Borrowing for Your Education
Comparing Federal and Private Loans
The Office of Student Financial Aid Services understands that paying for education can be challenging and confusing. We offer these tips to help families who need to borrow to cover the cost of education, and to find the best possible options.
Before applying for an alternative loan (private loan), we strongly recommend that you exhaust all of your federal loan eligibility. Did you know that almost all students will qualify for a Federal Direct Stafford Loan? To get this loan, you must complete the Free Application for Federal Student Aid (FAFSA (http://fafsa.ed.gov/), a Master Promissory Note and Entrance Counseling. Parents may apply for a Federal Direct PLUS Loan by completing a PLUS application, a FAFSA and a Master Promissory Note. By filing the FAFSA, some students may also qualify for Federal (Title IV), State and/or Institutional Grants.
Here are some reasons you should consider Federal Loans before applying for an Alternative Loan:
- Federal student loans have fixed interest rates for the life of the loan. Rates don’t change based on volatile market conditions as they do for most alternative loans. You may think you have a good deal on your alternative loan now, but what would happen if the Prime or LIBOR rate on which the alternative loan is based increases significantly? Note that some alternative loans do offer fixed rate loans (though typically at higher rates).
- Federal Direct Stafford and Perkins loans are not based on your credit. You don’t have to be credit worthy or have any established credit to qualify for federal student loans.
- Federal Direct Subsidized Stafford and Perkins loans are both deferred while you are in school. No payments are due for six months after you leave school in the case of Stafford loans, and nine months after you leave school in the case of Perkins loans. Also, if you qualify for Federal Direct Subsidized Stafford Loans or Perkins Loans, the government will pay the interest that accrues while you are in school and during subsequent periods of deferment. This is not the case with alternative loans.
- After you graduate, federal loans have more flexible repayment options than alternative loans. Most alternative loans don’t offer more than one year of forbearance (temporary suspension of payments at the discretion of the lender). Federal loans offer a variety of deferment options ( temporary suspension of payments if you meet certain requirements, such as unemployment or economic hardship), and up to five years forbearance if you are having trouble making payments.
- In certain circumstances, your Federal Direct Stafford or Perkins Loan may be discharged (cancelled). This is not the case with most alternative loans, though some do offer cancellation in the event of the borrower’s death.
- By filing the FAFSA (http://fafsa.ed.gov/), you may qualify for other aid in addition to federal loans. You won’t know unless you file!
- The Federal Direct PLUS Loan for parents can be easier to obtain than an alternative loan. While a credit check is required, the US Department of Education does not consider your credit score. Rather they are looking for the absence of adverse credit such as bankruptcy, foreclosure, or default. If you qualify, you will receive the same interest rate as all parent borrowers. If you don’t qualify, your dependent student will probably be eligible for an additional Direct Unsubsidized Stafford Loan.
If you plan to borrow a Direct Stafford Loan at Trinity you can complete your Federal Stafford Direct Loan MPN now. www.studentloans.gov
Visit out Parent Plus Loans page for information on how to apply.
If you are a former Trinity College student inquiring about student loan repayment, please visit our former students page.