16 Aug Discover the Difference Between Federal and Private Student Loans
2016 will be remembered as the year of the “big change” in college financial aid. This is the first year of the “early FAFSA” – one that will be available beginning October 1 instead of January 1. It also introduces the concept of prior-prior-year (PPY), which means that applicants will use financial information from a tax year where it is more likely they have already filed their returns, as opposed to waiting for tax information before finalizing the FAFSA.
The upcoming FAFSA gathers information for the 2017-18 academic year based on 2015 tax returns. Just about everybody who will attend college in September 2017 should be able to file their FAFSA in October of this year because they should already have all the information they need right at their fingertips. Although ramifications are still being considered at colleges across the country, it could speed up the entire financial aid process. Student applicants may know much earlier than ever how much of a gap they need to make up between costs and financial aid at many colleges.
In most cases, students and families borrow money in the form of student loans to make up this difference. There are two types of lenders when it comes to student loans: the federal government, which offers federal student loans, and private lenders, like Discover Bank, which offer private student loans. Here are some of the differences between these two types of loans:
• Borrower: For federal direct student loans the student is the borrower, while the parents are the borrower for federal PLUS loans. With Discover student loans, the student is the borrower. In some cases, a co-signer may be requested, depending on the student’s credit history.
• Amount borrowed: With federal direct student loans there are limits on how much the student may borrow, but the parents may borrow up to 100% of the cost of attendance after other forms of financial aid have been taken into consideration. Discover student loans also cover up to 100% of the cost minus other financial aid.
• Interest: Federal student loans have fixed interest rates, while Discover offers both fixed and variable. For federal direct subsidized loans this interest may be paid by the federal government while the student is in school.
• Fees: Discover does not charge any origination fees, while federal student loans do have such a fee.
Discover even offers a cash reward for good grades. Get a 3.0 GPA and you could receive a one-time 1% cash reward of the loan amount, on each new Discover student loan.
Get more information on borrowing money for college in my new book, Secrets of a Financial Aid Pro. It takes parents and students through the financial aid process, talks about instilling good money habits in children, and educates readers on the positives and negatives of debt. Order it now, and start thinking ahead about how your family is going to budget, plan and pay for your children’s college education.