer fixed-rate loan.
Private loans require credit history to show you’re likely to repay the loan on time. They’ll also use your credit score to determine what interest rate you’ll get. But most undergrads will have short credit histories and low credit scores, if they have scores at all.
Federal loans, on the other hand, are available to any enrolled undergraduate. The only type of federal loans that require a credit check are direct PLUS loans, available to graduate students and parents.
Before turning to private loans, take out the maximum amount of federal loans. Start by submitting the Free Application for Federal Student Aid, or FAFSA.
If you need a private loan to cover a funding gap for school but don’t have good credit, a handful of lenders may work with you.
High school seniors and college students without long credit histories can still qualify for private loans if they have a co-signer, usually a parent or another adult who agrees to pay the loan balance if the student can’t. But that responsibility can be onerous on the co-signer. Look for a private loan that offers co-signer release after a certain number of payments.
Because federal loans aren’t credit-based, they don’t require a co-signer, meaning your family members won’t have to be concerned about covering loan payments if you can’t.
Federal loan deferment lets you postpone payments due to economic hardship for up to three years, while private student loans generally aren’t as flexible. It’s common for private lenders to offer payment postponement for 12 months, for instance, in three-month increments. Look for lenders that offer more.
Students who have high financial need qualify for federal direct subsidized loans. The government pays the interest on subsidized loans when they’re in deferment — while you’re in school, in your grace period and if you take a break from payments.
Private loans don’t have this benefit. Interest starts accumulating on private loans — and on unsubsidized federal loans — as soon as they’re paid to you.
Federal student loans make it easy to lower payments if you need to. Apply for income-driven repayment and you’ll pay a percentage of your income each month — or $0 if you have none. Reapply every year, and make sure you’re on the plan that makes the most sense for you.
Private student loans are harder to catch a break on. Your best bet is to call your lender or servicer and ask for interest-only payments or an interest rate reduction for a period of time.
More time before student loan default
Some private student loans go into default nearly as soon as you miss a payment. While private lenders don’t have as much power as the federal government does to recover the money you owe, missing payments will damage your credit, and you could be sued by the lender.
Federal loans give you more time to get your payments on track if you fall behind. Your loans aren’t considered “delinquent” — and you won’t be reported to the credit bureaus — until you’ve missed three months of payments. Your loans will go into default after nine months of missed payments, and at that point, the government can take money from your paycheck or tax return to recover your debt.
You don’t need good credit to consolidate
If you have multiple federal loans, you can easily consolidate student loans into one payment. Federal consolidation also makes some loans eligible for Public Service Loan Forgiveness and income-driven repayment plans. But it won’t save you money, since its rate is determined by a weighted average of your prior loans’ interest rates.
You can also consolidate and refinance student loans through a private lender, which might lower your interest rates based on your credit and income. But refinancing means losing access to the benefits of federal students loans.
More forgiveness options
Private loans generally don’t offer forgiveness opportunities: You’re responsible for repaying the full balance. But federal loans can be dissolved if you participate in an income-driven repayment plan or work at a nonprofit or for the government. Public Service Loan Forgiveness forgives federal loans after 10 years. Perkins loan borrowers who work in public service can see forgiveness after an even shorter time.
Guaranteed loan cancellation if you die
Federal students loans are discharged if you die or become permanently disabled. Any parent PLUS loans taken out on your behalf will also be canceled if the parent who holds them dies.
Death discharge isn’t a guarantee for private loans, though more lenders are offering it. Before taking out a loan, double-check your loan agreement to see what will happen if you or your co-signer dies.
